SaaS Stocks Slammed As ServiceNow Disappoints, Blames MidEast War
Perhaps indicative of the fragility of the current rebound - as Software stocks have recently ripped higher for 8 straight days - SaaS stocks are all deeply in the red after-hours as ServiceNow - the potential poster-child for AI disruption - cut its margin outlook amid lackluster results, sending shares reeling.
At first glance, it was a good print - the provider of business task management software posted first-quarter adjusted earnings of 97 cents a share, which was in-line with Wall Street estimates, according to FactSet.
Revenue for the quarter rose 22% to $3.77 billion, marginally above analyst expectations of $3.75 billion.
Additionally, ServiceNow said that subscription revenue will increase about 23% to $3.82 billion in Q2, the company said (marginally above the consensus of $3.75 billion).
But it wasn't all pretty...
But, it appears Wall Street was hoping for more - with investors already worried about the disruptive impact of AI on software stocks - as NOW shares sank 13% in extended trading...
...after the software company also cut its full-year forecast for subscription adjusted gross margin...
The software giant now expects a 31.5% margin on its full-year adjusted income from operations, whereas ServiceNow (NOW) was previously targeting a 32% margin.
The company's forecast for a 26.5% adjusted operating margin in the second quarter is also meaningfully below the 30.1% Wall Street consensus
But have no fear, the future looks incredibly rosy!!??
The lukewarm result was blamed on the Mideast conflict:
In Q1 2026, subscription revenues growth saw an approximately 75 basis point headwind from delayed closings of several large on-premise deals in the Middle East, due to the ongoing conflict in the region. This outlook reflects a prudent assessment of those geopolitical headwinds on deal timing for the remainder of FY 2026.
The margin narrative overshadowed ServiceNow's rosier view of its AI prospects, as CEO Bill McDermott said he expects $1.5 billion in AI revenue for 2026, up from a $1 billion projection before. McDermott told MarketWatch that the new outlook could be conservative.
But NOW's weakness was already impacting the rest of the SaaS space as pre-war worries re-blossomed...
Among other software stocks:
Salesforce -5.2%,
Atlassian -6.6%,
HubSpot -5.5%,
Workday -4.6%,
MongoDB -1.9%,
Snowflake -2.3%,
Cloudflare -1.2%,
Microsoft -1.5%
Not pretty...
“We believe it will be difficult for results or management commentary to alleviate concerns around medium-term AI disruption,” wrote Brad Zelnick, an analyst at Deutsche Bank, in a note ahead of earnings.
Even more difficult now...