UBS: ServiceNow — Numbers Point to Core Business Slowdown

UBS maintains a Neutral rating on ServiceNow with a 12-month target price of $100, based on a CY27E EV/FCF multiple of 13x. Despite an optimistic tone on the earnings call, underlying figures suggest the core business is decelerating. First-quarter subscription revenue growth merely landed in line, while the cRPO beat of 100 basis points sat at the lower end of the historical range. Furthermore, the second-quarter cRPO growth guidance of 18.25% excludes Armis; UBS estimates the fully adjusted figure is closer to 16–17%, representing a sharper deceleration than seasonal norms. For full-year 2026, management slightly lowered the high end of constant-currency revenue growth guidance. Although AI and acquisition-driven revenues remain robust, core operations face mounting pressure. Management attributed roughly 75 basis points of the first-quarter revenue drag to delayed Middle East deals. Furthermore, non-AI budget constraints are creating a tougher spending environment. Margin expansion faces limitations, as the company must significantly accelerate non-GAAP operating margins in the second half to reach annual guidance, constrained by gross margin pressures from AI revenue. While the newly confirmed pricing model includes increases that could drive optimism, and the updated $1.5 billion AI revenue run-rate guidance is notable, these catalysts may not trigger a stock re-rating unless they elevate overall growth. With core growth at 17–18% and current valuation at 15x EV/FCF, UBS remains sidelined pending the May 4 Investor Day.