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ServiceNow Expands Generative AI Offerings: Is the Stock a Buy?
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ServiceNow (NOW - Free Report) is adding Generative AI (GenAI) and governance innovations to the Now platform to foster responsible AI. NOW is adding more than 150 GenAI innovations to its portfolio, including new, expanded Now Assist capabilities with an AI Governance feature for secure and compliant AI practices.
NOW’s expanding GenAI portfolio and rich partner base have been driving top-line growth. A strong partner base, which includes the likes of Five9 (FIVN - Free Report) , Visa, Microsoft (MSFT - Free Report) , NVIDIA (NVDA - Free Report) , Zoom, Siemens, Rimini Street, Siemens, IBM, Genesys, Fujitsu, Equinix, Boomi and Infosys, is strengthening ServiceNow’s AI capabilities.
NOW and Five9 recently signed an expanded partnership to deliver a turnkey AI-powered solution for unified end-to-end employee and customer experiences by combining ServiceNow Customer Service Management and the Five9 platform.
NOW’s prospects remain bright, with shares appreciating 48% year to date, outperforming the Zacks Computer & Technology sector and the Zacks Computers – IT Services industry’s returns of 30% and 15.8%, respectively.
ServiceNow shares are trading above the 50-day and 200-day moving averages, indicating a bullish trend.
NOW Trades Above 50-day & 200-day SMA
Image Source: Zacks Investment Research
Let us dig deeper to find out the factors driving NOW’s prospects.
YTD Performance
Image Source: Zacks Investment Research
ServiceNow Raises Subscription Revenue Guidance
For 2024, NOW expects subscription revenues of $10.655-$10.66 billion (up from previous guidance of $10.575-$10.585 billion), which suggests a rise of 23% from the 2023 actuals on a GAAP basis and 22.5% on a non-GAAP basis.
ServiceNow expects the non-GAAP subscription gross margin to be 84.5% and the non-GAAP operating margin to be 29.5%. The free cash flow margin is expected to be 31%.
For fourth-quarter 2024, subscription revenues are projected between $2.875 billion and $2.88 billion, suggesting a year-over-year improvement of 21.5-22% on a GAAP basis. At cc, subscription revenues are expected to grow in the 20.5%.
Current Remaining Performance Obligation is expected to grow 21.5% year over year on both non-GAAP and GAAP basis.
ServiceNow expects a non-GAAP operating margin of 29% for the current quarter.
The Zacks Consensus Estimate for 2024 earnings is pegged at $13.87 per share, up 0.4% over the past 30 days, indicating a 28.66% year-over-year increase.
The consensus mark for 2024 revenues is pegged at $10.97 billion, suggesting growth of 22.33% over the 2023 reported figure.
Strong Portfolio Aids NOW’s Prospects
ServiceNow is extensively leveraging AI and machine learning technologies to boost the potency of its solutions. NOW’s expanding GenAI capabilities are noteworthy, as its total addressable market is expected to hit $275 billion in 2026.
ServiceNow’s latest update, Xanadu, offers AI-powered, purpose-built industry solutions for domains, including telecom, media, and technology, financial services and the public sector.
The Xanadu update adds the latest AI capabilities to boost customer agility, enhance productivity and improve employee experiences. It expands the GenAI portfolio to enterprise functions, including Security, and Sourcing & Procurement Operations.
NOW plans to integrate Agentic AI into the ServiceNow platform and unlock 24/7 productivity at a massive scale. This service will be available this November for Customer Service Management AI Agents and IT Service Management AI Agents. It is expected to reduce the time to resolve an issue and make live agents more productive.
Strong Liquidity Makes NOW Stock Attractive
A strong liquidity position, with a cash balance of $5.295 billion as of Sept. 30, 2024, is noteworthy. ServiceNow generated a free cash flow of $471 million in the third quarter of 2024.
NOW expects the free cash flow margin to be 31% for 2024.
The strong liquidity position allows ServiceNow to pursue various growth opportunities, including acquisitions and share repurchases.
In third-quarter 2024, NOW repurchased roughly 272,000 shares for $225 million and had $562 million available for future share repurchases under the existing program.
NOW’s Strong Prospects Justify Premium Valuation
However, the NOW stock is not so cheap, as the Value Score of F suggests a stretched valuation at this moment.
In terms of the forward 12-month Price/Sales ratio, NOW is trading at 16.7X, higher than its median of 13.72X and the sector’s 6.37X.
Price/Sales Ratio (F12M)
Image Source: Zacks Investment Research
We believe that the strong growth prospect justifies ServiceNow’s premium valuation.
Conclusion
ServiceNow’s robust GenAI portfolio and strong partner base are expected to drive its clientele, boosting subscription revenues. The Growth Score of B makes the stock attractive for growth-oriented investors.
Image: Bigstock
ServiceNow Expands Generative AI Offerings: Is the Stock a Buy?
