ServiceNow, Inc. (NOW) | Company valuation, comparison, AI analysis | Thematic | AI powered fundamental research and development platform

Key takeaways

ServiceNow's current valuation appears moderately overvalued based on its high EV/EBITDA and EV/Sales multiples compared to industry averages and historical levels. While the company demonstrates strong financial performance and growth prospects, particularly in AI-powered solutions, the current valuation seems to be pricing in overly optimistic expectations that may not fully account for potential risks such as intense competition and macroeconomic uncertainties.

ServiceNow's revenue has consistently grown, reaching $2.957 billion in Q4 2024, but recent stock performance has lagged behind peers like CrowdStrike and Palo Alto Networks, with a YTD return of -24.34%.
The company maintains strong profitability, with gross profit margins around 79% and EBITDA margins exceeding industry averages, indicating efficient operations.
ServiceNow's current ratio is 1.04, below the industry average of 2.88, suggesting potential liquidity management concerns despite robust cash flow generation.
AI is a major growth driver, with ServiceNow strategically positioned to capitalize on the increasing demand for AI-powered solutions, as evidenced by the 150% quarter-over-quarter deal growth in Pro Plus AI offerings.
Despite strong fundamentals, ServiceNow faces risks from rapid technological changes, intense competition, and ongoing legal matters, contributing to recent negative market sentiment and price declines.
Management's guidance for 2025 projects a 20% year-over-year growth in subscription revenues, indicating continued confidence in the company's long-term prospects.
ServiceNow's Enterprise Value to EBITDA ratio, ranging from 103.93 to 118.80, suggests a premium valuation compared to the industry average, reflecting investor expectations for future growth.
The company's debt-to-equity ratio remains low at around 25%, significantly below the industry average, indicating a conservative capital structure and financial stability.
Strategic partnerships with AWS, Google Cloud, and Microsoft are expected to enhance ServiceNow's offerings and expand its market reach, supporting future growth opportunities.
Recent price declines, with the stock price falling approximately 30.3% from January 29, 2025, to March 28, 2025, highlight the need for investors to carefully monitor market sentiment and potential risks.

