Analyst(s): Keith Kirkpatrick
Publication Date: January 30, 2025
ServiceNow Q4 FY 2024 earnings report examines how the company’s transition to a usage-based AI pricing model affects short-term revenue growth and subscription sales. While demand for AI-driven automation remains strong, the company is prioritizing adoption over immediate monetization, leading to a weaker-than-expected FY 2025 outlook.
What is Covered in this Article:
- ServiceNow’s shift to a usage-based AI pricing model and its impact on revenue.
- The expansion of Now Assist AI Agents across IT, customer service, HR, and finance.
- Key strategic partnerships with Google Cloud, Oracle, Microsoft, AWS, and Visa.
- The role of industry-specific AI automation in driving enterprise adoption.
- Uncertainties around public sector contracts due to government cost-cutting.
- FY 2025 guidance outlook, subscription growth challenges, and long-term opportunities.
The News: ServiceNow (NASDAQ:NOW) achieved $3 billion in revenue, representing a 21% year-over-year (YoY) increase and meeting consensus expectations. This growth was primarily driven by subscription revenues, which accounted for $2.9 billion – a 21% YoY rise. Non-GAAP operating income surged by 22% YoY to $872 million, with the operating margin slightly improving to 29.5% from 29.4% in Q4 FY 2023. Non-GAAP net profit reached $769 million, growing 20% YoY and aligning with analyst forecasts. Additionally, non-GAAP diluted earnings per share (EPS) were $3.7, an 18% increase compared to the previous year. ServiceNow’s remaining performance obligations climbed to $22 billion, up 26% in constant currency, highlighting strong customer commitment to AI-driven solutions.
“ServiceNow closed out the year exceeding Q4 expectations on top of our ‘beat and raise’ track record,” said Bill McDermott, Chairman and CEO of ServiceNow. “Leaders are embracing the ServiceNow Platform as their AI agent control tower to unlock exponential productivity and seamlessly orchestrate end-to-end business transformation. We are still in the early days of a massive opportunity.”
ServiceNow Q4 FY 2024: Sales Outlook Falls Short on AI Adoption Focus
Analyst Take: ServiceNow’s latest quarterly results highlight a shift in its AI strategy. The company is moving away from upfront AI subscriptions to a more flexible, usage-based model, aiming to encourage broader AI adoption over time. While this transition has led to slower short-term revenue growth and some stock pressure, market trends and comments from ServiceNow’s Q4 earnings call suggest that generative AI remains a key attraction for businesses looking to streamline complex workflows.
AI Monetization Shift: Pay-as-You-Go Gains Momentum
ServiceNow is making a big shift by offering AI agents and workflows through a “Pro Plus” or usage-based tier. Instead of collecting all revenue upfront, the company is banking on steady growth as customers expand their AI usage over time. As CEO Bill McDermott mentioned in the Q4 earnings call, this approach allows clients to “start small” and gradually scale up, making AI a more integrated part of their operations. The idea is that once these AI tools become essential to daily workflows, they will drive long-term recurring revenue. However, this change has also led to slower-than-expected short-term subscription growth, highlighting the trade-off between immediate monetization and long-term adoption.
Industry-Specific AI Agents Strengthen Platform Stickiness
ServiceNow is doubling down on its AI capabilities with Now Assist AI Agents, which are now available across IT, customer service, HR, and finance. The latest updates include GenAI-powered automation within IT Service Management (ITSM) Pro Plus and Customer Service Management (CSM) Pro Plus, aimed at speeding up issue resolution and cutting operational costs. CEO Bill McDermott highlighted that these improvements are driving greater enterprise adoption, with remaining performance obligations (RPO) growing 26% in constant currency to $22 billion. However, with the company shifting to a usage-based pricing model, revenue will scale more gradually as customers roll out AI-driven solutions over time.
The company also announced ServiceNow AI Agent Orchestrator, which is designed to enable more efficient inter‑agent communication and centralized coordination. This ensures AI agents can efficiently share information and hand off tasks regardless of where the process starts, which ServiceNow believes is critical for managing complex workflows.
