Q4 2025 + FY25 Wrap: Veza + Armis Acquisitions, Microsoft Agent 365 Partnership, McDermott Extends to 2030 — Maintaining Outperform
Key Takeaways
- Q4 subscription revenue $3.466B (+21% reported / +19.5% CC) beat the high end of guidance by 150bp; CRPO +25% reported (+21% CC) beat guide by 200bp on both bases. Op margin 31% beat by 100bp. Q4 FCF margin 57% (+950bp YoY). 244 deals over $1M NNACV (nearly +40% YoY; 103 in Q3) including 7 over $10M. Net new ACV growth accelerated QoQ and YoY in Q4.
- FY25 wrap exceptional: subscription rev $12.88B (+21% reported / +20.5% CC); op margin 31% (+150bp YoY); FCF margin 35% (+350bp YoY; +100bp ahead of raised guide); FCF $4.6B (+34% YoY); 8,800+ customers (FY25 exit) with 603 over $5M ACV; Now Assist exceeded $600M ACV (toward $1B 2026 target). Workflows +33% YoY (60B → 80B); transactions +33% YoY (4.8T → 6.4T). Monthly active users +25% YoY.
- Veza + Armis acquisitions announced: a major AI security strategy. Armis (asset visibility / IoT / OT / medical devices; already protecting over 40% of the Fortune 100); Veza (identity governance / Access Graph for humans+machines+AI agents). Combined with ServiceNow CMDB + AI Control Tower = unified end-to-end security stack. Q4 largest OT quarter ever. Post-Armis: "we do not see any other large white spaces that are necessary to complete our platform vision for security."
- Microsoft Agent 365 + ServiceNow AI Control Tower deep integration announced, anchored by ServiceNow's AI control tower. Anthropic Claude deeper integration + OpenAI direct customer access. NTT DATA strategic AI delivery partner. ServiceNow positioning as the AI orchestration layer above hyperscalers + foundation models. McDermott extended CEO commitment through 2030+ — signaling multi-year compounder confidence.
- Rating: Maintaining Outperform. The stock fell 9.9% to $116.73 on January 29 (2.6x volume), below its prior 52-week closing low, on an organic FY26 guide below 20% CC and worry over three acquisitions in quick succession. The print + acquisitions + Microsoft partnership + CEO extension still reinforce the multi-quarter AI defining enterprise software thesis, and at ~21x FY26E FCF the stock already prices a slowdown. New $5B repurchase authorization + $2B ASR planned. PT range reset to Base $140 / Bull $162 / Bear $97, from a split-adjusted $230 / $260 / $170 at Q3.
Results vs. Consensus
| Metric | Q4 Actual | Consensus / Guide | Beat/Miss | Magnitude |
|---|---|---|---|---|
| Subscription Revenue | $3.466B (+21% / +19.5% CC) | $3.420B | Beat | +$46M / +1.3% |
| CRPO Growth (reported) | +25% | +23% (guide) | Beat | +200bp |
| CRPO Growth (CC) | +21% | +19% (guide) | Beat | +200bp |
| Non-GAAP Op Margin | 31% | 30% (guide) | Beat | +100bp |
Q4 Operating Metrics
| Metric | Q4 2025 | Context |
|---|---|---|
| RPO | $28.2B | +26.5% reported / +22.5% CC |
| Q4 FCF Margin | 57% | +950bp YoY |
| Deals >$1M NNACV | 244 | Nearly +40% YoY |
| Deals >$10M NNACV | 7 | Included in the 244 |
| Customers >$5M ACV | 603 | About +20% YoY |
| Renewal Rate | 98% | Q4 2025 |
FY25 Wrap
| Metric | FY25 Actual | Prior Guide | vs Guide |
|---|---|---|---|
| Subscription Revenue | $12.883B (+21%) | $12.84B (midpoint) | +$43M |
| Op Margin | 31% | 31% | In-line |
| FCF Margin | 35% | 34% | +100bp |
