ServiceNow Q2 2025 Earnings Summary: AI Adoption Fuels Strong Performance
AI Expansion Drives Strong Q2 Performance and Upbeat Outlook
ServiceNow delivered another strong quarter in Q2 2025, exceeding expectations across revenue, subscription growth, and profitability. Total revenue reached $3.22 billion, with subscription revenue rising 21.5% year-over-year to $3.11 billion, surpassing consensus estimates by 2.6%. Current remaining performance obligations (cRPO) also beat expectations, increasing 21.5% YoY in constant currency. The company posted a strong operating margin of 29.5%, well above the 27.2% consensus, and expanded its free cash flow margin to 16.5%. Management raised full-year subscription revenue guidance to a range of $12.775–$12.795 billion.
Key Financial Highlights
Revenue: $3.22 billion, up 16% YoY
Subscription Revenue: $3.11 billion, up 21.5% YoY
Operating Margin: 29.5%, up from 27.2% consensus
Free Cash Flow Margin: 16.5%
Current Remaining Performance Obligations (cRPO): +21.5% YoY
Cash and Investments: $10.8 billion at the end of Q2
AI Adoption Driving Growth
AI remains a significant growth catalyst for ServiceNow. The Now Assist suite continued to outperform expectations, with AI-related annual contract value (ACV) deal volume and size growing significantly quarter-over-quarter. ServiceNow’s AI “Plus” products, including ITSM Plus and CSM Plus, saw their deal sizes quadruple YoY. Notably, the company closed 21 deals that included five or more Now Assist products, reflecting the increasing demand for its AI-driven enterprise solutions. ServiceNow’s AI Control Tower, Agent Fabric, and Agent Studio platforms are helping to solidify its position as a core player in the enterprise AI stack, integrating large language models (LLMs), data, and workflow orchestration.
Broad-Based Momentum Across Industries
ServiceNow’s growth was widespread across industries and product lines. Transportation & Logistics saw net new ACV growth of over 100% YoY, while Technology, Media & Telecom (TMT), Retail & Hospitality, and Energy each experienced over 50% YoY growth. The company’s push into customer relationship management (CRM), supported by the Logik.ai acquisition, showed strong early traction, with significant deals from Standard Chartered, Exxon, Starbucks, and the State of California. Renewal rates remained impressively high at 98%, and the number of customers generating $20M+ in ACV grew by more than 30% YoY.
Profitability & Capital Returns
ServiceNow’s internal AI-driven efficiencies helped expand operating margins, with the company repurchasing 381,000 shares during the quarter. Despite slightly lower-than-expected gross margins and a more modest-than-anticipated raise in FY subscription revenue guidance, sentiment remains strongly positive. The company ended the quarter with $10.8 billion in cash and investments, maintaining full-year guidance for a 30.5% operating margin and a 32% free cash flow margin.
Guidance for Full-Year 2025
Subscription Revenue: $12.775–$12.795 billion
Operating Margin: 30.5%
Free Cash Flow Margin: 32%
Here’s Our Take
ServiceNow’s Q2 2025 results underscore the company’s impressive execution, with strong growth across revenue, margins, and AI-driven product adoption. The company’s broad-based momentum, particularly in AI with products like Now Assist, combined with strong vertical integration, positions it to maintain its leadership in enterprise software. Despite slight deceleration indicated by Q3 cRPO guidance, the fundamentals remain solid, especially with the company’s continued expansion across key industries and high renewal rates. AI remains a critical growth lever, and ServiceNow’s ability to integrate AI into its platform is a key differentiator in the market.
While the current valuation remains elevated, the company’s strategic positioning in the growing enterprise AI space, coupled with its strong financial health, reinforces our confidence in its long-term prospects. We remain optimistic about ServiceNow’s ability to deliver sustainable growth, and its innovations in AI and enterprise software make it a compelling choice for growth-focused portfolios.
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