ServiceNow (NOW) Q2 2025: Analyzing the 10-Q Earnings Report

ServiceNow, a key player in digitizing enterprise workflows with its powerful Now Platform, recently released its financial results for the second quarter of 2025. Let's dive into the company's latest quarterly report on Form 10-Q to unpack the numbers and see how the business is performing.

Strong Revenue Growth Continues

ServiceNow posted impressive top-line numbers, showcasing sustained demand for its services. For the three months ended June 30, 2025, the company generated $3.22 billion in total revenue, a solid 22% increase from the same period last year.

As expected for a cloud-based business, the vast majority of this comes from subscriptions.

• Subscription Revenue: Grew 22% to $3.11 billion.
• Professional Services and Other Revenue: Increased 20% to $102 million.

This consistent, strong growth in subscription revenue underscores the "stickiness" of ServiceNow's platform and its success in expanding its customer base. To get a better sense of how this revenue flows through the company's operations to the bottom line, the following chart visualizes the income statement for the six months ended June 30, 2025.

A Closer Look at Costs and Profitability

While revenue surged, expenses also climbed. The total cost of revenues rose by 31% to $724 million for the quarter. This growth outpaced the 22% revenue increase, leading to a slight compression in the total gross profit margin, which came in at 77% compared to 79% in Q2 2024. The subscription gross margin, a critical metric for any SaaS company, also dipped slightly from 82% to 80%.

Operating expenses continued their upward trend, reflecting investments in growth:

• Sales and Marketing: $1.13 billion (up 18%)
• Research and Development: $734 million (up 14%)
• General and Administrative: $271 million (up 17%)

A significant portion of these costs is stock-based compensation, a non-cash expense where employees are compensated with company stock. This amounted to $499 million for the quarter, or about 16% of total revenue.

Despite these rising costs, ServiceNow's profitability improved significantly. Net income for the quarter was $385 million, a remarkable 47% jump from $262 million in Q2 2024. This resulted in a diluted net income per share of $1.84, up from $1.26.

Healthy Cash Generation

Beyond the income statement, ServiceNow's cash flow paints a picture of robust financial health. For the first six months of 2025, the company generated $2.4 billion in cash from its operations, a 22% increase year-over-year.

Even after accounting for capital expenditures, the company's non-GAAP free cash flow—the cash available after paying for operating expenses and capital assets—was a very strong $2.0 billion for the first half of the year, up 27% from the same period in 2024. This highlights the company's efficiency in converting its profits into cash.

The Takeaway

ServiceNow's second-quarter results show a company in a strong growth phase, successfully expanding its revenue base and improving its bottom-line profit. The slight pressure on gross margins suggests that managing the costs of delivering its services will be a key area to watch.

The company continues to invest heavily in its future, not only through R&D but also through share repurchases, buying back $361 million of its stock in the quarter. Looking ahead, a newly enacted U.S. tax law mentioned in the filing adds a bit of uncertainty, with the company still evaluating its potential impact. Overall, ServiceNow appears to be executing effectively in a competitive market, turning its vision of "making the world work better" into strong financial results.