ServiceNow Shares Plunge 17% Despite Revenue Beat and Raised Guidance

ServiceNow (NYSE: NOW) saw its shares drop nearly 17% following its first-quarter earnings report, despite beating the high end of its guidance and raising its full-year subscription revenue outlook. The sell-off highlights investor anxiety over AI-driven disruption of software pricing and the financial impact of recent acquisitions, even as the company demonstrates strong organic momentum. Financial results for the quarter were robust, with subscription revenue rising 22% year-over-year to $3.67 billion and total revenue climbing 22% to $3.77 billion. Current remaining performance obligations (cRPO) grew 22.5% to $12.64 billion. CEO Bill McDermott noted that the company is successfully adapting to the AI era, with 50% of net new business now stemming from non-seat-based pricing models, including tokens and infrastructure assets. However, several headwinds weighed on investor sentiment. The company reported a 75-basis-point headwind to Q1 subscription revenue growth due to delayed on-premise deals in the Middle East. More critically, the acquisition of cybersecurity firm Armis is expected to pressure profitability, creating a 75-basis-point drag on operating margins and a 200-basis-point headwind to free cash flow margins. While management raised full-year subscription revenue guidance to a range of $15.735 billion to $15.775 billion, the market reacted to a projected slowdown in Q2 cRPO growth, which is expected to be 19.5% on a constant-currency basis compared to Q1's 21%. With the stock still trading at a price-to-earnings ratio of approximately 50, investors appear wary of the premium valuation amid broader sector volatility.