ServiceNow, Inc.

NOW Details

ServiceNow, Inc. (NYSE: NOW) uses the SaaS delivery model to offer software applications to clients in the cloud computing environment, allowing them to optimize and automate different business operations. NOW's product portfolio focuses on delivering standardized information technology (IT), employee, and customer workflows. It uses a single corporate cloud platform (NOW platform) to offer digital processes and generates revenue via annual subscription fees, providing professional services, and educating customers and partners.

Promoting Smooth Office Re-openings: NOW announced improvements to its Workplace Service Delivery (WSD) solution on July 15, 2021, which addresses the rapidly expanding and pressing demand for businesses and employees to reopen offices and return to work quickly. Employees can now use ServiceNow's mobile app to book workspaces, conference rooms, and services and navigate their work environments.

Investing in EU Services: NOW announced new service delivery improvements on July 7, 2021, that will allow users to have their EU-hosted data handled entirely within the EU at all times. ServiceNow will make a multimillion-euro investment to support the new offering, which creates over 80 new jobs throughout the EU. In addition, from early 2022, current ServiceNow customers will be able to use this service at no additional cost.

Q1FY21 Results: The company reported a 30% in increase in total revenue to USD 1.36 billion in Q1FY21 (ended March 31, 2021) compared to USD 1.05 billion in Q1FY20, due to an increase in subscription revenue, which was driven by the increase in customer count and purchases by existing customers. Net income increased to USD 82 million in Q1FY21 vs. USD 48 million in Q1FY20. As of March 31, 2021, the company stood with cash and cash equivalents (including short-term investments) of USD 3.46 billion, with a total debt of USD 1.61 billion. During Q1FY21, NOW realized a free cash flow of USD 620 million vs. USD 409 million during Q1FY20.

Key Risks: During FY20 and FY19, NOW's sales outside of North America accounted for 35% and 34%, respectively, of its total revenues. Operating in foreign markets entails several risks, including legal, political, and economic concerns specific to each country. NOW's investments in emerging areas, such as employing sales staff, penetrating the target market, predicting and assuring compliance with regulatory developments, and managing overseas operations in such places, may continue to face challenges.

Outlook: For Q2FY21, the company expects its subscription revenues to be in the range of USD 1.29 to ~USD 1.30 billion, representing a 27-28% YoY increase. NOW expects its non-GAAP operating margin to be around 22% in Q2FY22. For FY21, the company expects its subscription revenues to range between ~USD 5.46 to USD 5.47 billion, also increasing 27-28% YoY. The non-GAAP operating margin is expected to be around 23.50% for FY21.

Valuation Methodology: Price/Cash Flow Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

NOW Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: NOW share price has surged 35.80% in the past 12 months and is currently trading at the higher band of the 52-weeks range of USD 414.60 to USD 598.37. The stock is currently trading far above its 50 and 200 DMA levels, and its RSI Index is at 73.92. We have valued the stock using the Price/Cash Flow-based relative valuation methodology and arrived at a target price of USD 517.98. Considering the significant increase in the stock price, latest developments, increase in cash-flows, associated risks, and current valuation, we recommend a “Sell” rating on the stock at the current price of USD 585.09, up 1.45% as of July 23, 2021, 3:14 PM ET.

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine do not hold interests in any of the securities or other financial products covered on the Kalkine website.