| Now Assist ACV | >$600M | >$500M (2025 goal) | Cleared |
QoQ View
| Metric | Q4 2025 | Q3 2025 | QoQ |
|---|---|---|---|
| Subscription Revenue | $3.466B | $3.299B | +5% |
| Deals >$1M NNACV | 244 | 103 | +141 (Q4 enterprise seasonality) |
| FCF Margin | 57% | 17.5% | +3950bp (Q4 collections) |
| Op Margin | 31% | 33.5% | -250bp (Q4 spending) |
Revenue Assessment
FY25 subscription growth +21% reported (+20.5% CC) at $12.88B scale is exceptional. Multi-quarter +20% growth at this scale is rare in enterprise software. Q4 subscription growth eased to 19.5% CC from Q3's 20.5%, but net new ACV accelerated both QoQ and YoY; new-logo NNACV in EMEA + Japan rose nearly 30% YoY, supporting geographic diversification. Workflow expansion: technology accelerated QoQ and YoY in Q4; CRM in 16 of top 20; security in 19 of top 20 with security NNACV up nearly 40% YoY; creator workflows in 19 of top 20. Now Assist exceeded $600M ACV; on track for $1B+ 2026.
Margin Assessment
FY25 op margin 31% (+150bp YoY) reflects multi-year operating leverage discipline. FY25 FCF margin 35% (+350bp YoY) is exceptional. Q4 FCF margin 57% reflects strong Q4 collections + lower CapEx + significant operating leverage. 2026 op margin guide 32% (+100bp YoY); FCF margin 36% (+100bp YoY; 350bp ahead of FAD target). The 2026 subscription gross margin guide of 82% (FY25: 83.5%; Q4: 82.5%) reflects incremental data center investments for public cloud + geo expansion + AI; management put the bulk of the headwind on the shift to lower-margin hyperscaler capacity.
FCF + Capital Return Assessment
FY25 FCF $4.6B (+34% YoY) is the cleanest single signal of multi-year compounding. Capital return: a new $5B authorization, plus a $2B ASR that management plans to launch imminently, citing the recent stock pullback. Q4 bought back about 3.6M shares (post-split adjusted) for $597M. The 5-for-1 stock split, effective December 17, 2025, was aimed at a broader investor base. McDermott extended his CEO commitment through 2030+, a signal of multi-year capital allocation confidence.
Segment / Workflow Performance
Technology Workflows — Accelerating Q4 NNACV
Technology workflows NNACV accelerated QoQ and YoY in Q4. ServiceOps in 16 of top 20 deals; ITOM NNACV up nearly 50% YoY; ITAM in 17 of top 20; security/risk in 19 of top 20 with NNACV up nearly 40% YoY. Core engine continues compounding.
CRM & Industry — 7-Figure Win + Legacy Displacement
CRM in 16 of top 20; CPQ phenomenal quarter, with Logik.ai customer count nearly 4x YoY in Q4. European telecom provider consolidated 7 internal systems on ServiceNow CRM, reducing costs 30% + cycle time 25%. High-tech manufacturer 7-figure deal: an end-to-end takeout of a legacy CRM competitor, with ServiceNow CPQ replacing manual spreadsheets and legacy tools.
Now Assist + AI Control Tower — $600M+ ACV
Now Assist Q4: 35 deals over $1M (vs 12 Q3); customers spending >$1M grew over 40%; deals with 5+ products +10x YoY. AI Control Tower deal volume nearly tripled QoQ. AI Control Tower exceeded initial 2025 targets by more than 4x.
Security/Risk — $1B+ ACV Growing
Security/risk in 19 of top 20 deals with NNACV up nearly 40% YoY. Q4 largest OT quarter ever. Pre-Veza+Armis foundation strong; post-acquisition, the combined stack covers visibility, identity and orchestration.
