ServiceNow raises annual subscription revenue forecast again on AI-driven demand
By Jaspreet Singh
July 22 (Reuters) - ServiceNow on Wednesday raised its forecast for annual subscription revenue for the second time after beating second-quarter revenue and profit estimates, driven by growing demand for its AI-powered software.
Shares of ServiceNow rose nearly 4% in extended trading, easing investor concerns as software giants grapple with concerns of a "SaaSpocalypse" - a term reflecting the gloom around software-as-a-service companies amid growing capabilities of new AI tools from startups like OpenAI and Anthropic.
ServiceNow is expanding its AI agent portfolio across domains like IT and customer service, helping enterprise clients to automate complex, time-consuming workflows. The company stock has fallen about 38% so far this year.
Earlier this year, ServiceNow launched Otto, an AI experience designed to handle requests from employees and complete complex cross-department workflows. It also enhanced its capabilities by acquiring cybersecurity startup Armis and AI startup Moveworks.
CEO Bill McDermott said he has not seen any change to sales cycles from increased hardware and AI spending.
ServiceNow said its AI platform has seen widespread adoption across the public sector, with nearly all 50 U.S. states now using it to improve citizen services and modernize operations. The company crossed $1 billion in annual contract value for its AI offerings.
CFO Gina Mastantuono said outperformance in the second quarter came from federal clients, but this was partly due to on-premises revenue pulled forward from the third quarter.
The company now expects 2026 subscription revenue of $15.760 billion to $15.780 billion, up from its earlier projection of $15.735 billion to $15.775 billion.
Second-quarter subscription revenue of $3.88 billion and adjusted profit per share of 90 cents exceeded LSEG-compiled analysts' average estimates of $3.82 billion and 85 cents, respectively.
The company's forecast for third-quarter subscription revenue of $3.975 billion to $3.980 billion came in below the average estimate of about $4 billion.
ServiceNow's current remaining performance obligations, contract revenue expected to be recognized within the next 12 months, hit $13.20 billion as of June 30, a 21% increase from a year earlier.
(Reporting by Jaspreet Singh in Bengaluru; Editing by Shailesh Kuber)