ServiceNow's Earnings Paradox: Great Numbers, Worried Investors

$3.57 billion in revenue. 92 cents per share in earnings. Both numbers beat Wall Street's expectations for ServiceNow's fourth quarter. So why did shares tumble more than 6% after the bell?

The answer lies not in what the company achieved, but in how it's choosing to grow.

The Numbers Tell a Growth Story

ServiceNow's Q4 performance was undeniably strong. Revenue jumped 20.5% year-over-year, while subscription revenues—the company's bread and butter—grew 21% to $3.47 billion, beating the StreetAccount estimate of $3.42 billion.

The forward-looking metrics were equally impressive. The company guided for subscription revenues between $15.53 billion and $15.57 billion for fiscal 2026, above expectations. Current remaining performance obligations, which represent contracted future revenue, surged 25% to $12.85 billion.

"Hopefully these results continue to demonstrate the fact that the strength of our business really is unwavering," CFO Gina Mastantuono told CNBC. The board sweetened the deal with an additional $5 billion share buyback authorization.

By traditional metrics, this was a solid quarter from a company positioning itself as the "AI control tower" for enterprises.

The Acquisition Anxiety

But investors weren't celebrating the numbers—they were questioning the strategy behind them.

ServiceNow has been on an unprecedented spending spree, shelling out billions to acquire AI and security capabilities. The shopping list includes cybersecurity startup Armis for $7.75 billion, identity platform Veza, and the nearly $3 billionMoveworks deal that just closed.

This buying binge has sparked a fundamental question: Is ServiceNow acquiring to accelerate growth, or to mask slowing organic expansion?

The concern isn't unfounded. Across the software sector, companies are grappling with AI's disruptive potential. Traditional enterprise software providers face pressure as AI-native startups promise to automate away their products' core functions.

Mastantuono pushed back against the growth concerns, telling CNBC that "our acquisitions are 100% not a pivot away from organic growth. They represent an acceleration of it." She emphasized that the company is acquiring "key capabilities that unlock value."

The Build vs. Buy Dilemma

The market's reaction reflects a deeper tension in today's tech landscape. Should established players build AI capabilities organically or buy their way into the future?

ServiceNow's approach represents a bet on the "buy" strategy. The company has struck partnerships with both Anthropic and OpenAI, integrating their AI models while acquiring complementary technologies. It's essentially assembling an AI ecosystem rather than building one from scratch.

This strategy carries risks. Integration challenges, cultural clashes, and the potential for overpaying in a hot M&A market all loom large. More fundamentally, investors worry whether acquired growth is as durable as organic expansion.

Yet there's logic to ServiceNow's approach. In a fast-moving AI landscape, speed often trumps efficiency. The company may be trading short-term investor confidence for long-term competitive positioning.

What This Means for Enterprise Software

The ServiceNow paradox—strong results, weak stock reaction—signals a broader shift in how investors evaluate enterprise software companies.

Traditional metrics like revenue growth and subscription renewal rates remain important, but they're no longer sufficient. Investors now scrutinize AI strategies, asking whether companies are genuinely transforming their offerings or simply adding AI features as marketing veneer.

For ServiceNow's competitors, the message is clear: organic AI development may be slower, but it might earn more investor trust. Companies like Microsoft and Salesforce have taken more measured approaches, integrating AI capabilities gradually while maintaining focus on core products.