Q4 2024 Summary
Published Feb 7, 2025, 7:58 PM UTC- Strong demand for ServiceNow's agentic AI solutions is driving growth opportunities, as CEOs prioritize AI-led transformations and are willing to invest in platforms that offer substantial business impact. Bill McDermott highlights that the shift from AI fascination to AI business model innovation is opening up customer budgets for ServiceNow's offerings.
- ServiceNow's unique position as the "control tower for AI transformation", with a unified platform that combines AI agents, workflows, and data orchestration, sets it apart from competitors offering siloed solutions. This architectural advantage is leading to increased customer adoption and recognition of ServiceNow's capabilities, especially in AI orchestration and CRM solutions. ,
- The introduction of a hybrid pricing model combining subscription and consumption, particularly for AI and data solutions, is expected to accelerate customer adoption and monetize increased usage over time. This strategic move positions ServiceNow to benefit from a "hockey stick" of usage growth, driving additional revenue streams while maintaining strong subscription revenue growth. ,
- The shift to a hybrid consumption and subscription pricing model for AI agents introduces uncertainty in revenue recognition and may impact near-term revenue growth. As the company anticipates monetizing the "hockey stick" of usage over time, there is a risk that the consumption ramp-up may be slower than expected, potentially affecting financial performance in the short term.
- Management indicated that their 2025 guidance reflects prudence due to factors like federal seasonality and the adoption of consumption-based monetization. They mentioned that without these factors, the guidance would be higher, suggesting potential headwinds or uncertainties impacting growth expectations.
- The company's significant reliance on AI and agentic AI for future growth may pose risks if market adoption does not align with their high expectations. If customers are slow to adopt these new AI capabilities or if competitors offer superior solutions, the anticipated acceleration in revenue growth from AI agents may not materialize as projected.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue Q4 2024 | **+21% ** | The revenue increased from $2,437M in the prior period to $2,957M, driven by ongoing demand for the Now Platform, larger deal sizes, and strong performance in U.S. federal segments. Momentum from Q3 2024, which grew 22% YoY, also carried over, aided by generative AI adoption. |
Subscription Revenue Q4 2024 | **+21% ** | Subscription revenue grew from $2,365M to $2,866M, reflecting high customer retention and expansion of existing accounts. Continued focus on AI-powered solutions and workflow automation built upon the Q3 2024 subscriber base, contributing to consistent growth despite a larger prior-year baseline. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Subscription Revenues | Q1 2025 | no prior guidance | Between $2.995B and $3.0B, ~20% yoy cc at midpoint | no prior guidance |
cRPO Growth | Q1 2025 | no prior guidance | 20.5% yoy cc | no prior guidance |
Operating Margin | Q1 2025 | no prior guidance | 30% | no prior guidance |
GAAP Diluted Weighted Avg Shares | Q1 2025 | no prior guidance | 210 million | no prior guidance |
Subscription Revenues | FY 2025 | no prior guidance | Between $12.635B and $12.675B, ~20% yoy cc at midpoint | no prior guidance |
Subscription Gross Margin | FY 2025 | no prior guidance | 83.5% | no prior guidance |
Operating Margin | FY 2025 | no prior guidance | 30.5% | no prior guidance |
Free Cash Flow Margin | FY 2025 | no prior guidance | 32% | no prior guidance |
GAAP Diluted Weighted Avg Shares | FY 2025 | no prior guidance | 210 million | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Subscription Revenues | Q4 2024 | $2.875B to $2.88B | $2.866B | Missed |
Subscription Revenues | FY 2024 | $10.655B to $10.66B | $10.646B (Q1: 2.523, Q2: 2.542, Q3: 2.715, Q4: 2.866) | Missed |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Consistent emphasis on AI, including GenAI, Now Assist, and agentic AI solutions | Q3: Fastest-growing AI offerings, extended Now Assist adoption. <br>Q2: AI as critical driver with GenAI outpacing any prior launch. <br>Q1: AI central to business transformation. | Q4 2024: Continued strong AI push; 150% QoQ growth in AI-fueled deals and over 1,000 customers on agentic AI. | Constantly emphasized across all periods, showing accelerating momentum. |
Increasing RPO/CRPO growth driven by longer contract terms and early renewals | Q3: RPO +33% YoY; cRPO +23.5% YoY. <br>Q2: RPO +31% YoY with multiyear deals. <br>Q1: RPO +27% YoY; strength in early renewals. | Q4 2024: No mention [No data]. | Topic not referenced in Q4, despite prior consistent growth updates. |
Shift to hybrid subscription-consumption pricing models | Q3, Q2, Q1: No mention. | Q4 2024: Newly introduced hybrid model; AI agents in Pro Plus with usage-based monetization. | New topic in Q4, focusing on AI adoption acceleration. |
Partnerships with Microsoft, IBM, and NVIDIA expanding AI opportunities | Q3: Emphasized NVIDIA collaboration on agentic AI. <br>Q2: Highlighted Microsoft co-sell and NVIDIA’s AI integration; no IBM mention. <br>Q1: Expanded ties with Microsoft, IBM, and NVIDIA. | Q4 2024: Discussed expanded partnerships with Microsoft and NVIDIA; no IBM mention. | IBM references dropped after Q1; Microsoft and NVIDIA partnerships continue. |