Evaluation summary

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Company Overview:
- ServiceNow, Inc. (NOW) is a leading provider of cloud-based workflow automation solutions for digital businesses. Its core offering, the Now Platform, leverages artificial intelligence (AI) and machine learning (ML) to streamline operations across IT, customer service, employee experience, and other business functions.
- Key products include Technology Workflows, Customer and Industry Workflows, Employee Workflows, and Creator Workflows. These solutions cater to a diverse clientele, including over 85% of the Fortune 500 and nearly 60% of the Global 2000, as highlighted in the SEC filings.
- The company's competitors include enterprise software vendors, emerging technology companies, custom in-house solutions, and systems integrators.
- For comparative analysis, ServiceNow is benchmarked against the Technology Select Sector SPDR Fund (XLK) and evaluated alongside industry peers CrowdStrike Holdings, Inc. (CRWD) and Palo Alto Networks, Inc. (PANW).
Financial Performance:
- ServiceNow has demonstrated consistent revenue growth, with quarterly revenue increasing from $2.603 billion in Q1 2024 to $2.957 billion in Q4 2024. This represents a growth of approximately 13.6% over the year.
- Gross profit margins have remained consistently high, ranging from 78.66% to 80.02% throughout 2024. For example, the gross profit margin in Q4 2024 was 78.66%.
- Net income has fluctuated, with a low of $262 million in Q2 2024 and a high of $432 million in Q3 2024. The net profit margin in Q4 2024 was 12.99%.
- Return on Average Assets (ROA) ranged from 6.92% to 7.97% throughout the year, while Return on Equity (ROE) ranged from 14.70% to 16.53%. These figures are significantly higher than the industry averages of -17.77% and -57.06%, respectively, indicating superior profitability.
- The EBITDA margin in Q4 2024 was 17.04%, compared to the industry average of -5713.19%, further highlighting ServiceNow's strong profitability.
Operational Efficiency:
- Total current assets increased from $6.898 billion in Q1 2024 to $8.670 billion in Q4 2024, indicating improved liquidity.
- Working capital, while positive, remained relatively stable, fluctuating between $312 million and $408 million.
- Net operating cash flow showed significant variability, ranging from $620 million in Q2 2024 to $1.635 billion in Q4 2024.
- Free cash flow to equity also varied, from $358 million in Q2 2024 to $1.382 billion in Q4 2024.
- Capital expenditure remained relatively consistent, ranging from $156 million to $271 million per quarter.
- The current ratio ranged from 0.98 to 1.06, which is lower than the industry average of 2.88, suggesting potential liquidity concerns.
- The debt-to-equity ratio remained stable, ranging from 23.71% to 28.04%, significantly lower than the industry average of 95.32%, indicating a conservative capital structure.
Growth Opportunities:
- ServiceNow is strategically focused on expanding its AI-powered solutions, as highlighted in the earnings call, with its agentic AI offerings driving significant customer interest.
- The company's hybrid pricing model, combining subscription and consumption-based elements, aims to capture additional revenue as AI agent usage increases.
- Strategic partnerships with technology leaders like AWS, Google Cloud, and Microsoft enhance ServiceNow's offerings and expand its market reach.
- The increasing focus on IT modernization in the public sector presents a substantial growth opportunity for ServiceNow, given its established presence in government agencies.
- ServiceNow acquired G2K Group GmbH in 2023 to enhance the Now Platform with IoT capabilities, further expanding its product offerings.
Recent Developments and Market Sentiment:
- The earnings call on January 29, 2025, revealed that ServiceNow consistently beat expectations and raised guidance in 2024, driving Remaining Performance Obligation (RPO) to nearly $23 billion.
- ServiceNow is experiencing significant growth in its Pro Plus AI offerings, with 150% quarter-over-quarter deal growth.
- The company announced a $3 billion share repurchase program, signaling confidence in its financial position.
- Analysts are focused on the impact of the hybrid consumption and subscription model, the emergence of Chinese AI models, and the company's agent strategy.
- Recent price declines, with the stock price falling from $1143.63 on January 29, 2025, to $797.76 on March 28, 2025, indicate negative market sentiment, potentially driven by concerns about future growth or broader market conditions.
Risks and Threats:
- ServiceNow faces risks from rapidly evolving technology, intense competition, and macroeconomic uncertainties, as detailed in the SEC filings.
- Fluctuations in foreign currency exchange rates and potential issues with customer implementations could also impact the company's financial performance.
- Ongoing legal matters, such as the patent infringement lawsuit with InQuisient Inc., represent potential risks that bear close monitoring.
- The company's reliance on third-party partners and exposure to cybersecurity threats pose additional challenges.
Valuation Analysis:
- The Enterprise Value to EBITDA ratio ranged from 103.93 to 118.80 during 2024, indicating a premium valuation compared to the industry average of 101.71.
- The Enterprise Value to Sales ratio ranged from 16.10 to 19.85, also suggesting a premium valuation compared to the industry average of -19.57.
- Potential catalysts include continued growth in AI-powered solutions, successful execution of strategic partnerships, and expansion in the public sector.
Price Performance:
- ServiceNow's stock price has experienced significant volatility, with a recent decline from $1143.63 on January 29, 2025, to $797.76 on March 28, 2025, representing a decrease of approximately 30.3%.
- The Year-To-Date (YTD) performance shows NOW at -24.34%, significantly lower than CRWD's 2.81% and PANW's -4.42%.
- Over a 2-year period, NOW's return of 81.46% is substantially lower than CRWD's 171.11%, but slightly outperforms PANW's 78.5%.
- Compared to the Technology Select Sector SPDR Fund (XLK), ServiceNow has underperformed in the shorter term, including Year-To-Date, 1 Week, 1 Month, 3 Months, and 6 Months.
Future Outlook:
- Management expects subscription revenues between $12.635 billion and $12.675 billion for 2025, representing 20% year-over-year growth in constant currency.
- Operating margin is expected to be 30.5%, and free cash flow margin is projected at 32%.
- The company's focus on AI-powered solutions, strategic partnerships, and public sector expansion is expected to drive future growth.
- Recent price declines and negative market sentiment may impact short-term performance, but the company's long-term prospects remain positive.
Summary:
- ServiceNow exhibits strong financial health, characterized by consistent revenue growth, efficient operations, and a conservative capital structure.
- The company's subscription-based business model provides a recurring revenue stream and supports predictable growth.
- ServiceNow is well-positioned to capitalize on the growing demand for AI-powered workflow automation and digital transformation solutions.
- However, the company faces risks from rapidly evolving technology, intense competition, and ongoing legal matters.
- Recent price declines and underperformance relative to peers warrant a cautious approach, pending further evidence of sustained growth and improved market sentiment.
- SWOT Analysis:
  - Strengths: Strong financial performance, subscription-based revenue model, leadership in AI-powered solutions.
  - Weaknesses: Lower current ratio compared to industry average, recent price declines, underperformance relative to peers.
  - Opportunities: Growing demand for AI-powered solutions, strategic partnerships, public sector expansion.
  - Threats: Rapidly evolving technology, intense competition, ongoing legal matters, macroeconomic uncertainties.
- Overall Financial Health: ServiceNow demonstrates strong financial stability with consistent revenue growth, high gross margins, and a conservative capital structure.
- Critical Factors for Future Performance: Successful execution of AI strategy, effective management of competition, resolution of legal matters, and improvement in market sentiment.
- Areas Requiring Further Monitoring: Liquidity management, price performance relative to peers, and progress on strategic initiatives.
- Investment Profile Assessment: ServiceNow presents a growth-oriented investment profile with significant potential in the AI-driven workflow automation market. However, investors should carefully consider the risks associated with competition, technological changes, and ongoing legal matters. The recent price decline and underperformance relative to peers warrant a cautious approach, pending further evidence of sustained growth and improved market sentiment.

