ServiceNow Q1 2025 Earnings Report: Momentum in AI and Enterprise Workflows Drives Another Beat-and-Raise Quarter
Strong Growth Across AI, Subscription Revenue, and Large Deals
ServiceNow kicked off 2025 with a strong performance, exceeding expectations across multiple financial metrics. The company’s continued leadership in AI and workflow automation played a central role in its growth, propelling ServiceNow to deliver impressive results in Q1 2025. Subscription revenue reached $3.01 billion, up 20% year-over-year in constant currency, surpassing the top end of guidance. The company's commitment to AI-driven efficiencies and strong enterprise demand has been a major factor in its success, helping it maintain robust momentum in a competitive enterprise software market.
Key Financial Highlights:
Q1 Subscription Revenue: $3.01 billion, up 20% YoY (constant currency)
Current Remaining Performance Obligations (cRPO) Growth: 22%, exceeding guidance by 150 basis points
Free Cash Flow Margin: 48%
Operating Margin: 31%, boosted by internal AI-driven efficiencies
Remaining Performance Obligations (RPO): $22.1 billion, growing 25.5% YoY
AI Adoption Fuels Growth in Large Deals
AI continues to be a central growth driver for ServiceNow, with strong adoption of its AI-powered products. The volume of Pro Plus deals quadrupled YoY, and over 15 of the top 20 deals included Now Assist products, a key part of ServiceNow’s AI-driven solutions. The company also saw a notable increase in average deal sizes, with net new ACV rising by one-third sequentially. The strong performance in AI was also supported by strategic acquisitions, including Moveworks and Logik.ai, which further expand ServiceNow’s total addressable market (TAM) and deepen AI automation across enterprise workflows.
Key Developments:
ServiceNow continues to lead in AI adoption with products like Now Assist, RaptorDB, and automation across workflows.
The company’s acquisition of Moveworks and Logik.ai expands its AI platform capabilities, enhancing its competitive position.
AI-driven deal volume continues to rise, with large customers adopting these solutions at a fast pace.
Industry Strength and Geographic Expansion
ServiceNow saw strong growth across various sectors, with notable strength in manufacturing, healthcare, and the public sector. Federal bookings exceeded expectations, contributing to public sector ACV growth of over 30%. Internationally, EMEA and Japan showed strong momentum, particularly in CRM and industry-specific workflows. While the tech sector experienced some weakness, ServiceNow’s strategic focus on broader industry workflows and AI applications continues to gain traction, expanding its customer base and long-term relevance.
Key Developments:
Federal bookings exceeded expectations, with a more conservative outlook for the remainder of the year due to potential shifts in government policies and procurement timelines.
Strength was seen in CRM and industry workflows, particularly in EMEA and Japan, highlighting the company's growing international footprint.
Strong Full-Year Guidance and Long-Term Growth Potential
Despite some geopolitical risks and tariff-related uncertainties, ServiceNow raised its full-year subscription revenue guidance slightly and reaffirmed strong profitability targets. The company expects operating margins of 30.5%, free cash flow margin of 32%, and continued large-deal growth in the coming quarters. ServiceNow remains well-positioned to capitalize on the growing demand for platform consolidation, workflow automation, and AI-driven efficiencies. These areas continue to offer strong growth potential and reinforce ServiceNow’s status as a leader in enterprise software.
Key Developments:
Full-year subscription revenue guidance raised slightly.
Reaffirmed strong profitability metrics: Operating margin of 30.5% and free cash flow margin of 32%.
Continued strong customer demand for platform consolidation and AI-driven workflow automation solutions.
Guidance for Full-Year 2025:
Subscription Revenue: Expected to grow in line with a strong pipeline and large-deal momentum.
Operating Margin: Expected to remain robust at 30.5%, supported by AI-driven efficiencies.
Free Cash Flow Margin: Targeting 32%, supported by strong operational execution.
Here’s Our Take
ServiceNow’s Q1 2025 results showcase strong execution, particularly in AI adoption and workflow automation, setting the company up for sustained long-term growth. Despite facing macroeconomic risks, including tariffs and shifting federal priorities, ServiceNow’s solid financial performance, robust customer adoption, and strategic positioning in AI and enterprise workflow automation reinforce its status as a top-tier player in the enterprise software space.
For long-term investors, ServiceNow offers a compelling growth story. The company’s deepening focus on AI, high customer retention (98%), and ability to scale enterprise-wide AI solutions make it an attractive addition to a growth-focused portfolio. The ongoing expansion of AI capabilities and strategic acquisitions to broaden its TAM position ServiceNow for continued leadership in the industry.
Short-term investors may encounter volatility, particularly due to macroeconomic headwinds. However, the company’s impressive deal volume, expanding AI monetization, and strong fundamentals provide a solid foundation for long-term value creation.
Look out for our deep dive on the stock, where we will further analyze its growth potential, risks, and long-term investment outlook.