ServiceNow (NOW) Stock is Flying High as Revenue is Rolling in Due to AI

Stock (Symbol)

ServiceNow (NOW)

Stock Price

$786

Sector

Data is as of

Expected to Report

Company Description

ServiceNow, Inc. is a digital workflow company.

The Company helps global enterprises across industries, universities and governments to digitize their workflows.

Its technology platform, Now Platform, enables it to connect systems, silos, departments and processes with digital workflows. It categorizes the workflows it provides into four primary areas, such as information technology (IT), employee, customer, and creator.

Its IT workflows give IT departments the ability to plan, build, operate, and service across the entire IT lifecycle.

Its employee workflows help customers simplify how their employees get the services they need, creating a familiar, consumer-like way to get work done from wherever an employee may be at home, in the workplace or in the field.

Its customer workflows help organizations reimagine the customer experience and increase customer loyalty.

Its creator workflows enable its customers to create, test, and deploy their own applications on the Now Platform. Source: Refinitiv

Sharek’s Take

Here are some financial highlights from last qtr:

• Profit increased 36%, year-over-year.
• Revenue increased 26%, y.o.y (less than 24% adjusted for constant currency).
• Acquired 168 new customers last quarter who are spending greater than $1 million per year.
• 1,897 customers with over $1 million annual contract value, up 15% from a year ago.
• 49 customers paying over $20 million, up by 58% from a year ago.

ServiceNow builds applications that help automate processes and create efficient workflows, to enable work to flow naturally across different departments of a business. Its product portfolio is on a single cloud platform called the Now Platform. Non-tech staff can drag-and-drop interfaces into place on pages and build the platform without the need for a developer. Its Gererative AI offering is called Now Assist. NOW’s specialty is working with large organizations, and the company has a niche in government organizations. Key wins last quarter include in the United States Army, US Postal Service, and Australian Department of Defense Digital Delivery Group. In 2023, ServiceNow teamed up with NVIDIA and Accenture to launch AI Lighthouse, which unites NOW’s automation platform, NVIDIA’s supercomputing, and Accenture’s consulting services to allow users to architect custom generative AI.

NOW’s product portfolio includes:

• Information Technology (IT) Workflows — Its flagship suite records IT incidents, solves problems, and automates routine tasks and requests. There is also a product suite to manage IT projects, one for security operations, and a single dashboard for planning, developing, testing, and deploying.
• Employee Workflows — products for every stage of an employee’s engagement with an employer. It includes HR services and finance operations.
• Customer Workflows — for identifying a customer issue and its underlying cause. It includes customer service management for cases and requests, and a field management product for agents out on location, including scheduling and dispatch.
• Creator Workflows — allows clients to easily create, test, and deploy their own applications on the Now Platform.

NOW is one of the best companies in the world. When I look at the financials, I see revenue has increased on a qtrly basis for years. Management also buys back stock. The stock has an Est. LTG of 23% per year and I feel this is a 30% grower. This quarter the stock has a rich P/E of 60, but I think it’s deserved. Years ago, Salesforce was a 35% grower and it was earning P/Es in the 70s and 80s. NOW is a core holding in the Growth Portfolio and Aggressive Growth Portfolio.

One Year Chart

Quarterly profit growth has been good-to-great for the past four quarters. Quarterly Estimates for the next qtrs are still solid with more than 20% growth expected.

NOW has an Est. LTG of 23% per year, down from 27% 2QtrsAgo. Still a solid growth rate for a large company leading in AI.

Earnings Table

Management announced that customer workflows crossed $1 Billion in annual contract value (ACV) in Q4 and now have a 3 workflow categories generating over $1 Billion in ACV (technology, consumer, creator). ServiceNow just inked a five-year strategic alliance with Visa to transform payment services experiences. The initial phase includes the launch of ServiceNow Disputes Management.

Annual Profit Estimates improved this qtr. For 2024, management raised their subscription revenues outlook to around 22% year-over-year.

Qtrly Profit Estimates are for 32%, 22%, 17%, and 20% growth the next 4 qtrs. Analysts predict ServiceNow’s revenue will grow 23% next qtr.

Fair Value

My Fair Value is a P/E of 60. And the stock has a P/E of 60 this quarter. So the stock seems fairly valued now. 

2024 profit estimates have been increasing. If that continues I will likely raise my Fair Value as well.

Bottom Line

ServiceNow (NOW) is one of the world’s finest software stocks.

ServiceNow is leading the AI revolution in the software segment. 

NOW moves down from 18th to 21st in the Growth Portfolio Power Rankings. The run higher has zapped some of the short-term upside.

The stock moves stays at 14th in the Aggressive Growth Portfolio Power Rankings.

Power Rankings

21 of 34

Aggressive Growth Portfolio

14 of 17

Conservative Stock Portfolio

N/A