ServiceNow (SPCE) Q1 2025: CRM and Industry Workflows Surge to 34% of Mix, Diversifying Growth Engines
ServiceNow’s Q1 marked a pivotal shift as CRM and industry workflows rose to 34% of net new ACV mix, highlighting a structural broadening beyond core technology workflows. Robust AI-driven product adoption and large-deal momentum powered outperformance across segments, with leadership doubling down on platform extensibility and prudent guidance amid macro uncertainty. With CRM, public sector, and AI agents all scaling, ServiceNow is positioning for multi-year TAM expansion and margin durability.
Summary
- Workflow Mix Shift: CRM and industry workflows expanded to 34% of new business, signaling a multi-engine growth model.
- AI Platform Penetration: ProPlus and Now Assist adoption accelerated, driving larger deal sizes and cross-portfolio attach rates.
- Guidance Conservatism: Management balanced strong demand signals with macro caution, embedding risk in full-year outlook.
Performance Analysis
ServiceNow delivered its largest Q1 ever for net new annual contract value (ACV), with subscription revenue up 20% YoY in constant currency and current remaining performance obligations (CRPO) up 22%. The company closed 72 deals over $1M in net new ACV (up from 63 a year ago), including nine deals above $5M. Notably, CRM and industry workflows contributed 34% of net new ACV mix, a significant increase, while technology workflows dipped below 50% for the first time—evidence of expanding platform relevance beyond IT.
AI-driven solutions were a standout, as ProPlus deal volume quadrupled YoY and Now Assist was present in 15 of the top 20 deals. RaptorDB, ServiceNow’s next-gen AI database, saw accelerating uptake, and large enterprise momentum continued with 508 customers now generating $5M+ in ACV. Operating margin reached 31%, with free cash flow margin at 48%, both well above guidance, reflecting disciplined expense management and AI-enabled OpEx efficiencies. Public sector and manufacturing segments posted outsized growth, with federal net new ACV up 30% and manufacturing more than doubling YoY.
- Segment Diversification: CRM and industry workflows now represent a material share of new business, diluting legacy IT workflow concentration.
- Large Deal Velocity: Nine $5M+ deals and 72 $1M+ deals highlight continued upmarket traction.
- AI-Driven Upsell: ProPlus and Now Assist attach rates drove a one-third QoQ increase in average deal size.
Management emphasized that these results were achieved without material pull-forwards or early renewals, underscoring genuine demand and execution strength across verticals and geographies.
Executive Commentary
"This was our biggest Q1 ever for net new ACV. Subscription revenue grew 20% year-on-year in constant currency, slightly above the high end of our guidance range... We saw strength across the full ServiceNow Solutions portfolio... CRM and industry workflows continued its momentum in 16 of our top 20 deals with nine deals that were over a million."
Bill McDermott, Chairman and Chief Executive Officer
"Q1 was a quarter of relentless execution in a dynamic market. We beat the high end of our guidance across all top line and profitability metrics once again. The team outperformed net new ACV goals, delivering a significant CRPO beat versus our guidance. Our use of AI internally also continues to drive meaningful OpEx efficiencies, yielding strong profitability and free cash flow."
Gina Mastantuno, President and Chief Financial Officer
Strategic Positioning
1. Structural Workflow Diversification
CRM and industry workflows now comprise 34% of net new ACV, compared to technology workflows dipping below 50% for the first time. This shift marks ServiceNow’s transition from a primarily IT-centric platform to a multi-workflow engine, with leadership targeting front office processes such as sales, order management, and customer service. The Logic.ai acquisition and integration of AI-powered configure, price, quote (CPQ) capabilities are designed to accelerate CRM momentum, enabling ServiceNow to address complex, high-value workflows across industries.
2. AI as a Platform Differentiator
ServiceNow’s agentic AI strategy is delivering tangible results: ProPlus and Now Assist adoption quadrupled, driving larger average deal sizes and multi-product attach rates. The Yokohama release introduced out-of-the-box AI agents and orchestration engines, with customers such as Adobe and Orica reporting dramatic productivity gains. The hybrid consumption pricing model for AI agents offers customers flexibility and predictability, while enabling ServiceNow to monetize increasing workflow automation.
3. Public Sector and Regulated Industry Expansion
Public sector net new ACV grew over 30% YoY, with six new logos and 11 federal deals above $1M. ServiceNow’s government transformation suite and focus on automation and digital governance position it as a partner of choice for agencies modernizing legacy systems. Leadership cited the opportunity to consolidate thousands of bespoke government systems onto a unified platform, with the business case measured in billions.
