Review|NOW 26Q3: Below Expectations, Deployment Needs Complicate the Outlook

Executive summary

NOW’s results fell short of expectations despite healthy channel checks. Q3 cRPO grew 21% cc, beating guidance by 100bps versus an expected beat of 150–200bps. The Q4 cRPO guide of 18.5% implies approximately 19.25% growth after adding back the quantified on-prem and T4C effects, below the ~20% bogey. Operating margin guidance of 32% was also 150bps below consensus of 33.5%. We underestimated the deployment support needed to put AI orders into production and its impact on subscription revenue and delivery costs. Despite healthy demand signals from channels, implied organic growth also fell short of expectations and points to further deceleration. Momentum in AICT and security continues to support our medium-term view. However, monetization may take longer and require more upfront investment than anticipated.

A smaller beat than expected, with several factors affecting the outlook

Q3 delivered a smaller beat than expected

• cRPO: Up 21% cc, versus 20% guidance and a bogey of 21.5–22%. The 100bps beat was roughly half early renewals and half underlying performance, leaving a 50–100bps shortfall against expectations.
• Subscription revenue: Up 20.5% cc, versus 20% guidance. Adding back the approximately 25bps deployment-related drag implies ~20.75% growth, still below Q2’s 23%. This was a modest beat; healthy demand translated into less subscription upside than we expected.