Price history

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Fundamentals

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Insights

ServiceNow exhibits strong financial health, characterized by consistent revenue growth, efficient operations, and a conservative capital structure.
The company's subscription-based business model provides a recurring revenue stream and supports predictable growth.
While revenue growth remains strong, there are indications of potential deceleration in the future.
The company's liquidity position is adequate but could be improved to align with industry standards.
ServiceNow is well-positioned to capitalize on the growing demand for AI-powered workflow automation and digital transformation solutions.

Analysis

Revenue - ServiceNow has demonstrated consistent revenue growth, driven by its subscription-based model and expansion with existing customers. - The company's strategic initiatives, such as new product launches and market expansion, have contributed to this growth. - While revenue growth remains strong, there are indications of potential deceleration in the future.
- Profitability
  - ServiceNow exhibits strong profitability, with healthy gross and operating margins.
  - The company's efficient cost management and subscription-based revenue stream contribute to its profitability.
  - Net income has fluctuated due to various factors, but overall profitability remains strong.
- Liquidity
  - ServiceNow's liquidity position is adequate, with sufficient liquid assets to cover short-term obligations.
  - However, the company's current ratio is lower than the industry average, suggesting room for improvement in liquidity management.
  - The company's strong cash flow generation supports its liquidity position.
- Solvency
  - ServiceNow has a conservative capital structure, with a low level of financial leverage.
  - The company's debt-to-equity ratio is significantly lower than the industry average, indicating a lower risk of financial distress.
  - The company's manageable debt load relative to earnings supports its long-term solvency.
- Operational Efficiency
  - ServiceNow demonstrates efficient operations, with a stable gross profit margin and effective cost management.
  - The company's focus on cloud-based services and workflow automation contributes to its operational efficiency.
  - The company's enterprise value multiples suggest a premium valuation, reflecting investor confidence in its operational efficiency.
- Cash Flow Analysis - ServiceNow exhibits strong cash flow generation, driven by its subscription-based revenue model and efficient operations. - The company's operating cash flow is robust, supporting its liquidity position and investment activities. - The company's free cash flow margin is healthy, providing financial flexibility for future growth opportunities.
- Risk Factors
  - The company faces risks from rapidly evolving technology, intense competition, and macroeconomic uncertainties.
  - Fluctuations in foreign currency exchange rates and potential issues with customer implementations could also impact the company's financial performance.
  - Ongoing legal matters, such as the patent infringement lawsuit and government investigations, represent potential risks that bear close monitoring.
- Future Outlook
  - ServiceNow is well-positioned to capitalize on the growing demand for AI-powered workflow automation and digital transformation solutions.
  - The company's strategic initiatives, such as new product launches and partnerships, are expected to drive future growth.
  - Management's focus on innovation, efficiency, and shareholder returns supports a positive future outlook.

Financial statements

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Public filings

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ServiceNow is a leading provider of cloud-based workflow automation and digital transformation solutions, serving a large base of enterprise and government customers.
The company is well-positioned to capitalize on the growing demand for AI-powered workflow optimization and digital modernization, as evidenced by its recent product enhancements and strategic partnerships.
However, ServiceNow faces risks from rapidly evolving technology, intense competition, customer implementation challenges, cybersecurity threats, and macroeconomic uncertainties that could impact its growth and profitability.
The company's strong financial performance, with robust subscription revenue growth, high gross margins, and healthy cash flows, suggests it is executing well on its strategy despite these challenges.
Ongoing legal matters, such as the patent infringement lawsuit and government investigations, represent potential risks that bear close monitoring, though the financial impact appears limited based on the disclosures.

