servicenow stock fell hard on Thursday morning after geopolitical instability in the Middle East delayed some subscription sales. The move came even though the enterprise software firm met first-quarter earnings expectations, and the selloff spread across the software sector in early trading on Thursday ET. Investors focused on the growth hit and a softer margin outlook, both of which overshadowed the quarter’s headline results.
Early trading turns sharply lower
servicenow stock dropped 17% in early trading on Thursday, marking a steep reaction to a quarter that otherwise showed solid topline performance. subscription revenue for the first three months of the year rose 22% to $3. 67 billion, but that pace would have been stronger without the effect of the Middle East conflict. ServiceNow said it saw an approximately 75 basis point headwind from delayed closings of several large on-premise deals in the region.
First-quarter adjusted earnings came in at $0. 97 per share, matching Wall Street expectations. Revenue reached $3. 77 billion, above forecasts of $3. 74 billion, while current remaining performance obligations rose to $12. 64 billion and total remaining performance obligations reached $27. 7 billion. Large deal activity also remained active, with 16 new transactions above $5 million in annual contract value and 630 customers above that threshold.
Margin pressure adds to the selloff
Even with those figures, the market reaction was negative because ServiceNow lowered its full-year adjusted operating margin target to 31. 5% from 32%. short-term pressure from integrating its $7. 75 billion acquisition of Armis would compress margins in the near term. That update gave investors another reason to sell servicenow stock on a day already shaped by sector-wide weakness.
ServiceNow is also one of several software names trading lower amid broader concern about disruption from artificial intelligence. The company has introduced AI-related initiatives and products across its offerings, but that has not been enough to ease selling pressure across the group. Year to date, the stock is down more than 30%.
Leadership points to AI momentum
“ServiceNow’s first quarter performance beat the high end of our guidance once again, ” chief executive Bill McDermott of ServiceNow said. “With this foundation, our AI growth is far exceeding even our own expectations, reinforcing our position as one of the fastest growing enterprise software companies ever. ” That message framed the company’s internal view of the quarter, even as investors reacted to the slower growth signal tied to the Middle East conflict and the margin update.
ServiceNow also projected second-quarter subscription revenue between $3. 815 billion and $3. 82 billion, above estimates of $3. 75 billion. The company raised its full-year target for AI-related annual recurring revenue to $1. 5 billion, signaling continued investment in that area. For now, though, servicenow stock remains under pressure as traders weigh the near-term impact of delayed deals against the company’s longer-term growth targets.
