ServiceNow Q3 mixed, but strong Control Tower demand

ServiceNow's third quarter was mixed, but the company indicated that AI Control Tower demand is strong.

The company reported third quarter earnings of $277 million, or 27 cents a share, on revenue of $4.1 billion, up 20.5% from a year ago. Non-GAAP earnings were $1 a share.

Wall Street was looking for third quarter earnings of $1.02 a share on revenue of $4.09 billion.

CEO Bill McDermott said the quarter represented "the inflection point" for the company as the Super Intelligence Control Tower, formerly known as the AI Control Tower. "Our customers have validated our strategic relevance as the single harness for enterprise intelligence and security," said McDermott.

ServiceNow had 19 transactions of more than $5 million in net new annual contract value. The company said it had 680 customers with more than $5 million in ACV.

President and CFO Gina Mastantuono said the customers are increasing their consumption of AI agents.

As for the outlook, ServiceNow projected subscription revenue of $4.24 billion to $4.25 billion, up about 23%.

Separately, ServiceNow announced a series of partnerships and deals. Here's the rundown.

• ServiceNow expanded a partnership with OpenAI that includes a plug-in for ChatGPT with Action Fabric integration. ServiceNow and OpenAI plan to develop security and risk offerings powered by OpenAI models, a Codex integration with AI Workflow Factory as well as a risk assessment in Control Tower.
• The company won a deal with HPE to transform customer support and field service.
• Stagwell chose ServiceNow AI Platform to consolidate four service desks into one platform.
• ServiceNow also announced the Control Tower Alliance, an ecosystem designed for cloud infrastructure, security and governance. Founding members include Anthropic, AWS, Cisco, Nvidia, OpenAI and Okta to name a few.

McDermott said on the earnings call:

• "We hosted our biannual CEO event with more than 125 CEOs a few weeks ago. Here's what I heard. All of them are investing in the intelligence revolution. They've spent billions on it so far. They all went through the token maxing phase. Here's the big lesson they all learned. All of the vibe slop flops, sprawl and lack of integration are even greater risks in the AI world."
• "We're not compute constrained. We don't have capital constraints. We're activating a hybrid business model. As you'll hear in the raised full year guidance, we're a company going from the rule of 56 to the rule of 57 on our way to the rule of 60. That, of course, is free cash flow plus revenue growth. We have six businesses that have now surpassed more than $1 billion run rate with a TAM that continues to multiply and expand."
• "One of the big reasons why customers sometimes have a more difficult time changing from one CRM system to another is they have a long implementation cycle, and nobody wants to have a long implementation cycle, especially when it relates to taking care of their customers. And so now we're able to accelerate the deployment times for CRM to -- instead of talking years, we're talking a month. We're talking like days, 30 days, 60 days for a serious company of serious scale."