Key Topics & Management Commentary
Overall Management Tone: McDermott was the most assertive of FY25, directly addressing the speculation that AI will eat software companies with a forceful counter-narrative. Multi-quarter operational outperformance + strategic acquisitions + Microsoft Agent 365 partnership + McDermott extension all signal multi-year compounder confidence.
1. Veza + Armis Acquisitions — Major AI Security Strategy
"Our announced plans to acquire Veza and Armis happened in rapid succession because this assembles 3 critical layers for enterprises to operate securely in an agentic AI world: visibility, identity and orchestration. With our fast-growing $1 billion-plus CACV security and risk business, the timing to expand the opportunity could not be better. Post Armis, we do not see any other large white spaces that are necessary to complete our platform vision for security." — Bill McDermott, Chairman & CEO
Assessment: Veza (identity governance) + Armis (asset visibility / IoT/OT/medical) + ServiceNow (orchestration / CMDB / workflow) = unified end-to-end AI security stack. Armis already protects over 40% of the Fortune 100. Combined position uniquely covers the agentic AI security category. "No other large white spaces" framing closes the major-M&A speculation for the security category.
2. Microsoft Agent 365 + ServiceNow AI Control Tower Integration
"ServiceNow and Microsoft have announced a deep AI integration, connecting copilots, agents and data across Microsoft 365 and the ServiceNow AI platform to deliver seamless orchestration, governance and enterprise-wide automation. The collaboration introduces Microsoft's Agent 365 integration, and it's anchored by ServiceNow's AI control tower." — Bill McDermott, Chairman & CEO
Assessment: Strategic partnership at the highest level. The Microsoft Agent 365 integration is anchored by ServiceNow's AI Control Tower. Positions ServiceNow as the orchestration layer above Microsoft's agent ecosystem.
3. McDermott Extended CEO Commitment to 2030+
"You may have noticed that I recently extended my own commitment here to ServiceNow until 2030 and beyond. There's one reason I did this. Overwhelming belief in this company. This is a $1 trillion company in the making. I can't fathom a better entry point for what ServiceNow is building." — Bill McDermott, Chairman & CEO
Assessment: Multi-year compounder commitment from CEO. Removes any near-term leadership-transition speculation. McDermott explicitly positioning toward $1T market cap target.
4. AI Eats Software Companies Counter-Narrative
"The speculation of AI will eat software companies is out there. Let's clear it up with the facts. Enterprise AI will be the largest driver of return on the multitrillion-dollar super cycle of investment in AI infrastructure... AI doesn't replace enterprise orchestration. It depends on it. It depends on governance, it depends on scale." — Bill McDermott, Chairman & CEO
Assessment: Direct response to the bear narrative around AI commoditizing software. ServiceNow positioning AI as a tailwind that requires workflow orchestration + governance, the categories ServiceNow leads.
5. AI Control Tower: Deal Volume Nearly Tripled QoQ
AI Control Tower deal volume nearly tripled QoQ. AI Control Tower exceeded initial 2025 targets by more than 4x. Customers spending >$1M on Now Assist grew over 40%.
Assessment: AI Control Tower category-creation playing out. Multi-quarter scaling toward standalone material business inside ServiceNow.
6. Stock Split + Capital Return Acceleration
5-for-1 stock split effective December 17, 2025. New $5B repurchase authorization + $2B ASR planned. Q4 buyback about 3.6M shares (post-split) for $597M.
Assessment: The release keeps managing dilution as the primary objective of the program; the $2B ASR adds an opportunistic purchase at depressed prices (the stock was down 15.4% YTD into the print). Multi-year commitment.
7. Now Assist Cross-Sell Acceleration
Deals with 5+ Now Assist products +10x YoY. Customer service Now Assist deals saw over 70% upsell expansion at renewal in Q4. A leading American fast food chain expanded its assist entitlement 13x at its Q4 renewal.
Assessment: AI product cross-sell is working: customers are committing to multi-product AI stacks.