Core Business and Operations:

ServiceNow provides a cloud-based platform and workflow applications to help enterprises digitize and automate their operations across IT, customer service, employee experience, and other business functions
Key products include the Now Platform, Technology Workflows, Customer and Industry Workflows, Employee Workflows, and Creator Workflows
Customers include over 85% of the Fortune 500 and nearly 60% of the Global 2000
Competes with enterprise software vendors, new technologies/entrants, custom in-house solutions, and systems integrators

Industry and Market Trends:

Rapid technological changes, including the rise of AI/ML, driving demand for digital transformation and workflow automation
Increasing regulatory requirements around data privacy, security, and residency creating compliance challenges
Macroeconomic uncertainty from factors like higher interest rates, inflation, and geopolitical conflicts

Recent Events:

Acquired G2K Group GmbH in 2023 to enhance the Now Platform with IoT capabilities
Launched new AI-powered features like Now Assist to embed generative AI and agentic AI into workflows
Expanded strategic partnerships with technology companies like NVIDIA and cloud providers

Risk Factors:

Ability to innovate and keep pace with rapidly evolving technology and competition
Reliance on third-party partners and potential issues with customer implementations
Exposure to cybersecurity threats and data privacy/residency regulations
Concentration of revenues from large enterprise customers and government entities
Fluctuations in foreign currency exchange rates

Legal Matters:

Ongoing litigation with InQuisient Inc. over alleged patent infringement, which the company is vigorously defending
Internal investigation and cooperation with government agencies regarding potential compliance issues related to a government contract

Management's Discussion and Analysis:

Subscription revenues grew 23% year-over-year, driven by new customer additions and expansion with existing customers
Gross margins remained relatively stable around 82% for subscription business
Significant investments in R&D, sales/marketing, and G&A to support growth, with stock-based compensation as a major expense
Strong operating cash flows, with free cash flow of $1.8 billion in 2024
Healthy balance sheet with $9.9 billion in cash, cash equivalents, and investments

Earnings calls

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Earnings Report 2024Q4 (2025-01-29)

Key takeaways

AI is a Major Growth Catalyst: ServiceNow is strategically positioned to capitalize on the growing demand for AI-powered solutions, with its agentic AI offerings driving significant customer interest and deal growth.
Hybrid Pricing Model Balances Predictability and Upside: The hybrid subscription and consumption-based pricing model allows customers to maintain predictable spending while providing ServiceNow with the potential for significant revenue upside as AI agent usage increases.
Platform Approach Provides Competitive Advantage: ServiceNow's unified platform, with its integrated data model and workflow orchestration capabilities, offers a distinct advantage over competitors with fragmented systems.
Strategic Partnerships Expand Reach and Capabilities: Collaborations with leading technology providers like AWS, Google Cloud, and Microsoft enhance ServiceNow's offerings and expand its market reach.
Public Sector Modernization Presents a Significant Opportunity: The increasing focus on IT modernization in the public sector creates a substantial growth opportunity for ServiceNow, given its strong track record and established presence in government agencies.

