ServiceNow just can't seem to escape the SaaSpocalypse — even after strong Q3 AI growth

I read um some work that one of our analysts did on ServiceNow this morning. And um as I said earlier, this is the damned if you do and damned if you don't market. So this is a company that raised free cash flow, um but disappointed modestly on RPOs. Uh and so I I know I I I personally love Bill McDermott. I think he's an interesting. Oh, well good Michael, I want your take because especially if you disagree. But Julia, you had an interview

I did.

and uh this morning and maybe you could tell us a little bit about what you learned in that interview.

Yeah, so I talked to the CFO, Gina Mastrantonio, um and she, um, you know, she talked, she from her perspective and I'm sure from Bill's perspective as well, they're doing great right now. So why don't I play for you what she had to say and then we we can talk about it a little bit.

Yeah.

Well, obviously, we're disappointed in the reaction because it was actually a super strong quarter. And against the backdrop of growing investor scrutiny, we're able to deliver AI value to our customers without the big capex investment. So we saw AI net new business growing 65% year-over-year, exceeding our expectations, which allowed us to raise our full year target again to 1.7 billion.

So, 1.7 billion, but it's still a pretty small percentage of their overall revenue, I should say. And to your point, Nancy, the the concern seems to be around those um remaining performance obligations because they're the company is itself is forecasting they will slow in the fourth quarter. Now, Gina gave a bunch of reasons for that, but I the market's not convinced. And I think as well, there remains just like there is for something like Alphabet, but even more sort of urgently, that existential question, right? We had the SAAS-pocalypse. Something like Salesforce has managed to convince the market that they are okay. ServiceNow hasn't quite done that yet, right? And Gina also talked about how they already do a sort of blended pricing that and that uh accounts for both seats and usage. So in other words, if there are lower seats, if there were fewer people working at a company because of AI, but they're still using AI, you know, through ServiceNow and using their services, whether it's AI or not, that they'll still benefit. But again, the market is not convinced

Yep.

that that is the case. And the stock isn't, it's down 25% today, but it is had a bad year, and this is the fourth straight quarter where the company's reported and the stock has gone down.

Wow.

And and the third and the third or second a year in a row where it's dramatically underperformed. Now, it is up 60% from the last earnings call, but you're 100% right. I think it's the new Oracle, which is not a good thing.