8. CRM Disruption Continuing — Largest CRM Quarter Ever
CRM NNACV growth accelerated QoQ. Closed largest CRM quarter in history. Logik.ai customer count nearly 4x YoY in Q4. European telecom provider 7-system consolidation; cost -30%, cycle time -25%.
Assessment: CRM is the multi-year growth engine. Multi-quarter ramp through 2027.
9. Workflow + Transaction Scale +33% YoY
Workflows +33% YoY (60B → 80B). Transactions +33% YoY (4.8T → 6.4T). Monthly active users +25% YoY.
Assessment: Platform scale compounding. Workflow data fabric powering AI Control Tower context.
10. M&A Strategy — "Never for Revenue Alone"
"We have never acquired a single company for revenue alone. We use M&A to expand into an even larger TAM, and it is now beyond $600 billion based entirely on where our customers need us to go, where we know we can build exciting growth businesses." — Bill McDermott, Chairman & CEO
Assessment: Capital discipline framework around M&A. Veza + Armis fit the platform-extension thesis, not revenue plug.
Guidance & Outlook
| Metric | 2026 Initial Guide | FY25 Actual | YoY Implied |
|---|---|---|---|
| Subscription Revenue | $15.53-$15.57B | $12.883B | +19.5-20% CC |
| (Incl. Moveworks) | +1pt contribution | n/a | n/a |
| (Armis, not in guide) | ~+1pt subscription; up to 50bp op margin headwind | n/a | n/a |
| Subscription Gross Margin | 82% | 83.5% | -150bp (data center) |
| Op Margin | 32% | 31% | +100bp |
| FCF Margin | 36% | 35% | +100bp (350bp ahead of FAD) |
Q1 2026 Guide
| Metric | Q1 Guide |
|---|---|
| Subscription Revenue | $3.650-$3.655B (+18.5-19% CC; incl 1pt Moveworks + 1.5pt hosted shift headwind) |
| CRPO Growth | +20% CC (incl 1pt Moveworks) |
| Op Margin | 31.5% |
Analyst Q&A Highlights
M&A Appetite After Armis and Veza
Q: "So should we take that as maybe we won't see Armis size deals going forward? Or just maybe help us get some clarity on how we should think about M&A in 2026."
— Samad Samana, Jefferies
A: "And as it relates to future M&A, we do not have a large-scale M&A on the road map. ... So probably, it was a little bit what's going on over there at ServiceNow, and I noticed that we lost about $10 billion in market cap on that because of the worry. So now the worry is gone, you can give us back to market cap."
— Bill McDermott, Chairman & CEO
Assessment: The clearest statement on the call that the acquisition run is over. The CFO added that Armis, expected to close early in H2 2026, should add about 100bp to 2026 subscription revenue with up to 50bp of operating-margin headwind, absorbed in 2027. The market did not accept the reassurance on January 29.
Gross Margin: Hyperscaler Mix, Not LLM Cost
Q: "How much of the gross margin headwind from LLM cost, inference and API cost? How much of that is temporary versus structural?"
— Gabriela Borges, Goldman Sachs
A: "I'd say on the gross margin headwind, the bulk of it is actually our very strategic focus on moving more towards hyperscalers that have slightly lower gross margins at this stage of the game, given our capacity there with them than our internal. ... As we continue to scale up those hyperscaler deals, margins get even better."
— Gina Mastantuono, President & CFO
Assessment: The 150bp step-down in the subscription gross margin guide (82% vs 83.5% in FY25) is mostly a hosting-mix choice, not inference cost. Management offsets it below the line: the 2026 guide still lifts operating and FCF margins by 100bp each.
Federal After the Shutdown
Q: "Can you give us some color on how Federal performed via your -- relative to your expectations? I know we had a government shutdown to deal with."
— Sanjit Singh (for Keith Weiss), Morgan Stanley
A: "So we're seeing a very big pipeline in public sector. What didn't happen in 2025 is only good news for 2026. ... And I do want to mention we shouldn't forget the global government business because that was up 80% year-over-year."
