NOW ServiceNow
Elite workflow franchise, but even generous margins and growth leave the price ahead of value.
The story
ServiceNow is the system of record for enterprise IT, HR and customer workflows. Its moat comes from deep platform embedding, very high switching costs and roughly 98% renewal rates. It is a scaled franchise still compounding in the low 20s, with a long runway as it pushes into agentic AI, CRM and industry workflows. GAAP margins remain held down by heavy stock-based compensation, which honest valuation must treat as a real expense.
Growth starts at 20%, in line with recent subscription growth and slightly below the 22% five-year CAGR, then fades over a 12-year horizon that a durable-moat franchise justifies. The GAAP margin climbs from 16.5% to 32% as operating leverage and slowing SBC dilution close part of the gap to the ~30%+ non-GAAP margin. Sales-to-capital is set at 1.8 rather than the reported 1.02 because acquired goodwill understates how efficiently the business reinvests organically.
Value drivers
| Revenue growth (Y1) | 20.0% |
| Terminal growth | 3.5% |
| Forecast horizon | 12y |
| Target operating margin | 32.0% |
| Years to target margin | 7 |
| Sales-to-capital | 1.80 |
| Beta | 1.10 |
| Failure probability | 2.0% |
| Cost of capital (WACC) | 10.0% |
| Terminal WACC | 9.6% |
Valuation bridge
| PV of explicit FCFF | 37.18B |
| PV of terminal value | 54.10B |
| Equity value | 91.65B |
| ÷ shares → per share | $88.64 |
News
neutral +0.10 · 8 articles
- Wells Fargo Raises Salesforce’s Price Target. Can $1.5 Billion Agentforce ARR Drive Growth?
- Enterprise Software Stocks Rally as Tech Tape Slides: Atlassian Corporation, Monday.com and Salesforce Climb 3%, ServiceNow Nudges Higher
- Wall Street Analysts Think ServiceNow (NOW) Is a Good Investment: Is It?
- Salesforce Remains Down Over 12 Months: This Wall Street Firm Doubled Down On Its Belief That 70% Returns Await Investors
- How Far Could CRM Stock Swing In A Year?
- Is UiPath Stock Cheap Because Of What AI Might Do?
- Salesforce vs. ServiceNow: Which Technology Stock Is a Better Buy in 2026?
- The AI Software Story Wall Street Is Underrating
Projected free cash flow to the firm
| Yr | Revenue | Growth | Margin | NOPAT | Reinvest | FCFF | PV |
|---|---|---|---|---|---|---|---|
| 1 | 17.68B | 20.0% | 18.7% | 2.56B | 1.64B | 919.44M | 835.75M |
| 2 | 20.95B | 18.5% | 20.9% | 3.39B | 1.82B | 1.57B | 1.30B |
| 3 | 24.51B | 17.0% | 23.1% | 4.38B | 1.98B | 2.41B | 1.81B |
| 4 | 28.31B | 15.5% | 25.4% | 5.55B | 2.11B | 3.44B | 2.35B |
| 5 | 32.27B | 14.0% | 27.6% | 6.88B | 2.20B | 4.68B | 2.90B |
| 6 | 36.31B | 12.5% | 29.8% | 8.36B | 2.24B | 6.12B | 3.45B |
| 7 | 40.30B | 11.0% | 32.0% | 9.97B | 2.22B | 7.75B | 3.97B |
| 8 | 44.13B | 9.5% | 32.0% | 10.92B | 2.13B | 8.79B | 4.10B |
| 9 | 47.66B | 8.0% | 32.0% | 11.79B | 1.96B | 9.83B | 4.16B |
| 10 | 50.76B | 6.5% | 32.0% | 12.56B | 1.72B | 10.84B | 4.17B |
| 11 | 53.29B | 5.0% | 32.0% | 13.18B | 1.41B | 11.77B | 4.12B |
| 12 | 55.16B | 3.5% | 32.0% | 13.65B | 1.04B | 12.61B | 4.01B |
Key risks
- AI agents from hyperscalers or Salesforce erode seat-based pricing and platform lock-in
- Stock-based compensation stays near 15% of revenue, capping GAAP margin expansion
- Enterprise IT budget slowdown compresses net-new ACV and the premium multiple
Catalysts
- Now Assist/agentic AI SKUs lifting price per seat and net expansion
- Evidence of GAAP margin expansion as SBC intensity declines