Bill McDermott, CEO of ServiceNow, speaking on CNBC’s Squawk On The Street outside the World Economic Forum in Davos, Switzerland on Jan. 21st, 2025.
Gerry Miller | CNBC
ServiceNow CEO Bill McDermott told CNBC on Wednesday that he expects the company to have the same headcount to begin 2027 as it did to start 2026, even as it integrates acquisitions.
McDermott said using artificial intelligence to boost worker productivity is key to cost discipline.
“As you have attrition in the company, you don’t have to backfill it,” McDermott said. “So we can still have a great culture. We can still have enormous, enormous, high-performance standards, and at the same time, we can capture massive efficiencies to expand the free cash flow margin of the corporation.”
AI has been cited in recent layoff announcements from Block and Atlassian as companies have looked for cost savings provided by the technology.
McDermott made headlines in March during an appearance on CNBC during which he said that unemployment for new college graduates “could easily go into the mid-30s in the next couple of years.”
The enterprise software maker posted first-quarter 2026 earnings on Wednesday after the bell, beating consensus expectations on the top and bottom lines and raising guidance.
The stock sank 12% despite the beat.
ServiceNow’s stock has largely surged higher for two years until the beginning of 2025, when AI fears gripped the software market. McDermott has since pointed to ServiceNow’s continued AI-fueled growth as evidence that investors shouldn’t lump the stock in with the bulk of software names.
“I don’t think there’s too many other companies in the world operating at the rule of 56-plus and raising their guide,” he told CNBC. “So we’re real confident. We know the company is a winner, and we’re really leveraging AI in everything that we do.”
He pointed to the company’s pipeline, with current remaining performance obligations up 21% year-over-year in constant currency. And he said he’s not worried about seat-based subscription revenue going away as AI agents gain favor.
“Half of our revenue is coming from consumption, which I know is something that investors have had a field day with – constantly talking about seat-based pricing models disappearing,” McDermott said. “Our active seats are up 25%, but 50% of our net new business is coming from non-seat-based pricing, including tokens, infrastructure, hardware, and connectors to all the various systems. So we’re really, really on a roll.”
That said, ServiceNow is not immune from macro environment impacts, including the war in Iran.
McDermott said customers in the region have made adjustments.
“There is a little bit of an effect in the Middle East, because as you know, these sovereign countries, and the Middle East in particular, insist upon an on-premise installation,” he said. “In on-premise, you don’t recognize the revenue ratably — you recognize the revenue all at once — so if the business slows in the Middle East, or the business cancels in the Middle East, you have an impact that’s immediate.”
It looks now like the Middle East is starting to get a little bit more normal than it was. They’re talking about doing business again,” he added.
ServiceNow 5-year stock chart.