Expanding Enterprise Partnerships to Drive Growth
ServiceNow strengthened its strategic partnerships in Q4 to enhance AI-driven workflow automation and expand its platform’s capabilities. The company deepened collaborations with major players like Google Cloud, Oracle, Microsoft, AWS, and Visa, focusing on seamless AI integration and workflow efficiency. Notable moves include launching ServiceNow on Google Cloud Marketplace, integrating Oracle data sources with Workflow Data Fabric, and aligning ServiceNow AI Agents with Microsoft Copilot.
In early 2025, ServiceNow also acquired AI-native Cuein to accelerate next-gen AI agent development and Mission Secure to boost cybersecurity for industrial Operational Technology (OT) environments. These initiatives reinforce the company’s AI strategy, positioning it for long-term enterprise adoption and steady revenue growth.
Public Sector Sensitivities and the DOGE Factor
ServiceNow has seen strong momentum in the U.S. federal market, securing major contracts with the Department of Defense and other key agencies. However, shifting budget priorities – especially under the “DOGE” (Department of Government Efficiency) cost-cutting initiatives – are creating some uncertainty. Management remains optimistic, noting that ServiceNow’s solutions help agencies improve efficiency, making them a natural fit for cost-conscious government operations. That said, with a presidential transition in 2025, contract approvals may be delayed, pushing more deals to the back half of the fiscal year. While federal spending has historically been steady through past transitions, the current environment introduces some added unpredictability.
Native New Yorker Bill McDermott, through his personality and accomplishments, has proven himself to be a master salesman, and likely will be able to present his firm’s capabilities as essential to the new administration and its outside advisors.
Guidance and FY 2025 Outlook
Despite ending the year on solid fundamentals, ServiceNow’s guidance for FY 2025 came in below Wall Street projections, sending shares falling post result announcement. For the full-year FY 2025, ServiceNow expects Subscription revenue to be in the range of $12.6 billion to $12.7 billion, representing growth of 18.5% to 19% – this is notably below analyst expectation of $12.9 billion. The new pricing strategy and seasonality around new government deals may contribute to the weakness of subscription revenue in FY 2025. However, management remains confident that this new approach will attract a wider customer base, drive deeper AI adoption, and ultimately lead to stronger revenue growth as businesses scale their AI deployments.
Looking Ahead
Despite some short-term challenges, ServiceNow’s strategic shift could pay off in the long run as AI adoption accelerates across industries. The continued expansion of agentic AI – where automated workflows function with minimal human input – could become a major competitive advantage for the Now Platform. As generative AI costs decrease and more companies seek to consolidate automation efforts under a single system, ServiceNow is well-positioned to benefit from both subscription-based and usage-driven revenue models. The company’s recent $3 billion share repurchase authorization also reflects confidence in its financial health, even as management takes a cautious approach to FY 2025 projections. Ultimately, if the usage-based model drives widespread adoption of AI-powered workflows, ServiceNow could regain its momentum and solidify its leadership in enterprise automation.
Read the full press release on ServiceNow’s website.
Disclosure: The Futurum Group is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.
Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of The Futurum Group as a whole.
Other insights from The Futurum Group:
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Author Information
Keith Kirkpatrick is VP & Research Director, Enterprise Software & Digital Workflows for The Futurum Group. Keith has over 25 years of experience in research, marketing, and consulting-based fields.
He has authored in-depth reports and market forecast studies covering artificial intelligence, biometrics, data analytics, robotics, high performance computing, and quantum computing, with a specific focus on the use of these technologies within large enterprise organizations and SMBs. He has also established strong working relationships with the international technology vendor community and is a frequent speaker at industry conferences and events.
In his career as a financial and technology journalist he has written for national and trade publications, including BusinessWeek, CNBC.com, Investment Dealers’ Digest, The Red Herring, The Communications of the ACM, and Mobile Computing & Communications, among others.
He is a member of the Association of Independent Information Professionals (AIIP).
Keith holds dual Bachelor of Arts degrees in Magazine Journalism and Sociology from Syracuse University.
