Bill McDermott, CEO of ServiceNow, is striving to reshape investors’ perceptions of his enterprise software company, urging them to see it as more than just a typical Software-as-a-Service (SaaS) business. Despite facing skepticism from the financial community—particularly due to the company’s stock trading at a price-to-earnings ratio far above competitors like Salesforce—ServiceNow delivered strong fourth-quarter earnings results that exceeded Wall Street expectations for the ninth consecutive quarter.
For the quarter ending December 31, ServiceNow reported subscription revenue of $3.47 billion, marking a year-over-year increase of 21%. In addition, non-GAAP earnings per share reached $0.92, surpassing consensus estimates. The company also raised its guidance for full-year 2026 subscription revenue to between $15.53 billion and $15.57 billion, anticipating growth of 20% to 21%, which is notably above previous analyst forecasts.
Crucially, McDermott highlighted that ServiceNow’s artificial intelligence product suite, Now Assist, has seen its net new annual contract value more than double in the fourth quarter compared to the previous year. However, despite these strong results, shares fell 4% in after-hours trading, hinting at ongoing investor hesitance.
In a recent interview, McDermott emphasized that ServiceNow distinguishes itself from traditional SaaS companies by positioning itself as a central hub for data and software tools necessary for AI-driven automation. He stated, “We don’t live in the SaaS neighborhood,” referring to ServiceNow’s development into a platform that supports broader operational functionalities, unlike typical SaaS offerings which focus on narrow tasks.
To fortify this vision, ServiceNow has been active in acquisitions, aiming to enhance its AI and cybersecurity capabilities. Notably, the company announced the acquisition of cybersecurity firm Armis for $7.75 billion and identity security firm Veza, in addition to its $2.85 billion acquisition of AI-powered employee experience platform Moveworks, which is anticipated to bolster its growth.
McDermott argued that recent quarterly results demonstrate that ServiceNow is capable of organic growth exceeding 20% year-over-year, countering speculation that the company is merely buying revenue growth through acquisitions. He also pointed to the company’s performance metrics, including the “Rule of 55-plus,” where ServiceNow’s growth and free cash flow margin greatly surpass the typical SaaS benchmark of 40%.
Acknowledging the divergence between ServiceNow’s robust performance and its stock market valuation, McDermott believes that the company deserves a unique position in the market, separate from peers like Adobe and Workday. In line with its growth strategy, ServiceNow also expanded its partnership with AI firm Anthropic to integrate advanced AI models into its enterprise applications, positioning itself for future innovations.
Overall, McDermott’s steadfast approach could pave the way for a more nuanced understanding of ServiceNow’s evolving role in the software industry, ultimately benefiting its long-term trajectory. As the enterprise landscape continues to shift toward automation and AI, ServiceNow’s innovations and strategic positioning may very well set it apart from traditional SaaS models.