ServiceNow’s Q4 2024 Financial Results: A Mixed Bag of Growth and Market Uncertainty

ServiceNow closed out Q4 2024 with earnings that exceeded expectations but still fell 11% in its stock price. While revenue growth remained strong at 21% year-over-year, concerns about future subscription revenue, currency exchange headwinds, and AI monetization strategies weighed on investor sentiment.

ServiceNow’s Q4 2024 Performance: By the Numbers

• Revenue: $2.957 billion (21% YoY growth, in line with estimates)

• Subscription Revenue: $2.87 billion (21% YoY growth, slightly missing estimates of $2.88 billion)

• Current Remaining Performance Obligations (cRPO): $10.27 billion (19% YoY growth, missing expectations of $10.43 billion)

• Operating Margin: 29.5% (above expectations)

• EPS: $3.72 per share (beating estimates of $3.64)

• Stock Performance: ServiceNow’s stock dropped 11.4% after the earnings announcement

ServiceNow delivered another strong quarter, but its 2025 revenue guidance of 19.5% to 20% came in slightly below some investor expectations. This guidance reflects a strategic shift toward AI-driven monetization and federal sector growth, which may take time to materialize fully but strengthens ServiceNow’s long-term trajectory.

Key Factors Behind ServiceNow’s Stock Drop

Subscription Revenue Guidance Concerns

While 21% revenue growth in Q4 was solid, the company’s 2025 guidance suggested a slowdown in subscription revenue growth to 19.5%-20%. Wall Street had anticipated 20.8%, meaning that even a small deviation sparked concerns about whether ServiceNow’s meteoric rise in the enterprise SaaS market is cooling.

AI Monetization Strategy Shift

ServiceNow is shifting from traditional subscription-based pricing to a consumption-based model for its AI-driven solutions, particularly Agentic AI. While this change may drive higher long-term revenue, it introduces short-term uncertainty—customers may take time to adopt the new model, impacting upfront revenue recognition.

CEO Bill McDermott emphasized that ServiceNow prioritizes AI adoption over immediate revenue gains, opting to include AI features in existing subscriptions instead of charging separately. While this strategy fosters rapid adoption, ServiceNow prioritizes broad AI adoption over immediate revenue gains, setting the stage for sustained, long-term value creation. While competitors take different approaches, ServiceNow’s strategy ensures AI adoption is deeply embedded in customer workflows, driving higher engagement over time.

Foreign Exchange (FX) Headwinds

A strong U.S. dollar created a $175 million hit to 2025 subscription revenue forecasts, further contributing to the weaker-than-expected guidance. While FX fluctuations are outside ServiceNow’s control, they add to investor unease.

Back-End Weighted Federal Business

ServiceNow’s government contracts are expected to ramp up later in the year, leading to a seasonal revenue pattern. This means early 2025 growth may appear weaker than in past years, adding to concerns about revenue momentum.

The Bigger Picture: ServiceNow’s AI-Driven Future

Despite the market reaction, ServiceNow remains one of the strongest enterprise SaaS companies, with ambitious AI-led innovation driving long-term growth. Some key developments:

1. “AI Agent Orchestrator” and AI Expansion

ServiceNow introduced its AI Agent Orchestrator, designed to manage AI-powered workflows across enterprises. This is part of its broader agentic AI strategy, positioning ServiceNow as a leader in AI-powered automation for IT, HR, and customer service workflows.

2. Expansion into CRM: A Challenge to Salesforce?

ServiceNow is increasingly competing in the CRM space, an area dominated by Salesforce. The company is marketing its AI-powered customer engagement solutions as a superior alternative to traditional CRM platforms.

3. Strong Customer Growth & Enterprise Adoption

• ServiceNow now has 2,109 customers with annual contract values (ACV) exceeding $1 million, a 12% YoY increase.

• Nearly 500 customers now have ACVs over $5 million (21% YoY growth).

• The company landed its largest new logo deal ever in Q4, reinforcing strong enterprise demand.

Investor Takeaways

Why ServiceNow’s Future Looks Bright

• AI-Led Growth: ServiceNow is one of the best-positioned enterprise software companies to benefit from AI adoption with its AI Agent Orchestrator and workflow automation.

• Continued Market Share Gains: The company continues expanding beyond IT service management (ITSM) into HR, customer service, and CRM.

• Long-Term AI Monetization Potential: While the shift to consumption-based AI pricing raises short-term concerns, it could drive higher adoption and long-term revenue growth.

Final Thoughts

ServiceNow’s Q4 2024 results highlight a company at the forefront of AI-powered enterprise automation yet also facing near-term revenue uncertainty. While the long-term growth story remains strong, particularly with AI and CRM expansion, investors appear cautious about 2025 growth projections.

The big question for investors: Will ServiceNow’s AI investments pay off sooner rather than later? If the company can accelerate AI monetization while maintaining strong enterprise adoption, today’s stock drop could look like a buying opportunity in hindsight.