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ServiceNow Rises 6% in a Month: Should Investors Buy NOW Stock?
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ServiceNow (NOW - Free Report) shares have returned 6.4% in the past month, outperforming the Zacks Computer & Technology sector and the Zacks Computers – IT Services industry. While the sector has dropped 2.6%, the industry has returned 5.4% over the same time frame.
ServiceNow has been benefiting from strong expansion in clientele as enterprises undergoing digital transformation continue to adopt its workflow solutions. NOW’s growing Generative AI prowess and strong partner base are driving prospects.
Year to date, ServiceNow shares have returned 25.4%, and the momentum is expected to continue in the second half of 2024.
NOW shares are trading above the 50-day and 200-day moving averages, indicating a bullish trend.
NOW Trades Above 50-day and 200-day SMA
Image Source: Zacks Investment Research
Let’s dig deeper to find out the factors driving NOW’s prospects.
Year-to-Date Performance
Image Source: Zacks Investment Research
NOW’s Q3 & 2024 Guidance Encouraging
ServiceNow expects third-quarter 2024 subscription revenues between $2.66 billion and $2.67 billion, suggesting an improvement in the range of 20-20.5% year over year on a GAAP basis. At constant currency, subscription revenues are expected to grow 20.5%.
ServiceNow expects the non-GAAP operating margin to be 29.5% in the current quarter.
For 2024, NOW expects subscription revenues to be $10.575-$10.585 billion, which suggests a rise of 22% from 2023, both on a GAAP and 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% (up from the previous guidance of 29%).
NOW’s Earnings Estimate Revision Shows Upward Movement
The Zacks Consensus Estimate for 2024 earnings is pegged at $13.75 per share, up 1.8% over the past 60 days, indicating a 27.55% year-over-year increase.
The consensus mark for third-quarter 2024 earnings is pegged at $3.46 per share, up a couple of cents over the past 60 days, indicating an 18.49% year-over-year increase.
The Zacks Consensus Estimate for third-quarter revenues is pegged at $2.74 billion, indicating year-over-year growth of 19.78%. The consensus mark for 2024 revenues is pegged at $10.9 billion, suggesting growth of 21.51% over the 2023 reported figure.
Strong Portfolio & Partner Base 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 new AI capabilities to boost customer agility, enhance productivity and improve employee experiences. It expands the GenAI portfolio to enterprise functions, including Security as well as 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 taken to resolve an issue and make live agents more productive.
A strong partner base that includes the likes of Visa, Microsoft (MSFT - Free Report) , NVIDIA (NVDA - Free Report) , International Business Machines (IBM - Free Report) , Genesys, Fujitsu, Equinix, Boomi and Infosys is strengthening NOW’s AI capabilities.
The much anticipated Now Assist integration with Microsoft Copilot for Microsoft 365 is now generally available.
Strong Liquidity Makes NOW Stock Attractive
A strong liquidity position with a cash balance of $5.41 billion as of June 30, 2024, is noteworthy. ServiceNow generated a free cash flow of $359 million in the second quarter of 2024.
NOW expects the free cash flow margin to be 31% for 2024.
The strong liquidity position allows NOW to pursue various growth opportunities, including acquisitions. ServiceNow completed the acquisition of Raytion to enhance GenAI-powered search and knowledge management capabilities on the Now Platform.
However, NOW stock is not so cheap, as the Value Score of D suggests a stretched valuation at this moment.
In terms of the forward 12-month Price/Sales ratio, NOW is trading at 14.61X, higher than its median of 13.34X and the Zacks Computer & Technology sector’s 6.14X.
Price/Sales Ratio (F12M)
Image Source: Zacks Investment Research
Nevertheless, we believe 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, thereby boosting subscription revenues. The Growth Score of B makes the stock attractive for growth-oriented investors.
ServiceNow (NOW - Free Report) shares have returned 6.4% in the past month, outperforming the Zacks Computer & Technology sector and the Zacks Computers – IT Services industry. While the sector has dropped 2.6%, the industry has returned 5.4% over the same time frame.
ServiceNow has been benefiting from strong expansion in clientele as enterprises undergoing digital transformation continue to adopt its workflow solutions. NOW’s growing Generative AI prowess and strong partner base are driving prospects.
Year to date, ServiceNow shares have returned 25.4%, and the momentum is expected to continue in the second half of 2024.
NOW shares are trading above the 50-day and 200-day moving averages, indicating a bullish trend.
NOW Trades Above 50-day and 200-day SMA
Image Source: Zacks Investment Research
Let’s dig deeper to find out the factors driving NOW’s prospects.
Year-to-Date Performance
Image Source: Zacks Investment Research
NOW’s Q3 & 2024 Guidance Encouraging
ServiceNow expects third-quarter 2024 subscription revenues between $2.66 billion and $2.67 billion, suggesting an improvement in the range of 20-20.5% year over year on a GAAP basis. At constant currency, subscription revenues are expected to grow 20.5%.
ServiceNow expects the non-GAAP operating margin to be 29.5% in the current quarter.
For 2024, NOW expects subscription revenues to be $10.575-$10.585 billion, which suggests a rise of 22% from 2023, both on a GAAP and 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% (up from the previous guidance of 29%).
NOW’s Earnings Estimate Revision Shows Upward Movement
The Zacks Consensus Estimate for 2024 earnings is pegged at $13.75 per share, up 1.8% over the past 60 days, indicating a 27.55% year-over-year increase.
The consensus mark for third-quarter 2024 earnings is pegged at $3.46 per share, up a couple of cents over the past 60 days, indicating an 18.49% year-over-year increase.
ServiceNow, Inc. Price and Consensus
ServiceNow, Inc. price-consensus-chart | ServiceNow, Inc. Quote
The Zacks Consensus Estimate for third-quarter revenues is pegged at $2.74 billion, indicating year-over-year growth of 19.78%. The consensus mark for 2024 revenues is pegged at $10.9 billion, suggesting growth of 21.51% over the 2023 reported figure.
Strong Portfolio & Partner Base 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 new AI capabilities to boost customer agility, enhance productivity and improve employee experiences. It expands the GenAI portfolio to enterprise functions, including Security as well as 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 taken to resolve an issue and make live agents more productive.
A strong partner base that includes the likes of Visa, Microsoft (MSFT - Free Report) , NVIDIA (NVDA - Free Report) , International Business Machines (IBM - Free Report) , Genesys, Fujitsu, Equinix, Boomi and Infosys is strengthening NOW’s AI capabilities.
The much anticipated Now Assist integration with Microsoft Copilot for Microsoft 365 is now generally available.
Strong Liquidity Makes NOW Stock Attractive
A strong liquidity position with a cash balance of $5.41 billion as of June 30, 2024, is noteworthy. ServiceNow generated a free cash flow of $359 million in the second quarter of 2024.
NOW expects the free cash flow margin to be 31% for 2024.
The strong liquidity position allows NOW to pursue various growth opportunities, including acquisitions. ServiceNow completed the acquisition of Raytion to enhance GenAI-powered search and knowledge management capabilities on the Now Platform.
NOW’s Strong Prospects Justifies Premium Valuation
However, NOW stock is not so cheap, as the Value Score of D suggests a stretched valuation at this moment.
In terms of the forward 12-month Price/Sales ratio, NOW is trading at 14.61X, higher than its median of 13.34X and the Zacks Computer & Technology sector’s 6.14X.
Price/Sales Ratio (F12M)
Image Source: Zacks Investment Research
Nevertheless, we believe 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, thereby boosting subscription revenues. The Growth Score of B makes the stock attractive for growth-oriented investors.
ServiceNow currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.