Focus of management’s prepared remarks

Outstanding Business Fundamentals: ServiceNow consistently beat expectations and raised guidance in 2024, driving RPO to nearly $23 billion and maintaining a strong balance sheet with $10 billion in cash and investments. The company is a 20%+ grower at scale with margin accretion, operating at the Rule of 54.
Leadership in Generative AI: ServiceNow is experiencing significant growth in its Pro Plus AI offerings, with 150% quarter-over-quarter deal growth. The company is positioned at the center of data, AI agents, workflow orchestration, and enterprise governance, which is the nexus of AI's value creation opportunity.
Enterprise Platform Expansion: ServiceNow continues to expand its enterprise platform, with 19 deals greater than $5 million in net new ACV and landing its largest new logo deal ever. The company is seeing success across its product areas, including tech workflows, customer and industry workflows, and employee and creator workflows.
2025 Guidance: ServiceNow expects another great year in 2025, consistent with its track record of overachieving stated goals. The company will remain innovative, fast-growing, and highly profitable.
AI Agent Strategy: ServiceNow has the AI agents, workflows, workflow data fabric, Raptor DB, and integration hub in one platform at scale. The company has thousands of AI agents leveraging 20 years of automation, data, and outcomes. ServiceNow's platform handles orchestration and governance, eliminating sprawl and managing teams of AI agents.
Pricing Model Evolution: ServiceNow is enabling elements of consumption-based pricing as AI agents become a potent value driver for the enterprise. The company is prioritizing accelerating adoption by foregoing upfront incremental new subscriptions and monetizing the hockey stick of usage over time.
Customer Success Stories: Petrobras, a large DoD agency, New Zealand Parliamentary service, Scouting America, Grupo Bimbo, Toyota, Rolls-Royce, the federal service desk, and NTT Data are all working with ServiceNow to put AI to work for people.
Strategic Partnerships: ServiceNow is expanding its collaborations with AWS, Google Cloud, Visa, Five9, and Microsoft to accelerate AI transformation and deliver AI-powered tools to millions of users.
Industry Recognition: ServiceNow is recognized as a leader in the 2024 Gartner Magic Quadrant for the CRM Customer Engagement Center and the Forrester Wave task-centric automation software. The company was also recognized as number two on Fortune's world's most admired software companies and number one in innovation and building a people-first culture.
Financial Outlook: Subscription revenues are expected to grow 20% year-over-year in constant currency. Operating margin is expected to increase by 100 basis points year-over-year, and free cash flow margin is expected to increase by 50 basis points.

Focus of the analyst Q&A

Hybrid Consumption and Subscription Model:
- Rationale behind the decision to implement a hybrid model.
- Confidence in managing both subscription and consumption tracks effectively.
- Hypothetical subscription revenue growth outlook without the consumption element.
Impact of DeepSeek and Other AI Models:
- Assessment of the emergence of Chinese AI models like DeepSeek.
- Feasibility and risks associated with using such models, particularly regarding data protection.
- Strategies to maintain leadership as the cost of underlying AI models decreases.
Agent Strategy in a Fragmented Landscape:
- Differentiation of ServiceNow's agent strategy in a market where multiple vendors are pushing agentic capabilities.
- Go-to-market changes associated with the move to agents and a hybrid subscription/consumption model.
IT Spending Trends and AI Adoption:
- Overall IT spending trends and whether they have improved.
- Comparison of the current environment to the previous year.
- Impact of AI on IT spending decisions.
Customer and Employee Workflow Growth:
- Drivers behind the continued growth in customer and employee workflows.
- Role of the channel in driving growth.
- Impact of Now Assist on customer adoption of these applications.
Deflation in Computing Costs and Budget Allocation:
- Impact of decreasing computing costs on budget allocation for application and platform layers.
- Feedback from customers regarding budget constraints and shifting priorities.
Impact of Consumption Model on CRPO:
- How the consumption element of the pricing model will affect CRPO.
- Observations from early cohorts of customers regarding the consumptive element.
Go-to-Market Optimization:
- Details on the go-to-market optimization strategy.
- Role of go-to-market optimizations in the guidance philosophy.
Impact of Agent Workloads on Seat Growth:
- Potential near-term headwinds in seat growth as more workloads are pushed to agents.
- Timeline for the new hybrid pricing model to become net accretive compared to previous sales motions.

Summary

Financial Performance

ServiceNow reported strong Q4 2024 results, exceeding expectations for subscription revenue, CRPO growth, and operating margin. Subscription revenue grew 21% year-over-year in constant currency to $2.866 billion. CRPO grew 22% year-over-year in constant currency to $10.27 billion. Operating margin was 29.5%. Full-year 2024 free cash flow margin was 31.5%. The company ended the year with $10 billion in cash and investments and announced a $3 billion share repurchase program.
Revenue Drivers

Growth was driven by enterprise platform expansion, with 19 deals greater than $5 million in net new ACV. The company landed its largest new logo deal ever and doubled the number of customers with over $100 million in total ACV. Key product areas included tech workflows (ITSM, ITOM, ITAM, Security and Risk), customer and industry workflows, and employee and creator workflows. Gen AI net new ACV is trending ahead of any new product family launch for the comparable period in the company's history. Manufacturing and public sector showed impressive growth.
Profit Margins and Cost Management

Non-GAAP operating margin was 29.5% in Q4, driven by OpEx efficiencies and top-line outperformance. Full-year operating margin was 29.5%, up 200 basis points year-over-year. Free cash flow margin was 47.5% for Q4 and 31.5% for the full year, up 100 basis points year-over-year. The company is focused on OpEx leverage and cost discipline while continuing to invest in innovation, particularly in AI.
Guidance and Outlook

