ServiceNow, a key player in workflow solutions, has been witnessing increased adoption by enterprises embarking on digital transformation journeys. Its strategic focus on incorporating AI-powered capabilities within its portfolio has revolutionized the game.
Embracing AI and machine learning technologies extensively, ServiceNow is enhancing the effectiveness of its solutions. These advanced capabilities are fueling its rapid expansion across various sectors, including insurTech, strategic portfolio management, cloud management, talent development, and the public sector.
Revolutionary Portfolio Steering NOW’s Customer Base
Forecasts from IDC predict that global expenditure on AI solutions will surpass $500 billion by 2027. Thanks to its innovative portfolio and the expanding Generative AI (GenAI) capabilities, ServiceNow is exceptionally well-positioned to capitalize on this upward trend. The company’s total addressable market is anticipated to reach $275 billion in 2026, primarily driven by GenAI.
Promising Future for NOW Amid Growing TAM
Image Source: ServiceNow
Recent updates in the Washington, D.C., platform from ServiceNow have introduced cutting-edge features aimed at optimizing operations, enhancing productivity, and fostering the adoption of GenAI across multiple sectors.
Incorporating new AI capabilities to bolster talent development, ServiceNow’s solutions like Now Assist for HR Service Delivery leverage GenAI to provide answers and actions on talent-related queries. Moreover, its Digital End-User Experience solution aids in enhancing employee productivity, satisfaction, and cost efficiency.
ServiceNow has also enhanced solutions such as Contracts Management Pro, Security Operations, and Field Service Management. The introduction of ServiceNow Project RaptorDB equips businesses with the agility and speed necessary to succeed in the modern AI-driven landscape.
The innovative AI-powered portfolio has propelled ServiceNow to expand its customer base rapidly, with 1933 total customers surpassing $1 million in annual contract value (ACV) by the end of the first quarter of 2024. GenAI products have gained significant traction, with record-breaking net new ACV for Pro Plus, making it the fastest-selling product in ServiceNow’s history during the first quarter of 2024.
Strong Partnerships Boost NOW’s Outlook
ServiceNow benefits from a robust partner network, including industry giants like Microsoft, NVIDIA, International Business Machines, Infosys, and Equinix, that enhance its AI capabilities.
Collaborating closely with Microsoft, ServiceNow has integrated the ServiceNow Now Assist and Microsoft Copilot, combining the power of two GenAI assistants to deliver a seamless enterprise experience, unlocking new productivity avenues for employees.
Additionally, ServiceNow introduced AI avatars utilizing NVIDIA’s Avatar Cloud Engine speech, large language model (LLM), and animation technologies, bringing digital characters to life through generative AI.
Partnerships with IBM involve the combination of the Now Platform with IBM watsonx to enhance productivity for mutual customers and partners. ServiceNow plans to integrate watsonx.ai and IBM Granite foundation LLMs into its Now Assist GenAI experience for its customers.
Positive 2024 Estimates Support ServiceNow
ServiceNow forecasts subscription revenues between $10.56 billion and $10.575 billion for 2024, indicating a 21.5%-22% rise from 2023 on a GAAP basis. The company anticipates a 21.5% growth in subscription revenues over 2023 at constant currency rates.
The Zacks Consensus Estimate for 2024 revenue stands at $10.88 billion, reflecting a 21.31% year-over-year increase. Earnings per share are estimated at $13.51, up 2.03% over the past month and indicating a 25.32% year-over-year growth.
In Conclusion
While ServiceNow shares have shown a modest 4.7% year-to-date return, trailing the gains of the Zacks Computer & Technology sector (22.8%) and the S&P 500 (15.6%), the company is facing headwinds from challenging macroeconomic conditions, including persistent inflation resulting in prolonged deal closure timelines. The Value Style Score of F also hints at stretched near-term valuation concerns.
NOW Trails Industry Peers
Image Source: Zacks Investment Research
Despite the challenges, ServiceNow’s innovative portfolio and expanding GenAI offerings are anticipated to drive continued customer acquisition. The company’s solid liquidity position, boasting a cash balance of $8.8 billion, and robust free cash flow estimate of $3.3 billion in 2024 (compared to $2.7 billion in 2023) make the stock an appealing investment choice.
NOW’s Free Cash Flow Growth Projected
Image Source: ServiceNow
With a Zacks Rank #2 (Buy) designation, ServiceNow boasts a Growth Style Score of A, a promising combination signaling a robust investment opportunity based on the Zacks Proprietary methodology.
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