Initial earnings review of four technology companies: eBay and KLA deliver strong guidance, while ServiceNow and Fortinet growth falls short of optimistic expectations

Why did ServiceNow disappoint investors despite beating margin expectations?

Third-quarter subscription revenue was 3.988 billion dollars, broadly in line with market consensus of 3.99 billion dollars but below the 4.01 billion to 4.03 billion dollars expected by some investors. Constant-currency growth was 0.5 percentage points above company guidance, a smaller beat than the average of 1.2 percentage points over the previous four quarters.
Current remaining performance obligations (cRPO, contract revenue expected to be recognized over the next 12 months) grew 21% in constant currency, below the 21.5% to 22% expected by some investors. Excluding contributions from Moveworks and Armis, the report estimates organic growth at approximately 18.5%, below optimistic investors’ expectations of 19% to 19.5%.
Fourth-quarter constant-currency cRPO growth guidance was 18.5%, below market consensus of 19%; the report estimates organic growth excluding acquisitions at approximately 17% to 17.25%. Meanwhile, fourth-quarter operating margin guidance was 32%, below market consensus of 33.5%.
Third-quarter operating margin was 32.5%, above market consensus of 31.1%, but earnings per share of 1 dollars fell short of consensus of 1.03 dollars; net interest shifted from income of 109 million dollars a year earlier to an expense of approximately 12 million dollars.

Third-quarter gross merchandise volume (GMV) was 23.17 billion dollars, up 16% in constant currency and above market consensus of 22.34 billion dollars. Excluding the Depop contribution assumed in guidance, the report estimates organic growth at approximately 13.5%, above the company’s previous organic growth guidance of 7% to 9%.
US GMV grew 27% year over year, up from 24% in the second quarter; international GMV grew 4% on a reported basis, slowing from 6% in the second quarter. Third-quarter revenue of 3.21 billion dollars also exceeded market consensus of 3.118 billion dollars.
Advertising was a relative weak spot: first-party advertising revenue of 575 million dollars fell short of market consensus of 585 million dollars, and its growth only matched GMV growth; in the second quarter, advertising growth had exceeded GMV growth by approximately 10 percentage points. Total advertising revenue was approximately 2.6% of GMV, below approximately 2.7% in the second quarter and the company’s 3% target.
The company expects fourth-quarter GMV to grow 12% to 14% in constant currency, above market consensus of 9.5%; it also raised its full-year GMV growth guidance from 11.5% to 12.5% to 14%. However, fourth-quarter revenue growth guidance of 7% to 9% is below GMV growth, implying a take rate of approximately 13.45%, below approximately 13.96% a year earlier.

Third-quarter product revenue was 765 million dollars, up 37% year over year and above market consensus of 726 million dollars, but below the 840 million to 855 million dollars expected by some investors. Growth slowed from 52% in the second quarter; revenue fell approximately 8 million dollars sequentially, compared with a sequential increase of approximately 50 million dollars in the year-earlier period.
Service revenue was 1.31 billion dollars, up 12.7% year over year, below 13.7% in the second quarter and market consensus of 1.33 billion dollars. Management had previously expected service growth to accelerate in the second half, but the company lowered full-year service revenue guidance from 5.18 billion to 5.22 billion dollars to 5.15 billion to 5.17 billion dollars.
The midpoint of fourth-quarter revenue guidance implies year-over-year growth of 15.5%, above market consensus of 13% but below optimistic investors’ expectations of 18% to 19%. Third-quarter operating margin was 38.2%, approximately 2.2 percentage points above consensus, but gross margin fell from 81.6% a year earlier to 79.6%.

Revenue for the quarter ending in September was 4.14 billion dollars, up 29% year over year and above market consensus of 4.04 billion dollars. The midpoint of the company’s revenue guidance for the quarter ending in December was 4.7 billion dollars, above consensus of 4.49 billion dollars and in line with optimistic investors’ expectations.
At the midpoint of guidance, revenue for the quarter ending in December will grow 14% sequentially; on that basis, the report estimates that second-half revenue in 2026 will be approximately 25% higher than in the first half, above the approximately 20% the company indicated in July.
Revenue growth has not yet brought a corresponding increase in gross margin: gross margin guidance for the quarter ending in December is 62.5%, roughly flat with 62.7% in the quarter ending in September. Free cash flow for the quarter ending in September was 1.34 billion dollars, below market consensus of 1.44 billion dollars; over the same period, inventories increased approximately 430 million dollars sequentially, and capital expenditure was approximately 195 million dollars.