For 2025, ServiceNow expects subscription revenues between $12.635 billion and $12.675 billion, representing 20% year-over-year growth in constant currency. This includes a $175 million FX headwind and assumes a back-half-weighted seasonal linearity in the U.S. federal business. Operating margin is expected to be 30.5%, and free cash flow margin is projected at 32%. Q1 2025 subscription revenues are guided between $2.995 billion and $3 billion, representing 20% year-over-year growth in constant currency.
Strategic Initiatives

ServiceNow is incorporating more consumption-based monetization across its AI and data solutions, including AI agents in Plus SKUs. The company is optimizing its go-to-market approach and evolving its business model to capitalize on the agentic AI and data opportunity. Key partnerships with AWS, Google Cloud, Visa, Five9, and Microsoft are expanding the company's reach and capabilities. The company is focused on expanding its addressable market with Workflow Data Fabric and RaptorDB.
Management Commentary

Management expressed confidence in the company's business fundamentals and leadership position in AI. They highlighted the company's ability to sustain profitable revenue growth and deliver shareholder value. The tone was optimistic, emphasizing the company's unique agility and the transformative potential of AI. Management reiterated the mid-term target of $15 billion plus by 2026 and a long-term vision to be the defining enterprise software company of the 21st century.
Industry and Market Conditions

Management sees a seismic shift in the enterprise technology landscape driven by AI. They noted that CEOs are focused on simplifying their businesses and innovating with data workflows and agentic AI. The company believes it is well-positioned to capitalize on the growing demand for AI platforms and automation solutions. The public sector is poised for a major modernization effort, presenting a significant opportunity for ServiceNow.

Comparative analysis

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Benchmarks (as of 2025-03-28)

Technology Select Sector SPDR Fund (XLK)

Performance Comparison:
- ServiceNow, Inc. (NOW) has shown mixed performance compared to the Technology Select Sector SPDR Fund (XLK). While NOW outperformed XLK over the 1, 2, and 3-year periods, it has underperformed in the shorter term, including Year-To-Date, 1 Week, 1 Month, 3 Months, and 6 Months. For example, NOW's 2-year return was 81.46% compared to XLK's 40.72%, but its YTD return is -24.34% compared to XLK's -10.88%. This suggests recent weakness relative to its benchmark.
Risk and Return Analysis:
- NOW has demonstrated higher annualized returns over 1, 2, and 3-year periods. The 2-year annualized return for NOW was 34.71% versus 18.63% for XLK. However, NOW also exhibits higher annualized volatility. For example, in Q2 2022, NOW's volatility ranged from 50.6% to 65.09%, while XLK's ranged from 28.65% to 42.35%. The maximum drawdown for NOW was -51.3% on 10/14/2022, significantly larger than XLK's -33.56% on 10/12/2022, indicating a riskier profile.
Risk-Adjusted Performance:
- The Sharpe Ratio for NOW has generally been lower than that of XLK, suggesting that NOW offers a less favorable risk-adjusted return. For example, in Q1 2022, XLK's Sharpe Ratio ranged from 0.95 to 1.11, while NOW's ranged from 0.47 to 0.6. NOW's Beta values have consistently been above 1, indicating higher sensitivity to market movements compared to XLK. As of March 28, 2025, the Beta for NOW is 1.44, while for XLK it is 1.58.
Overall Assessment:
- ServiceNow, Inc. (NOW) presents a higher-risk, higher-reward profile compared to the Technology Select Sector SPDR Fund (XLK). While NOW has delivered superior returns over longer periods, it exhibits greater volatility, larger drawdowns, and a lower Sharpe Ratio. The recent underperformance and higher Beta suggest that NOW is more susceptible to market downturns. Investors should carefully consider their risk tolerance and investment horizon when evaluating NOW relative to XLK.