Federal sector growth and potential election-related headwinds | Q3: Strong federal deals, no election mention. <br>Q2: Acknowledged election uncertainty, 50% YoY federal ACV growth. <br>Q1: Record Fed performance, no election reference. | Q4 2024: Public sector up nearly 40% YoY; caution for 2025 due to election cycle. | Election impact reemerges in Q4, first noted in Q2. |
Abrupt executive departure in Q2 | Q3: No mention [No data].<br>Q2: Departure due to hiring policy violation. <br>Q1: No mention [No data]. | Q4 2024: No mention [No data]. | Topic ceased after Q2. |
Significant Saudi Arabia investment in Q1 | Q3: No mention [No data].<br>Q2: No mention [No data].<br>Q1: $500M data center focus in Saudi Arabia. | Q4 2024: No mention [No data]. | Discontinued after Q1. |
Accelerating sales and marketing hiring with potential margin impact | Q3: Accelerating S&M hiring; no direct margin impact details. <br>Q2: Hiring ramp noted, no margin specifics. <br>Q1: Significant ramp with discipline on margins. | Q4 2024: No mention [No data]. | Ongoing in earlier quarters, not mentioned in Q4. |
Guidance caution from macro uncertainty, federal seasonality, and new consumption-based models | Q3: Not specifically cited [No data].<br>Q2: Cautious due to macro and election uncertainty, no consumption-based reference. <br>Q1: Not explicitly discussed [No data]. | Q4 2024: Highlighted caution: macro factors, federal election timing, and consumption-based approach. | Resurfaces in Q4 with new AI consumption aspect. |
Emerging theme of ServiceNow as a “control tower for AI transformation” | Q3: Positioned as governance control tower for AI. <br>Q2: Not mentioned [No data].<br>Q1: Framed as AI platform for end-to-end workflows. | Q4 2024: Stressed single-platform orchestration for AI agents. | Recurring AI orchestration narrative from Q1, further detailed in Q3–Q4. |
Potential large future impact from AI adoption vs. risk of slower uptake | Q3: Emphasis on multitrillion-dollar AI opportunity. <br>Q2: Strong demand; some customer skepticism addressed. <br>Q1: Significant upside with limited risk discussion. | Q4 2024: High confidence in AI’s growth, citing 150% QoQ AI deals. | Consistently optimistic about AI impact, minimal focus on slower-uptake risk. |
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Hybrid Subscription and Consumption Model
Q: Why move to hybrid consumption and subscription pricing?
A: We are combining subscription and consumption pricing to let customers start with a base subscription and scale with our agentic AI capabilities through metered usage. This model offers predictability and accelerates growth, creating a "Goldilocks model" that benefits both customers and ServiceNow. -
Impact of AI Commoditization
Q: How does AI cost decline affect ServiceNow?
A: The commoditization of AI models is positive for us, as it shifts differentiation to our platform and applications. Lower AI costs improve our gross margin and free up customer budgets to invest more in ServiceNow's offerings. -
IT Spending Trends
Q: Are IT spending trends improving?
A: The IT spending environment is similar to before, but CEOs are now focused on AI-led transformation. They see ServiceNow as a control tower for AI, which opens up budgets for our solutions that drive tangible business outcomes. -
Agent Strategy in Fragmented Market
Q: How will you win with agents in a crowded market?
A: Our AI orchestration serves as the control tower for business transformation across IT, employee, customer, and creator workflows on a single platform. We integrate with all major LLMs and offer flexibility, which sets us apart in the market. -
Customer and Employee Workflow Growth
Q: What's driving growth in these workflows?
A: Customer and Employee Workflows are performing extremely well, driven by our ability to personalize solutions to industries and use cases. Our Now Assist capabilities are enhancing this growth by delivering AI-driven efficiencies. -
Budget Shifts from Computing Costs
Q: Are customers reallocating budgets due to lower computing costs?
A: As AI model costs decline, customers are freeing up budgets that can be invested in platforms like ServiceNow. They see value in our offerings that deliver both margin improvement and growth. -
Monetization of Consumption Elements
Q: How does consumption impact cRPO?
A: Now Assist already had a consumption component, but extra token monetization hasn't been significant yet. With agentic AI, usage will scale rapidly, driving growth as customers purchase additional assist packs. -
Go-to-Market Optimizations and Guidance
Q: Do GTM changes affect guidance philosophy?
A: We are strengthening our go-to-market by integrating our innovation and GTM efforts. All impacts, including the ones from consumption and federal, are thoughtfully factored into our guidance. -
Subscription vs. Consumption Revenue Impact
Q: Will hybrid pricing cause near-term subscription headwinds?
A: We are not foregoing subscription revenue. Now Assist continues to grow strongly, and the consumption from agentic AI will be additive, creating a hockey stick growth as customers derive value.