ServiceNow’s (NOW) AI Platform Assist AI Contracts Doubled Since Last Quarter

Stock (Symbol)

ServiceNow (NOW)

Stock Price

$814

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

• The company’s own IT help desk is saving 45 minutes per avoided case in customer service.
• Customers are saving 30 minutes every time the computer generates the knowledge base article for them.
• NOW employees will save 21,000 hours with faster self-service.
• Developers are completing non-complex scripts at half the time.

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 Generative AI offering is called Now Assist. NOW’s specialty is working with large organizations, and the company has a niche in government organizations. ServiceNow’s research team sis stacked with world-renowned AI experts. Management the ambition to become the defining enterprise software company of the 21st century.

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.  Gartner forecasts global IT spend will be up 8.9% in 2024. And according to IDC, software at a service will grow 17%. NOW stock has an Est. LTG of 22% per year and I feel this is a 30% grower. This quarter the stock has a rich P/E of 59, 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

The stock

Quarterly profit growth has been good-to-great for the past four quarters. Quarterly Estimates for the next qtrs are still solid though it is expected to slow a bit.

With a P/E of 59. I think the stock is where I think it should be.

NOW has an Est. LTG of 22% per year. This is a very a solid growth rate for a large company.

Earnings Table

Now Assist co-generation capabilities within creator workflows remain a powerful productivity tool, appearing in over 70% of NOW’s GenAI deals. Subscription revenue increased 23% year-on year. Management stated that the result of subscription revenues exceeded the high end of their guidance which is 22%. Healthcare and life sciences and retail and hospitality both had a great quarter, increasing 30% year over year. Here are the revenues by Geography:

North America: 63% of total revenue.
EMEA: 25% of total revenue.
APAC & Other: 12% of total revenue.

Annual Profit Estimates improved this qtr. For 2024, management raised the guidance outlook for subscription revenues by $33 million at the midpoint range.

Qtrly Profit Estimates are for 18%, 22%, 16%, and 19% growth the next 4 qtrs. Analysts predict ServiceNow’s revenue will grow 20% next qtr.

Fair Value

My Fair Value remains at P/E of 60, which is a stock price of $827 a share and upside of 2%.

2025’s Fair Value is $992 a share, upside of 22%.

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. Its remarkable this large company can grow revenue faster than 20% a quarter. AI add-ons are providing a fuel for future growth. This is one company that’s making money off AI. Most are just investing for future growth.

NOW ranks 16th in the Growth Portfolio Power Rankings.

The stockranks 13th in the Aggressive Growth Portfolio Power Rankings.

Power Rankings

16 of 32

Aggressive Growth Portfolio

13 of 15

Conservative Stock Portfolio

N/A