Peers Price History(as of 2025-03-28)

CrowdStrike Holdings, Inc. (CRWD)Palo Alto Networks, Inc. (PANW)

Performance Comparison:
- ServiceNow (NOW) has generally underperformed CrowdStrike (CRWD) and Palo Alto Networks (PANW) across most time periods. For instance, the Year-To-Date (YTD) performance shows NOW at -24.34%, significantly lower than CRWD's 2.81% and PANW's -4.42%. Over a 2-year period, NOW's return of 81.46% is substantially lower than CRWD's 171.11%, but slightly outperforms PANW's 78.5%. This indicates that while NOW has shown growth, it has not kept pace with CRWD's high growth trajectory.
Risk and Return Analysis:
- The annualized returns show that ServiceNow (NOW) has provided lower returns compared to CrowdStrike (CRWD) and Palo Alto Networks (PANW) over 1-year and 3-year periods. For example, the 1-year annualized return for NOW is 3.82%, compared to 11.74% for CRWD and 23.66% for PANW.
- In terms of annualized volatility, CrowdStrike (CRWD) generally exhibits the highest volatility, while Palo Alto Networks (PANW) shows the lowest. ServiceNow (NOW) falls in between. For example, in Q2 2022, CRWD's volatility ranged from 48.48% to 99.63%, while NOW's ranged from 50.6% to 65.09% and PANW's ranged from 32.45% to 68.41%.
- The maximum drawdown for ServiceNow (NOW) was -51.3% on 10/14/2022, which is less severe than CrowdStrike's (CRWD) -67.69% on 01/06/2023, but more severe than Palo Alto Networks' (PANW) -36% on 01/10/2023. This suggests that NOW carries a moderate level of risk compared to its peers.
Risk-Adjusted Performance:
- Palo Alto Networks (PANW) generally exhibits higher Sharpe Ratios compared to ServiceNow (NOW) and CrowdStrike (CRWD), indicating better risk-adjusted returns. For example, throughout the analyzed period, PANW consistently showed higher Sharpe ratios, suggesting it offers a better balance between risk and return.
- The beta values for all three stocks have generally been above 1, indicating higher volatility than the market. CrowdStrike (CRWD) generally exhibits higher beta values, indicating greater sensitivity to market movements, while Palo Alto Networks (PANW) tends to have the lowest beta values among the three.
Overall Assessment:
- ServiceNow (NOW) has shown underperformance compared to CrowdStrike (CRWD) and Palo Alto Networks (PANW) in terms of stock performance and annualized returns. While NOW's volatility is moderate, its risk-adjusted returns, as indicated by the Sharpe Ratio, are generally lower than those of PANW. The beta values suggest that all three stocks are more volatile than the market, with CRWD being the most sensitive to market movements.
- A significant trend is the decreasing volatility for all three stocks from the beginning of 2022 to the end of 2024. However, NOW's underperformance in recent periods, particularly in YTD performance, raises concerns about its short-term growth prospects compared to its peers.

Peers Fundamentals(as of 2024-12-31)

CrowdStrike Holdings, Inc. (CRWD)Palo Alto Networks, Inc. (PANW)