4. Margin Expansion and Capital Allocation Discipline
AI-enabled OpEx efficiencies contributed to a 31% operating margin and 48% free cash flow margin. Management reiterated its commitment to margin durability, even as M&A (Moveworks, Logic.ai) introduces incremental expenses. The company repurchased 316,000 shares in Q1, with $3B in remaining authorization, reflecting a focus on managing dilution and sustaining shareholder returns.
5. Platform Extensibility and Integration
ServiceNow’s approach to M&A prioritizes integration over wholesale rewrites, preserving a single platform and data model while accelerating the roadmap with acquired AI and workflow capabilities. Moveworks and Logic.ai both integrate natively, enabling rapid go-to-market and customer adoption, while expanding ServiceNow’s addressable market into enterprise search and next-gen CRM.
Key Considerations
This quarter’s results highlight ServiceNow’s evolution into a multi-segment, AI-powered platform with broadening use cases and resilient demand. Investors should monitor the following:
- Workflow Mix Evolution: CRM, industry, and back-office workflows are gaining share, reducing dependence on core IT and creating new cross-sell and upsell vectors.
- AI Monetization Trajectory: Rapid expansion of ProPlus and Now Assist adoption signals customer willingness to invest in workflow automation, but competitive intensity and customer ROI expectations will shape long-term pricing power.
- Public Sector Pipeline: Record federal and public sector growth, but guidance embeds conservatism for potential deal elongation and budget uncertainty.
- Operational Leverage: AI-driven OpEx efficiencies are supporting margin expansion, even as M&A and R&D investments scale.
- Integration Execution: Success of Moveworks and Logic.ai integration will determine ServiceNow’s ability to accelerate product roadmap and sustain platform differentiation.
Risks
Macro and geopolitical volatility remain a risk, particularly for public sector and large enterprise deals that could face budget scrutiny or timing delays. Management’s guidance incorporates a degree of conservatism, but a prolonged slowdown or unexpected regulatory shifts could pressure top-line growth and elongate sales cycles. Competitive dynamics in AI and CRM, as well as successful execution of recent M&A integrations, are key watchpoints for sustaining momentum.
Forward Outlook
For Q2 2025, ServiceNow guided to:
- Subscription revenues of $3.03B to $3.035B (19–19.5% YoY growth)
- CRPO growth of 19.5% YoY
- Operating margin of 27%
For full-year 2025, management raised guidance to:
- Subscription revenues of $12.64B to $12.68B (18.5–19% YoY growth)
- Subscription gross margin of 83.5%
- Operating margin of 30.5%
- Free cash flow margin of 32%
Management highlighted:
- Embedded conservatism for public sector timing and macro risks
- Expectations for continued AI-driven growth and workflow diversification
Takeaways
ServiceNow’s Q1 results confirm a step-change in business model breadth, with CRM, industry, and AI-driven workflows now driving a larger share of growth and deal value.
- Workflow Expansion: The rise of CRM and industry workflows to 34% of net new ACV marks a durable shift toward a multi-engine platform, reducing reliance on legacy IT and unlocking new TAM.
- AI as a Growth Catalyst: ProPlus and Now Assist adoption are driving larger, multi-product deals and delivering measurable productivity gains for customers, underpinning ServiceNow’s AI leadership narrative.
- Resilient Execution: Despite macro uncertainty, ServiceNow’s diversified pipeline, margin discipline, and prudent guidance posture position it for sustained growth and margin durability through 2025 and beyond.
Conclusion
ServiceNow’s Q1 2025 performance demonstrates structural broadening of its growth engines and a successful pivot to AI-powered, multi-workflow platform leadership. With CRM, public sector, and AI monetization all scaling, the company is well positioned for durable expansion, though macro and integration execution risks warrant continued vigilance.
Industry Read-Through
ServiceNow’s results signal that enterprise buyers are accelerating investment in AI-powered workflow automation, with demand expanding beyond IT into CRM, supply chain, and government modernization. The platform approach—integrating data, workflow, and AI agents— is emerging as a competitive differentiator versus point solutions or legacy SaaS. Vendors with extensible architectures, rapid time-to-value, and proven AI use cases are well positioned to capture share as digital transformation priorities shift from departmental optimization to enterprise-wide business transformation. Public sector and regulated industry digitization is accelerating, offering a multi-year tailwind for platform players able to navigate procurement cycles and compliance requirements.