(Bloomberg) -- ServiceNow Inc. reported strong third-quarter sales and bookings, but failed to clear the lofty expectations of investors looking for a bigger boost from artificial intelligence.
Subscription sales, which account for the bulk of ServiceNow’s revenue, increased 23% to $2.7 billion in the period, the company said Wednesday in a statement. Current remaining performance obligation, a measure of booked sales, increased 26% in the period ending Sept. 30. Both exceeded analysts’ estimates.
And yet, the shares slid in late trading before recovering somewhat. They were down about 1.3% as of 6 p.m. in New York.
“Looks like a case of high expectations,” said Anurag Rana, an analyst at Bloomberg Intelligence. The stock had increased 28% this year through Wednesday’s close. That’s more than twice the rally seen in the iShares Expanded Software ETF, which is often used as a sector benchmark.
The Santa Clara, California-based company makes applications that help companies organize and automate their personnel and information technology operations. Like its peers, ServiceNow is baking generative AI features into its products and offers a pricier tier with those tools.
The company’s main generative AI assistant product, Now Assist, is the fastest-growing in company history, Chief Executive Officer Bill McDermott said in an interview. The average contract premium for users of Now Assist is 30%, he added.
In recent weeks, ServiceNow and software peers like Salesforce Inc. and Microsoft Corp. have begun emphasizing AI “agents” that can complete tasks without user supervision. Some customers are already trying ServiceNow’s agents, which will be released more broadly next month, McDermott said. Once the agents are fully rolled out, they’ll be priced differently from other products, McDermott added.
For the current quarter ending in December, ServiceNow projected subscription revenue of about $2.88 billion, just ahead of analyst estimates. The company expects near-term bookings to rise 21.5%.
This bookings guidance was effectively “good, but not great,” Kirk Materne, an analyst at Evercore ISI, said in a note. He added that the company tends to issue conservative forecasts for the fourth quarter.
ServiceNow also announced the hiring of a leader from Alphabet Inc.’s Google Cloud for a prominent role. Amit Zavery will fill titles vacated earlier this year by CJ Desai as president, chief product officer and chief operating officer. Zavery will focus on product and engineering, McDermott said. His first-year compensation is targeted at about $2 million, with a $3 million signing bonus, according to a filing.
Desai left the company in July after a complaint about a government contract and the hiring of a former US Army technology leader. He has since been tapped for a high-level executive role at Cloudflare Inc.
Last month, Bloomberg reported that Carahsoft Technology Corp., a government-focused technology reseller, was under investigation alongside SAP SE for potentially conspiring to overcharge federal agencies.
Carahsoft is also a major partner of ServiceNow’s. “We’re currently not involved in any issues related to Carahsoft and the US federal business,” McDermott said when asked about the issue during a call with analysts Wednesday.
Profit, excluding some items, was $3.72 per share, ahead of analyst estimates. The company saw a spike in large deals worth more than $5 million in annual contract value, it said.
ServiceNow hired more than 1,200 workers in the quarter. The company now has 25,743 employees. Much of the hiring is of quota-bearing sales representatives, which shows “our confidence in the opportunity that we see in front of us,” said Chief Financial Officer Gina Mastantuono during the call.
(Updates share reaction in third paragraph.)
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