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NOW’s expanding Generative AI (GenAI) portfolio, expanding clientele, and rich partner base have been driving top-line growth. A strong partner base, which includes Amazon (AMZN - Free Report) , Microsoft (MSFT - Free Report) and NVIDIA (NVDA - Free Report) , is strengthening ServiceNow’s AI capabilities.
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.
NOW Stock’s Performance
Image Source: Zacks Investment Research
NOW’s Strong Portfolio Expands Clientele
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, available this November for Customer Service Management AI Agents and IT Service Management AI Agents, is expected to reduce the time to resolve an issue and make live agents more productive.
Last month, ServiceNow announced that it is adding 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 strong portfolio is expected to help it win more clients. Exiting third-quarter 2024, ServiceNow had 2,020 total customers with more than $1 million in annual contract value (ACV).
NOW had 15 deals greater than $5 million in net new ACV and six deals of more than $10 million. It closed 96 deals greater than $1 million net new ACV. Number of customers contributing more than $20 million or more grew nearly 40% year over year.
Gen AI deals continued to gain traction in the reported quarter. ServiceNow had 44 new Now Assist customers spending more than $1 million in ACV, including six with more than $5 million and two with more than $10 million.
Rich Partner Base Bolsters NOW’s Prospects
ServiceNow and Amazon Web Services recently announced an expanded strategic collaboration with new capabilities to accelerate AI-driven business transformation. The companies are connecting Amazon Bedrock models to ServiceNow, which will help enterprises boost the development and deployment of GenAI solutions.
NOW inked an expanded partnership with Microsoft to modernize front-office business processes with a Microsoft Copilot and ServiceNow AI agent collaboration. The much anticipated Now Assist integration with Microsoft Copilot for Microsoft 365 is generally available with the Xanadu update.
NVIDIA and NOW are collaborating to develop out-of-the-box use cases for AI agents on the Now platform using NVIDIA NIM Agent Blueprints.
Apart from these, ServiceNow has inked several other partnership deals with the likes of Five9, Visa, Snowflake, Zoom, Siemens, Rimini Street, IBM, Genesys, Fujitsu, Equinix, Boomi and Infosys, which are expected to boost its growing market share.
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.
For the fourth quarter of 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 constant currency, subscription revenues are expected to grow 20.5%.
NOW’s Earnings Estimate Trends Are Steady
The Zacks Consensus Estimate for 2024 earnings is pegged at $13.87 per share, unchanged over the past 30 days, indicating a 28.66% year-over-year increase.
NOW’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 9.46%.
The consensus mark for 2024 revenues is pegged at $10.97 billion, suggesting growth of 22.33% over the 2023 reported figure.
The Zacks Consensus Estimate for 2025 earnings is pegged at $16.40 per share, unchanged over the past 30 days, indicating an 18.27% year-over-year increase.
The consensus mark for 2025 revenues is pegged at $13.18 billion, suggesting growth of 20.13% over the 2024 estimated figure.
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 the third quarter of 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
ServiceNow stock is trading at a premium, as suggested by the Value Score of F.
In terms of the forward 12-month Price/Sales, NOW is trading at 18.08X, higher than its median of 13.82X and the sector’s 6.28X.
Price/Sales Ratio (F12M)
Image Source: Zacks Investment Research
ServiceNow’s robust GenAI portfolio and strong partner base are expected to drive its clientele, boosting subscription revenues. Hence, we believe the premium valuation is justified.
Image: Bigstock
ServiceNow Rises 60% in a Year: Will the Momentum Continue in 2025?
ServiceNow (NOW - Free Report) shares have appreciated 60.3% in the trailing 12 months, outperforming the Zacks Computer & Technology sector and the Zacks Computers – IT Services industry’s returns of 34.7% and 20%, respectively.
NOW’s expanding Generative AI (GenAI) portfolio, expanding clientele, and rich partner base have been driving top-line growth. A strong partner base, which includes Amazon (AMZN - Free Report) , Microsoft (MSFT - Free Report) and NVIDIA (NVDA - Free Report) , is strengthening ServiceNow’s AI capabilities.
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.
NOW Stock’s Performance
Image Source: Zacks Investment Research
NOW’s Strong Portfolio Expands Clientele
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, available this November for Customer Service Management AI Agents and IT Service Management AI Agents, is expected to reduce the time to resolve an issue and make live agents more productive.
Last month, ServiceNow announced that it is adding 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 strong portfolio is expected to help it win more clients. Exiting third-quarter 2024, ServiceNow had 2,020 total customers with more than $1 million in annual contract value (ACV).
NOW had 15 deals greater than $5 million in net new ACV and six deals of more than $10 million. It closed 96 deals greater than $1 million net new ACV. Number of customers contributing more than $20 million or more grew nearly 40% year over year.
Gen AI deals continued to gain traction in the reported quarter. ServiceNow had 44 new Now Assist customers spending more than $1 million in ACV, including six with more than $5 million and two with more than $10 million.
Rich Partner Base Bolsters NOW’s Prospects
ServiceNow and Amazon Web Services recently announced an expanded strategic collaboration with new capabilities to accelerate AI-driven business transformation. The companies are connecting Amazon Bedrock models to ServiceNow, which will help enterprises boost the development and deployment of GenAI solutions.
NOW inked an expanded partnership with Microsoft to modernize front-office business processes with a Microsoft Copilot and ServiceNow AI agent collaboration. The much anticipated Now Assist integration with Microsoft Copilot for Microsoft 365 is generally available with the Xanadu update.
NVIDIA and NOW are collaborating to develop out-of-the-box use cases for AI agents on the Now platform using NVIDIA NIM Agent Blueprints.
Apart from these, ServiceNow has inked several other partnership deals with the likes of Five9, Visa, Snowflake, Zoom, Siemens, Rimini Street, IBM, Genesys, Fujitsu, Equinix, Boomi and Infosys, which are expected to boost its growing market share.
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.
For the fourth quarter of 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 constant currency, subscription revenues are expected to grow 20.5%.
NOW’s Earnings Estimate Trends Are Steady
The Zacks Consensus Estimate for 2024 earnings is pegged at $13.87 per share, unchanged over the past 30 days, indicating a 28.66% year-over-year increase.
NOW’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 9.46%.
ServiceNow, Inc. Price and Consensus
ServiceNow, Inc. price-consensus-chart | ServiceNow, Inc. Quote
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
The consensus mark for 2024 revenues is pegged at $10.97 billion, suggesting growth of 22.33% over the 2023 reported figure.
The Zacks Consensus Estimate for 2025 earnings is pegged at $16.40 per share, unchanged over the past 30 days, indicating an 18.27% year-over-year increase.
The consensus mark for 2025 revenues is pegged at $13.18 billion, suggesting growth of 20.13% over the 2024 estimated figure.
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 the third quarter of 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
ServiceNow stock is trading at a premium, as suggested by the Value Score of F.
In terms of the forward 12-month Price/Sales, NOW is trading at 18.08X, higher than its median of 13.82X and the sector’s 6.28X.
Price/Sales Ratio (F12M)
Image Source: Zacks Investment Research
ServiceNow’s robust GenAI portfolio and strong partner base are expected to drive its clientele, boosting subscription revenues. Hence, we believe the premium valuation is justified.
ServiceNow currently has a Zacks Rank #2 (Buy) and a Growth Score of B, a favorable combination that offers a strong investment opportunity, per the Zacks Proprietary methodology. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.