To The Moon

$ServiceNow(NOW)$ is scheduled to release its fiscal Q2 2025 financial results after the close of market on Wednesday, July 23, 2025. Analysts generally expect continued strong performance from ServiceNow, driven by its robust subscription model and increasing traction in AI.

In this article, given that the earnings are imminent, I will be sharing the analysis of what investors should watch for and potential short-term trading opportunities.

Revenue Estimates: The Zacks Consensus Estimate for Q2 2025 total revenues is around $3.12 billion, representing an increase of approximately 18.8% year-over-year.

Earnings Per Share (EPS) Estimates: The consensus EPS estimate is around $3.54 per share, which would be a 13.1% increase from the prior-year quarter. It's worth noting that ServiceNow has a strong track record of beating EPS estimates, with an average surprise of 6.61% over the last four quarters.

ServiceNow Fiscal Q1 2025 Earnings Summary

ServiceNow kicked off fiscal year 2025 with strong results, showcasing continued momentum in its subscription-based business and significant traction in its AI offerings.

Total Revenue: $3.09 billion, representing an 18.5% year-over-year (YoY) growth (19.5% in constant currency). This slightly exceeded analyst expectations.

Subscription Revenue: A key metric for ServiceNow, subscription revenue reached $3.005 billion, up 19% YoY (20% in constant currency). This highlights the recurring nature and strength of their core business.

Adjusted EPS: $4.04, comfortably beating the consensus estimate of $3.83, and a substantial increase from $3.41 in Q1 2024.

Current Remaining Performance Obligations (cRPO): This metric, representing future subscription and services revenue to be recognized in the next 12 months, grew by 22% (22% in constant currency) to $10.31 billion. This metric exceeded the company's own guidance, indicating strong customer commitment.

Remaining Performance Obligations (RPO): Total RPO stood at $22.1 billion, up 25% YoY (25.5% in constant currency).

Customer Growth: ServiceNow continued to expand its large customer base, with 508 customers having an Annual Contract Value (ACV) exceeding $5 million, a 20% increase YoY. They closed 72 transactions over $1 million in net new ACV during the quarter.

Profitability: Non-GAAP operating margin reached 31%, exceeding guidance, and non-GAAP free cash flow margin was a robust 48%.

AI Traction: The company reported strong performance from its "Now Assist" AI product deals and introduced "RaptorDB" tailored for AI applications, underscoring the success of its AI integration strategy.

Strategic Moves: ServiceNow announced plans to acquire Moveworks and Logik.ai, further enhancing its CRM and AI capabilities.

Lessons Learned from Guidance

ServiceNow's guidance, while generally positive, offers several key insights for investors:

AI is a Potent Growth Driver: The significant outperformance in cRPO and strong uptake of "Now Assist" indicate that ServiceNow's substantial investments in AI are paying off. The company is successfully leveraging AI to drive new deal activity and expand existing customer relationships.

Robust and Reliable Subscription Model: The consistent growth in subscription revenue and the high current remaining performance obligations (cRPO) demonstrate the resilience and predictability of ServiceNow's business model. This recurring revenue stream provides a solid foundation for future growth, even in a dynamic market.

Cautious but Upward Revisions: While the company beat Q1 expectations, its full-year subscription revenue guidance was only slightly raised to a range of $12.64 billion to $12.68 billion. This reflects a disciplined approach to forecasting, acknowledging potential macroeconomic uncertainties while still reflecting confidence in continued growth. It suggests that while the momentum is strong, the company isn't getting ahead of itself.

Efficiency and Profitability Focus: The higher-than-guided operating and free cash flow margins highlight ServiceNow's ability to drive operational efficiencies. This focus on profitability alongside growth is a positive signal for investors. The company is effectively leveraging AI internally to optimize its own operations, contributing to these margin improvements.

Strategic Acquisitions are Key to Expansion: The announced acquisitions of Moveworks and Logik.ai reinforce ServiceNow's strategy to expand its platform capabilities and market reach, particularly in the AI and CRM spaces. This indicates a proactive approach to staying competitive and broadening its offering.

Global Economic Factors Remain on the Radar: Despite a strong quarter, management's commentary acknowledges the "dynamic market" and the influence of factors like the weakening U.S. dollar, which provided a currency tailwind. This suggests that while strong, ServiceNow is not immune to global economic conditions and will continue to monitor them.

ServiceNow's Q1 2025 earnings reinforce its position as a leading "AI platform for business transformation," with strong execution and a clear strategic direction, particularly in leveraging AI to drive customer value and financial performance.

Analysis of ServiceNow's Upcoming Fiscal Q2 2025 Earnings

Subscription Revenue Estimates: Analysts forecast Q2 2025 subscription revenues to be approximately $3.03 billion, indicating about 20% year-over-year growth. This is a crucial metric as it represents the core, recurring revenue.

Key Growth Drivers:

AI Adoption: Following strong Q1 performance of "Now Assist" and other AI offerings, investors will be keen to see continued acceleration in AI-driven deals and the impact on their "Generative AI book of business."

Enterprise Workflow Automation: Demand for digital transformation solutions remains high, and ServiceNow's platform is well-positioned to benefit from enterprises streamlining operations across various departments (IT, HR, customer service, etc.).