Market Position and Size:
- ServiceNow (NOW) leads its peer group with a market capitalization of $165,295.07 million, significantly greater than CrowdStrike (CRWD) at $88,517.93 million and Palo Alto Networks (PANW) at $114,384.4 million.
- This substantial market capitalization is supported by NOW's strong financial metrics, including revenue of $10,984 million, EBITDA of $1,829 million, and net income of $1,425 million, all of which exceed those of its peers.
- NOW's dominant market position reflects its established presence and strong performance in the "Packaged Software" industry.
Profitability and Efficiency:
- ServiceNow (NOW) demonstrates strong profitability with a Gross Profit Margin of 79.18%, outperforming CrowdStrike (CRWD) at 74.82% and Palo Alto Networks (PANW) at 73.86%. NOW's Gross Profit Margin is also significantly greater than the industry average of -47.14%.
- NOW's EBITDA Margin of 16.65% is greater than CRWD's 3.01% and PANW's 15.35%. NOW's EBITDA Margin is also significantly greater than the industry average of -5713.19%.
- NOW's Net Profit Margin of 12.97% is greater than CRWD's -0.49% but less than PANW's 14.64%. NOW's Net Profit Margin is also significantly greater than the industry average of -5251.29%.
- These profitability metrics highlight NOW's operational efficiency and ability to generate profits relative to its peers and industry standards.
Financial Health and Stability:
- ServiceNow (NOW) has a Current Ratio of 1.04, which is less than CrowdStrike's (CRWD) 1.67 and the industry average of 2.88, but greater than Palo Alto Networks' (PANW) 0.79.
- NOW's Quick Ratio is 1.04, which is less than CRWD's 1.67 and the industry average of 2.84, but greater than PANW's 0.79.
- NOW's Total Debt to Total Equity Ratio is 23.71, which is less than CRWD's 24.06 and the industry average of 95.32, but greater than PANW's 14.07.
- NOW's Debt / EBITDA is 0.81, which is less than CRWD's 6.25 and the industry average of 6.56, but greater than PANW's 0.41.
- While NOW's liquidity ratios are below the industry average, its debt levels are well-managed relative to its earnings, indicating a stable financial position.
Valuation and Market Perception:
- ServiceNow (NOW) has an Enterprise Value To Sales ratio of 19.85, which is greater than the industry average of -19.57.
- NOW's Enterprise Value To EBITDA is 118.8, which is greater than the industry average of 101.71.
- NOW's Price To Earnings ratio is 116.68, which is greater than Palo Alto Networks' (PANW) 97.6, but less than the industry average of 244.44.
- NOW's Price to Book Ratio is 17.14, which is less than CrowdStrike's (CRWD) 26.99 and PANW's 17.9, but greater than the industry average of 8.0.
- NOW's Price To Sales Ratio is 15.14, which is less than CRWD's 22.11, but greater than PANW's 14.29. NOW's Price To Sales Ratio is also less than the industry average of 42.48.
- These valuation metrics suggest that the market perceives NOW as a premium company with strong growth prospects and financial health.
Cash Flow and Capital Management:
- ServiceNow (NOW) has a Net Operating Cash Flow of $4,267 million, which is greater than CrowdStrike's (CRWD) $1,381.73 million and Palo Alto Networks' (PANW) $3,108.1 million.
- NOW's Total Capital Expenditure is $892 million, which is greater than CRWD's $313.82 million and PANW's $176.4 million.
- NOW's Free Cash Flow is $3,375 million, which is greater than CRWD's $1,067.91 million and PANW's $2,931.7 million.
- NOW's strong cash flow generation supports its market position and allows for continued investment in growth initiatives.
Growth and Future Prospect:
- ServiceNow (NOW) shows consistently lower growth in Sales/Revenue compared to the peer group average. The average Sales/Revenue growth for NOW is 26.04%, while the peer group average is 34.03%.
- NOW shows consistently higher growth in EBITDA compared to the peer group average. The average EBITDA growth for NOW is 52.43%, while the peer group average is 38.43%.
- NOW shows consistently lower growth in Net Income compared to the peer group average. The average Net Income growth for NOW is 93.85%, while the peer group average is 454.49%.
- NOW shows consistently lower growth in Basic Earnings per Share compared to the peer group average. The average Basic Earnings per Share growth for NOW is 90.71%, while the peer group average is 447.52%.
- NOW shows consistently lower growth in Free Cash Flow compared to the peer group average. The average Free Cash Flow growth for NOW is 30.72%, while the peer group average is 180.53%.
- NOW shows consistently lower growth in Free Cash Flow Margin compared to the peer group average. The average Free Cash Flow Margin growth for NOW is 3.59%, while the peer group average is 81.24%.
- NOW shows consistently lower growth in EBIT Margin compared to the peer group average. The average EBIT Margin growth for NOW is 78.24%, while the peer group average is 1006.05%.
- While NOW's growth rates are generally lower than its peers, its established market position and strong financial performance suggest a stable and promising future.
Potential for Investment:
- ServiceNow (NOW) presents an attractive investment opportunity, driven by its leading market position, robust profitability, and efficient cash flow generation.
- While its liquidity ratios are below industry averages and growth rates are lower than peers, its well-managed debt levels and premium valuation metrics suggest a stable and promising investment outlook.
- NOW's strong financial health and competitive positioning make it a compelling investment choice in the "Packaged Software" industry.
Key Risks and Considerations:
- ServiceNow (NOW) faces potential risks related to its lower liquidity ratios compared to the industry average, which could impact its ability to meet short-term obligations.
- NOW's lower growth rates compared to its peers could also pose a risk, as it may lose market share to faster-growing competitors.
- Investors should also consider the potential impact of economic downturns and industry-specific challenges on NOW's financial performance.
Overall Assessment:
- ServiceNow (NOW) exhibits strong financial health and performance, characterized by its leading market position, robust profitability, and efficient cash flow generation.
- While its liquidity ratios are below industry averages and growth rates are lower than peers, its well-managed debt levels and premium valuation metrics indicate a stable and promising outlook.
- NOW's competitive advantages and market leadership make it a compelling investment choice in the "Packaged Software" industry.

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