— Bill McDermott, Chairman & CEO
Assessment: On management's account, the shutdown pushed U.S. federal deals out rather than losing them. No figure was put on the slip, and the Q1 guide does not isolate it.
Seats vs. Consumption Pricing
Q: "I guess when we're entering this period of hybrid pricing and paid seats are still growing strong, do you envision a time in the future when ServiceNow pivots completely away from seats to maybe consumption or some form of value-based pricing, for instance?"
— Matt Hedberg, RBC Capital Markets
A: "Typically, what we've seen, customers do want flexibility but they also want predictability. So without having some kind of guardrails and understanding how much they're going to spend and what are they going to get out of it, going to complete 100% consumption may be too early in some of the cases."
— Amit Zavery, President, Chief Product Officer & COO
Assessment: Seats stay the anchor, with assist packs and selective consumption layered on top. The CEO followed with 25% growth in active users, the call's direct answer to the seat-compression bear case.
LLM Partners: Complement or Threat?
Q: "Maybe you can share a little bit more about those partnerships. And obviously, now with multiple of them, there's also kind of the question of decisions for customers, like which one would you focus on?"
— Peter Weed, AllianceBernstein
A: "And typically, in the infrastructure, the model providers are providing 5%, 10% of value and 90% of IP has been built by ServiceNow to really provide that context-driven enterprise use cases out of the box for our customers to get value instantly."
— Amit Zavery, President, Chief Product Officer & COO
Assessment: Management's answer to the fear that AI will eat software: the models are an interchangeable input, and the workflow context is the product. That split is management's claim, not a measured one, and the bear case is that it erodes.
What They're NOT Saying
- Armis and Veza revenue scale and growth (only Armis's ~100bp 2026 subscription contribution and up-to-50bp margin headwind were given)
- Microsoft Agent 365 revenue model + economics
- Now Assist 2027+ trajectory beyond $1B
- Federal Q1 specific impact on guide
- Hosted shift headwind composition (Q1 1.5pt)
- Subscription gross margin recovery path (vs 82% guided)
Market Reaction
- Pre-print close (January 28): $129.62; YTD -15.4% vs. S&P 500 +1.9%; trailing 12M -44.6%; trailing 30 days -16.1%; 52-week closing range $125.30-$234.08. About 23.5x FY26E FCF on market cap.
- January 29 session: opened at $118.53 (-8.6% gap), traded $113.13-$118.96, and closed at $116.73, -9.9% (-$12.89), on 55.1M shares, 2.6x the 30-day average, while the S&P 500 fell 0.1%. The close broke the prior 52-week closing low of $125.30 and was the lowest since October 31, 2023. About 21x FY26E FCF.
The tape sold the growth composition and the M&A, not the quarter. The FY26 subscription guide of 19.5-20% CC includes ~100bp of Moveworks, so the organic guide is 18.5-19% CC against FY25's 20.5%. The Q1 guide carries the same Moveworks point plus a 150bp hosted-mix headwind. Three acquisitions in quick succession (Moveworks closed December 15; Veza and Armis are pending) fed a worry that, by McDermott's account, had already cost about $10 billion of market cap, and the call opened by rebutting the view that AI will eat software. We read the quarter differently: net new ACV accelerated, cRPO beat by 200bp, and the 2026 guide lifts operating and FCF margins by 100bp each. At ~21x FY26E FCF, the price already assumes the slowdown, and a company that beat the top of its Q4 subscription guide by 150bp has room to beat an 18.5-19% organic guide.
Street Perspective
Debate: Veza + Armis Integration Risk vs Strategic Value
Bull view: Post-Armis "no other large white spaces" framing means platform vision complete; no large-scale M&A on the road map; integration is multi-quarter but execution-ready; Armis protection of over 40% of the Fortune 100 + Veza Access Graph = unique combined stack.
