ServiceNow Set to Report Q3 Earnings: Buy, Sell or Hold the Stock?

ServiceNow is poised to report its third-quarter 2025 earnings, with consensus estimates projecting $3.35 billion in revenue, a 19.8% year-over-year increase, and $4.21 EPS, up 13.2%, driven by strong subscription revenue growth and increasing adoption of its AI-powered workflows. The company benefits from strategic partnerships with tech giants like Microsoft and NVIDIA, and recent acquisitions such as Logik.ai and Moveworks, which bolster its CRM and AI offerings. However, ServiceNow faces macroeconomic headwinds, including trade uncertainty and slowing U.S. public sector growth, and its shares are considered to have a stretched valuation, trading at 12.79X forward price/sales compared to the sector's 7.05X, leading to a Zacks Rank #3 (Hold).

Analysis

ServiceNow (NOW) is poised for strong Q3 2025 performance, with Zacks Consensus Estimates projecting 19.8% year-over-year revenue growth to $3.35 billion and 13.2% EPS growth to $4.21. Subscription revenues are a primary driver, expected to grow 20-20.5% on a GAAP basis, surpassing the $3.03 billion consensus estimate. The company has consistently beaten earnings estimates, with an average surprise of 8.04% over the past four quarters.

Operational strength is evident in gaining workflow traction, with 40 deals over $1 million in Q2 2025 for technology workflows and a 30% year-over-year increase in customers generating over $20 million in ACV. ServiceNow's strategic focus on AI, including the Zurich platform and AI agents, is bolstered by key partnerships with Microsoft, Amazon, and NVIDIA. Recent acquisitions like Logik.ai and Moveworks further enhance its CRM and AI capabilities.

However, NOW faces macroeconomic headwinds, including higher tariffs and slowing U.S. public sector growth, which have contributed to a 12.2% year-to-date stock decline. Valuation remains a significant concern, with a forward 12-month price/sales ratio of 12.79x, substantially higher than the sector's 7.05x, leading to a Zacks Value Score of F and a current Zacks Rank #3 (Hold).

Key Decisions for Investors

• Investors should closely monitor ServiceNow's Q3 earnings report for confirmation of robust subscription revenue growth and the impact of its AI initiatives, given its history of earnings beats.
• Evaluate the company's valuation against its growth trajectory and sector peers, considering the current stretched P/S ratio and the influence of macroeconomic pressures.
• Assess the long-term strategic benefits of its extensive AI integrations and key partnerships, which are critical for sustaining competitive advantage and future revenue streams.