How NOW (ServiceNow) Makes Money in 2026: A Deep-Dive With Income Statement

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Understanding how a cloud computing leader like ServiceNow makes money is essential for investors and anyone interested in the business of enterprise software. In this post, we break down ServiceNow's quarterly income statement (Q4 2025) using a Sankey chart to visualize the financial flows — what comes in, where it goes, and what's left as profit.

Quick ServiceNow Overview

ServiceNow operates as a leading provider of cloud-based workflow automation and IT service management platforms. Revenue comes primarily from subscription services that deliver digital workflow solutions to enterprises worldwide. The company focuses on high-margin SaaS offerings, with additional income from professional services.

Revenue Breakdown

• Total Revenue (Q4 2025): $3.57B (+20.7% YoY)
  • Subscription Revenue: $3.47B (97.1% of total)
  • Professional Services & Other Revenue: $0.10B (2.9% of total)
  • Growth is powered by strong demand for AI-enhanced workflow automation and expanding customer base in enterprise IT.

Gross Profit and Margins

• Gross Profit: $2.73B (76.6% gross margin)
  • Cost of Revenue: $0.83B (+32.2% YoY)
  • ServiceNow maintains robust margins due to scalable digital business model, high subscription renewals, and efficient cloud infrastructure.
• Most costs come from hosting and support for subscriptions, along with professional services delivery.

Operating Income and Expenses

• Operating Income: $0.44B (+18.4% YoY, 12.4% margin)
• Operating Expenses: $2.29B (+17.4% YoY)
  • R&D: $0.77B (+15.7% YoY, 21.7% of revenue) — focused on AI innovations, platform expansions, and next-gen workflow tools
  • SG&A: $1.52B (+18.2% YoY, 42.5% of revenue) — primarily sales, marketing, and general administration to drive customer acquisition and global expansion
  • ServiceNow continues to prioritize innovation while maintaining efficiency through disciplined cost management.

Net Income

• Pre-Tax Income: $0.54B (+16.8% YoY, 15.2% margin)
• Income Tax: $0.14B (25.9% effective tax rate)
• Net Income: $0.40B (+4.4% YoY, 11.2% net margin)
• ServiceNow converts a significant portion of sales into profit due to scalability, pricing power, and recurring subscription revenue.

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What Drives ServiceNow's Money Machine?

• Subscription Revenue: 97.1%+ of revenue / core SaaS model with high renewal rates and upsell opportunities via platform modules
• Annual Contract Value (ACV) Growth: powers expansion through larger deals and AI-driven add-ons
• R&D Investments: strategic focus on generative AI and industry-specific workflows to enhance platform stickiness
• Future growth areas: professional services scaling with subscriptions, though not yet profitable at high margins

Visualizing ServiceNow's Financial Flows

The Sankey chart below visualizes how each dollar flows from gross revenue, through costs and expenses, down to net income. This helps investors spot where value is created, what areas weigh on profits, and how efficiently the company operates.[1][2]

• Most revenue flows into gross profit, with operating expenses (especially SG&A) taking the largest chunk.
• Even after significant investments in R&D, 11.2% of revenue drops to the bottom line.

Key Takeaways

• ServiceNow's money comes overwhelmingly from subscriptions
• High gross and net margins illustrate the power of ServiceNow's asset-light SaaS model
• Heavy investment in R&D, balanced by efficiency in operating costs
• Ongoing growth is driven by AI integrations and enterprise adoption

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FAQ About ServiceNow's Income Statement

1. What is the main source of ServiceNow's revenue in 2025?

ServiceNow generates over 97.1% of its revenue from Subscription Revenue. Professional Services & Other contributes the remaining 2.9%.

2. How profitable is ServiceNow in Q4 2025?

ServiceNow reported net income of $0.40B in Q4 2025, with a net margin of approximately 11.2%, reflecting strong profitability driven by high gross margins and subscription scalability.

3. What are the largest expense categories for ServiceNow?

The biggest expenses on ServiceNow's income statement are operating expenses, particularly Research & Development (R&D) and Sales, General & Administrative (SG&A) costs. R&D investment reached $0.77B in Q4 2025, as ServiceNow prioritizes AI and platform innovation.

4. Why does Professional Services & Other operate at a loss?

Professional Services & Other, despite generating $102M in revenue, often posts an operating loss due to ServiceNow aggressively invests in implementation support to boost subscription adoption, believing these will drive long-term growth—even if the division is unprofitable today.

5. How does ServiceNow's effective tax rate compare to previous years?

ServiceNow's effective tax rate in Q4 2025 was 25.9%, consistent with previous years. This moderate rate is primarily due to international operations and standard corporate tax structures.