Bear view: Two simultaneous acquisitions create integration complexity; Veza + Armis still pre-regulatory clearance; revenue contribution uncertain. The stock fell 9.9% on January 29 with the acquisition worry still live.
Our take: Lean bull. ServiceNow track record on integrations is good (data.world, Logik.ai cleanly integrated). Multi-quarter ramp; material H2 2026.
Debate: Sustainability of 35%+ FCF Margin
Bull view: Multi-year operating leverage + AI productivity gains + CapEx discipline support 36% FY26 + further expansion 2027+.
Bear view: Data center investments + AI compute costs may compress margins; 82% subscription gross margin guide already reflects this.
Our take: Bull stronger. NOW's FCF generation profile reaching mature SaaS leader levels (Microsoft, Oracle); multi-year compounding.
Debate: Microsoft Agent 365 — Partnership or Coopetition Risk?
Bull view: ServiceNow AI Control Tower anchoring Microsoft Agent 365 positions ServiceNow as the orchestration layer; Microsoft brings distribution; symbiotic.
Bear view: Microsoft Copilot ambitions could expand into ServiceNow's adjacencies; partnership today may become competition tomorrow.
Our take: Lean bull on current partnership. Multi-year competitive landscape evolves; ServiceNow's existing workflow context + 22-year platform durability creates defensive moat.
Model Update Needed
| Item | Prior | New |
|---|---|---|
| FY25 Subscription (Actual) | $12.84B | $12.88B |
| FY25 Op Margin (Actual) | 31% | 31% |
| FY25 FCF Margin (Actual) | 34% | 35% |
| FY26 Subscription | $15.6B | $15.55B (guide midpoint) |
| FY26 Op Margin | 32-33% | 32% |
| FY26 FCF Margin | n/a (new row) | 36% |
| FY27 Subscription | n/a (new row) | $18.8B+ (incl Veza/Armis) |
Valuation: At the $116.73 close, market cap is about $123B on the 1.05B diluted shares guided for FY26, against ~$5.8B of FY26E FCF (the 36% margin guide on ~$16.0B of revenue): about 21x, versus about 23.5x at the $129.62 pre-print close and about 33x at the $182.34 Q3 pre-print close on the same FY26E. The December 31 balance sheet held $10.1B of cash and investments against $1.5B of debt. PT range reset to Base $140 / Bull $162 / Bear $97, from a split-adjusted $230 / $260 / $170 at Q3 ($1,150 / $1,300 / $850 pre-split): roughly 25x / 29x / 18x FY26E FCF on market cap. The cut follows the multiple, not our numbers, which barely move. At $116.73: base +20%; bull +39%; bear -17%. Bull-case upside to bear-case downside is about 2.3:1.
Thesis Scorecard
| Thesis Point | Status |
|---|---|
| Bull #1: Durable +20% subscription growth | Confirmed (FY25 +20.5% CC) |
| Bull #2: Op margin + FCF margin expansion | Strongly Confirmed (31% / 35%) |
| Bull #3: AI Control Tower scaling | Confirmed (more than 4x initial 2025 target) |
| Bull #4: Multi-vector platform diversification | Strongly Confirmed (security & risk $1B+ ACV; record CRM quarter) |
| Bull #5: AI Security + Veza + Armis | Newly Confirmed |
| Bull #6: Microsoft Agent 365 partnership | Newly Confirmed |
| Bull #7: McDermott extension to 2030 | Newly Confirmed |
| Bear #1: Premium valuation | Neutral (de-rated to ~21x FY26E FCF) |
| Bear #2: M&A integration risk | Watch List |
Action: Maintaining Outperform. Multi-quarter compounder + strategic-inflection thesis broadly strengthened; the January 29 sell-off priced the organic-growth and M&A debate, not the quarter. Next catalysts: Veza/Armis closing + integration; Financial Analyst Day 2026; Q1 2026 print.