ServiceNow (NOW - Free Report) is adding Generative AI (GenAI) and governance innovations to the Now platform to foster responsible AI. NOW is adding more than 150 GenAI innovations to its portfolio, including new, expanded Now Assist capabilities with an AI Governance feature for secure and compliant AI practices.
NOW’s expanding GenAI portfolio and rich partner base have been driving top-line growth. A strong partner base, which includes the likes of Five9 (FIVN - Free Report) , Visa, Microsoft (MSFT - Free Report) , NVIDIA (NVDA - Free Report) , Zoom, Siemens, Rimini Street, Siemens, IBM, Genesys, Fujitsu, Equinix, Boomi and Infosys, is strengthening ServiceNow’s AI capabilities.
NOW and Five9 recently signed an expanded partnership to deliver a turnkey AI-powered solution for unified end-to-end employee and customer experiences by combining ServiceNow Customer Service Management and the Five9 platform.
NOW’s prospects remain bright, with shares appreciating 48% year to date, outperforming the Zacks Computer & Technology sector and the Zacks Computers – IT Services industry’s returns of 30% and 15.8%, respectively.
ServiceNow shares are trading above the 50-day and 200-day moving averages, indicating a bullish trend.
NOW Trades Above 50-day & 200-day SMA
Image Source: Zacks Investment Research
Let us dig deeper to find out the factors driving NOW’s prospects.
YTD Performance
Image Source: Zacks Investment Research
ServiceNow Raises Subscription Revenue Guidance
For 2024, NOW expects subscription revenues of $10.655-$10.66 billion (up from previous guidance of $10.575-$10.585 billion), which suggests a rise of 23% from the 2023 actuals on a GAAP basis and 22.5% on a non-GAAP basis.
ServiceNow expects the non-GAAP subscription gross margin to be 84.5% and the non-GAAP operating margin to be 29.5%. The free cash flow margin is expected to be 31%.
For fourth-quarter 2024, subscription revenues are projected between $2.875 billion and $2.88 billion, suggesting a year-over-year improvement of 21.5-22% on a GAAP basis. At cc, subscription revenues are expected to grow in the 20.5%.
Current Remaining Performance Obligation is expected to grow 21.5% year over year on both non-GAAP and GAAP basis.
ServiceNow expects a non-GAAP operating margin of 29% for the current quarter.
The Zacks Consensus Estimate for 2024 earnings is pegged at $13.87 per share, up 0.4% over the past 30 days, indicating a 28.66% year-over-year increase.
ServiceNow, Inc. Price and Consensus
ServiceNow, Inc. price-consensus-chart | ServiceNow, Inc. Quote
The consensus mark for 2024 revenues is pegged at $10.97 billion, suggesting growth of 22.33% over the 2023 reported figure.
Strong Portfolio Aids NOW’s Prospects
ServiceNow is extensively leveraging AI and machine learning technologies to boost the potency of its solutions. NOW’s expanding GenAI capabilities are noteworthy, as its total addressable market is expected to hit $275 billion in 2026.
ServiceNow’s latest update, Xanadu, offers AI-powered, purpose-built industry solutions for domains, including telecom, media, and technology, financial services and the public sector.
The Xanadu update adds the latest AI capabilities to boost customer agility, enhance productivity and improve employee experiences. It expands the GenAI portfolio to enterprise functions, including Security, and Sourcing & Procurement Operations.
NOW plans to integrate Agentic AI into the ServiceNow platform and unlock 24/7 productivity at a massive scale. This service will be available this November for Customer Service Management AI Agents and IT Service Management AI Agents. It is expected to reduce the time to resolve an issue and make live agents more productive.
Strong Liquidity Makes NOW Stock Attractive
A strong liquidity position, with a cash balance of $5.295 billion as of Sept. 30, 2024, is noteworthy. ServiceNow generated a free cash flow of $471 million in the third quarter of 2024.
NOW expects the free cash flow margin to be 31% for 2024.
The strong liquidity position allows ServiceNow to pursue various growth opportunities, including acquisitions and share repurchases.
In third-quarter 2024, NOW repurchased roughly 272,000 shares for $225 million and had $562 million available for future share repurchases under the existing program.
NOW’s Strong Prospects Justify Premium Valuation
However, the NOW stock is not so cheap, as the Value Score of F suggests a stretched valuation at this moment.
In terms of the forward 12-month Price/Sales ratio, NOW is trading at 16.7X, higher than its median of 13.72X and the sector’s 6.37X.
Price/Sales Ratio (F12M)
Image Source: Zacks Investment Research
We believe that the strong growth prospect justifies ServiceNow’s premium valuation.
Conclusion
ServiceNow’s robust GenAI portfolio and strong partner base are expected to drive its clientele, boosting subscription revenues. The Growth Score of B makes the stock attractive for growth-oriented investors.
ServiceNow currently has a Zacks Rank #2 (Buy), which implies that investors should start accumulating the stock right now. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.