ServiceNow Q3 2025 Analysis: Revenue Soars 22% Amid Major AI Bet

ServiceNow, a leading enterprise software company that helps businesses digitize and automate their workflows, recently released its financial results for the third quarter of 2025. A deep dive into its 10-Q filing with the SEC reveals a company firing on all cylinders, with strong revenue growth and rising profits, complemented by a major strategic bet on artificial intelligence. Let's unpack the key numbers.

Subscription-Fueled Growth Continues

ServiceNow's financial performance is anchored by its powerful subscription-based model. In the third quarter of 2025, the company's total revenues climbed to $3.41 billion, a solid 22% increase from the $2.80 billion reported in the same period last year.

The revenue streams break down as follows:

• Subscription Revenue: This core segment generated $3.30 billion, accounting for 97% of the total. Its 22% year-over-year growth underscores the consistent and high demand for ServiceNow's Now Platform.
• Professional Services: While a much smaller component at $108 million, this segment saw impressive 32% growth, indicating that more customers are tapping ServiceNow for specialized implementation and advisory services.

The following flow diagram provides a visual summary of ServiceNow's income statement for the third quarter, illustrating how revenue is converted into profit.

The Price of Expansion and Innovation

While revenue soared, the costs associated with driving this growth also increased. The total cost of revenues rose by 33% to $774 million, which contributed to a slight compression in the total gross profit margin, from 79% in Q3 2024 to 77% in Q3 2025.

Operating expenses also climbed 15% overall to $2.06 billion. A closer look at the components reveals a strategic allocation of resources:

• Sales and Marketing: Expenses grew 12% to $1.06 billion. Notably, this growth was slower than the company's revenue growth, causing its share of revenue to decrease from 34% to 31% and suggesting improved efficiency.
• Research and Development (R&D): The company boosted its R&D spending by 20% to $750 million, signaling a strong commitment to innovation to maintain its competitive edge.

A significant portion of these costs includes stock-based compensation, a non-cash expense used to attract and retain talent. For the quarter, this amounted to $492 million, a 15% increase from the previous year.

Healthier Profits and a Major AI Investment

Despite higher spending, ServiceNow's profitability showed marked improvement. The company reported a net income of $502 million, up 16% from $432 million in the same quarter last year. This resulted in a diluted net income per share of $2.40, a healthy rise from $2.07 a year ago.

One of the most significant developments revealed in the filing is a bold strategic move. In September 2025, ServiceNow invested $750 million in Genesys, a privately held company that specializes in AI-powered customer experience software. This single investment more than tripled the "Strategic investments" line on ServiceNow's balance sheet to over $1.5 billion, clearly signaling the company's ambition to deepen its capabilities in the AI and customer service arenas.

In addition to investing for growth, the company also continued to return capital to its shareholders, buying back 644,000 shares of its common stock for approximately $584 million during the quarter.

Final Thoughts

ServiceNow's third-quarter filing portrays a company executing a well-defined growth strategy. Its robust, recurring subscription revenue provides a stable financial base, while significant investments in R&D and strategic ventures like Genesys position it for future expansion, particularly in the pivotal field of artificial intelligence. The key challenge ahead will be to successfully integrate these new AI capabilities and maintain growth momentum while managing its expanding cost base.