Large Customer Deals: The number of customers with over $1 million and especially over $5 million in Annual Contract Value (ACV) will indicate strong enterprise adoption and expansion.

Potential Headwinds/Watch Outs:

Macroeconomic Environment: While demand for digital transformation remains, a worsening macroeconomic environment or increased trade uncertainty could impact client spending on new projects or expansions, particularly in some discretionary areas.

Federal Business: There have been some mentions of potential impacts from "DOGE-related issues" in the U.S. public sector, which could affect federal revenue growth.

Competition and Valuation: ServiceNow trades at a premium valuation (e.g., forward 12-month P/S of 13.92x vs. sector average of 6.69x), making it more susceptible to negative reactions if growth rates disappoint.

Key Metrics Investors Should Watch:

Subscription Revenue Growth (and constant currency growth): This is the most critical metric as it underpins ServiceNow's business model. Investors will look for sustained strong double-digit growth.

Current Remaining Performance Obligations (cRPO): This represents contracted, unbilled revenue expected to be recognized over the next 12 months. Strong cRPO growth indicates future revenue visibility and customer commitment. Q1 cRPO exceeded guidance, so exceeding it again would be a very positive sign.

Net New Annual Contract Value (ACV) and Large Deal Volume: The number of new deals, especially those over $1 million or $5 million in ACV, reflects the company's ability to land new logos and expand within existing large customers.

Profitability Metrics (Non-GAAP Operating Margin & Free Cash Flow Margin): Investors will watch if ServiceNow can continue to expand its margins, especially as it invests heavily in AI. Strong free cash flow generation is crucial for shareholder returns (dividends, buybacks, M&A).

AI Product Adoption and Contribution: Look for management commentary on the specific financial contribution of AI products like "Now Assist" and how new AI features or partnerships are resonating with customers. Any updates on the Generative AI "book of business" will also be key.

Guidance for Q3 and Full Year 2025: This is often the biggest driver of post-earnings stock movement. Any upward revision to full-year subscription revenue or free cash flow guidance would be very positive. Conversely, a conservative outlook could dampen enthusiasm.

Opportunity for Trading Short-Term Post-Earnings?

Trading NOW short-term post-earnings carries both opportunities and risks, given its history and current market sentiment:

Historical Volatility and Surprises: ServiceNow has a history of beating earnings estimates, and its stock has reacted significantly to earnings reports (e.g., Q1 2025 saw a jump after results). This suggests potential for notable price movement.

High Expectations: The market has high expectations for NOW, especially given its premium valuation and strong performance in AI. If the results merely meet expectations without providing a significant upside surprise or strong upward guidance, the stock might not react positively, or could even see a "sell the news" reaction.

AI Narrative is Key: Much of NOW's recent valuation and positive sentiment are tied to its AI narrative. Any strong confirmation of accelerated AI adoption and revenue contribution could lead to a positive pop. Conversely, if AI growth slows or seems less impactful than hoped, it could lead to disappointment.

Technical Setup: Reports indicate NOW shares have lagged the sector YTD (down 9.2% YTD as of July 21st, 2025) and are trading below their 50-day and 200-day moving averages.

This could imply that some negative sentiment is already priced in, or it could signal continued weakness. A strong beat could trigger a reversal, while a miss could accelerate declines.

I would see NOW is experiencing a consolidation which could give a break out if we saw a strong beat from the earnings result.

Analyst Sentiment: Analysts are generally bullish on NOW, with a majority having "Buy" ratings and high price targets. However, the downward revision of the consensus EPS estimate by 0.4% in the last 30 days is a minor cautionary flag, indicating some analysts are slightly de-risking their estimates.

Options Activity: While specific Q2 options activity data is not fully detailed here, it is wise to check implied volatility from options contracts. High implied volatility indicates that the market expects a large move, which can create opportunities for options traders but also highlights higher risk.

ServiceNow (NOW) Price Target

Based on 40 analysts from Tiger Brokers offering 12 month price targets for ServiceNow in the last 3 months. The average price target is $1,096.71 with a high forecast of $1,300.00 and a low forecast of $724.00. The average price target represents a 14.25% change from the last price of $959.91.

Short-Term Trading Strategy Considerations:

Wait for the Full Picture: Given the high expectations and sensitivity to guidance, it's often prudent for short-term traders to wait for the earnings call and full details of the report (including the Q3 and full-year outlooks) before making a move.

Focus on Guidance: Pay close attention to management's commentary on the demand environment, AI pipeline, and any changes to the full-year outlook. A significant beat on cRPO and an upward revision to guidance would be strong bullish signals.

AI Metrics: Look for specifics on the growth of AI-related revenue and the number of customers adopting AI features. Strong metrics here could justify a positive move.

Risk Management: As with any earnings trade, leverage is amplified. Define your risk tolerance and set stop-loss orders if you decide to trade the volatility.

Summary

ServiceNow's Q2 earnings will be a test of its ability to convert its strong AI narrative into tangible financial results and maintain its growth trajectory in a competitive market.

The immediate post-earnings move will likely hinge on the strength of its subscription growth, AI adoption metrics, and forward-looking guidance.

Appreciate if you could share your thoughts in the comment section whether you think NOW could provide a breakout if the earnings beat and the management provide a strong guidance.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.