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ServiceNow

NYSE:NOW
Snowflake Description

Exceptional growth potential with mediocre balance sheet.

The Snowflake is generated from 30 checks in 5 different areas, read more below.
NOW
NYSE
$19B
Market Cap
Systems Software
Company description

ServiceNow, Inc. provides enterprise cloud computing solutions that define, structure, manage, and automate services for enterprises worldwide. More info.


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3 Month History
NOW
Industry
5yr Volatility vs Market

Value

 Is ServiceNow undervalued based on future cash flows and its price relative to the stock market?

Value is all about what a company is worth versus what price it is available for. If you went into a grocery store and all the bananas were on sale at half price, they could be considered undervalued.
INTRINSIC VALUE BASED ON FUTURE CASH FLOWS
Here we compare the current share price of ServiceNow to its discounted cash flow value.

The discounted cash flow value is simply looking at what the company is worth today, based on estimates of how much money it is expected to make in the future.

How is this discounted cash flow calculated?

  • The current share price of ServiceNow is above its future cash flow value.
Often investors are willing to pay a premium for a company that has a high dividend or the potential for future growth.
PRICE RELATIVE TO MARKET
We can also value a company based on what the stock market is willing to pay for it. This is similar to the price of fruit (e.g. Mangoes or Avacados) increasing when they are out of season, or how much your home is worth.

The amount the stock market is willing to pay for ServiceNow's earnings, growth and assets is considered below, and whether this is a fair price.
Price based on past earnings
Are ServiceNow's earnings available for a low price, and how does this compare to other companies in the same industry?
  • No earnings or negative earnings.
  • No earnings or negative earnings.
Price based on expected Growth
Does ServiceNow's expected growth come at a high price?
  • No earnings or negative earnings.
Price based on value of assets
What value do investors place on ServiceNow's assets?
  • Overvalued based on assets compared to the Software industry average.
X
Value checks
We assess ServiceNow's value by looking at:
  1. Is the discounted cash flow value less than 20%, or 40% of the share price? (2 checks) (Click here or on bar chart for details of DCF calculation.)
  2. Is the PE ratio less than the market average, and/ or less than the Software industry average (and greater than 0)? (2 checks)
  3. Is the PEG ratio within a reasonable range (0 to 1)? (1 check)
  4. Is the PB ratio less than the Software industry average (and greater than 0)? (1 check)
  5. ServiceNow has a total score of 0/6, see the detailed checks below.

    Note: We use GAAP Earnings per Share in all our calculations including PE and PEG Ratio.
    Note 2: PEG ratio is based on analysts EPS growth expectations in 1 year (35.06%).

    Full details on the Value part of the Simply Wall St company analysis model.
X
Discounted cash flow (Free cash flow to Equity)

The calculations below outline how an intrinsic value for ServiceNow is arrived at by discounting future cash flows to their present value. We use analyst's estimates of cash flows going forward 5 years.

See our documentation to learn about this calculation.

5 year cash flow forecast

Present value of next 5 years cash flows:
$3,191

Terminal Value

Terminal Value = FCF2021 × (1 + g) ÷ (Discount Rate – g)

Terminal Value = $1,261 × (1 + 2.3%) ÷ (10.25% – 2.3%)

Terminal value based on the Perpetuity Method where growth (g) = 2.3%:
$16,292

Present value of terminal value:
$10,001

Equity Value

Equity Value (Total value) = Present value of next 5 years cash flows + terminal value

Value = Total value / Shares Outstanding ($13,192 / 171)

Value per share:
$77.27

Current discount (share price of $110.41): -43%



Estimate of Discount Rate

The discount rate, or required rate of return, is estimated by calculating the Cost of Equity.

Discount rate = Cost of Equity = Risk Free Rate + (Levered Beta * Equity Risk Premium)

Discount rate = 10.25% = 2.33% + (1.033 * 7.67%)



Estimate of Bottom Up Beta

The Levered Beta is the Unlevered Beta adjusted for financial leverage. It is limited to 0.8 to 2.0 (practical range for a stable firm).

Levered Beta = Unlevered beta (1 + (1- tax rate) (Debt/Equity))

1.033 = 0.991 (1 + (1- 30%) (6.05%))

Levered Beta used in calculation = 1.033



Assumptions
  1. The risk free rate of 2.33% is from the 10 year government bond rate in US.
  2. The bottom-up beta is estimated by analysing other companies in the same industry.
  3. The Equity Risk Premium is calculated by subtracting the risk free rate from the market return premium (10%) (source: Buffet).
  4. The dividend discount model is automatically used for companies in the following industries: Banks, Insurance, Real Estate Investment Trusts (REITs), Diversified Financial Services and Capital Markets.

Future Performance

 How is ServiceNow expected to perform in the next 1 to 3 years based on estimates from 31 analysts?

    The future performance of a company is measured in the same way as past performance, by looking at estimated growth and how much profit it is expected to make.

    Future estimates come from professional analysts. Just like forecasting the weather, they don’t always get it right!
    3 year growth
    Earnings are expected to become positive over 3 years.
    Future Earnings growth analysis
    Is ServiceNow expected to grow at an attractive rate? We look at the 1 year and 3 year growth below.

    Are ServiceNow's annual earnings growth expected to exceed 3.4% over the next 3 years?

    • After 1 year
    • Expected to become positive over 3 years.
    Past and Future Earnings per Share
    The accuracy of the analysts who estimate the future performance data can be gauged below. We look back 3 years and see if they were any good at predicting what actually occured. We also show the highest and lowest estimates looking forward to see if there is a wide range.
    Analysts growth expectations
    2 year growth check
    Super high growth metrics x1.5?

    Which of the these is expected to increase by over 50% in 2 year's time?

    • Revenue
    • Cash flow
    • ServiceNow is expected to become profitable in 2 years.
    Performance in 3 years
    In the same way as past performance we look at the future estimated return (profit) compared to the available funds. We do this looking forward 3 years.
    • ServiceNow is expected to perform strongly, Return on Equity (ROE) in 3 years is estimated to be above 20%.

    Improvement & Relative to industry
    • Expected to be above the Software industry average.
    • A decline in ServiceNow's performance (ROE) is expected over the next 3 years.
    X
    Future performance checks
    We assess ServiceNow's future performance by looking at:
    1. Is the growth in earnings expected to beat the low risk savings rate, plus a premium to keep pace with inflation, in 1 year and 3 years? (2 checks)
    2. Does the average analyst expect Revenue to increase by 50% or more in 2 years? (1 check)
    3. Does the average analyst expect Operating Cash Flow to increase by 50% or more in 2 years? (1 check)
    4. Does the average analyst expect Net Income (Profit) to increase by 50% or more in 2 years? (1 check)
    5. Is the Return on Equity in 3 years expected to be over 20%? (1 check)
    Some of the above checks will fail if the company is expected to be loss making in the relevant year.
    ServiceNow has a total score of 6/6, see the detailed checks below.

    Note: If no +3 year data is available, +2.5 year data may be used.

    Note 2: We use GAAP per Share in all our calculations.

    Full details on the Future part of the Simply Wall St company analysis model.

    Past Performance

     How has ServiceNow performed over the past 5 years?

    The past performance of a company can be measured by how much growth it has experienced and how much profit it makes relative to the funds and assets it has available.
    Past earnings growth
    Below we compare ServiceNow's growth in the last year to its industry (Software).
    Past Earnings growth analysis
    We also check if the company has grown in the past 5 years, and whether it has maintained that growth in the year.
    • ServiceNow does not currently make a profit.
    Profit History
    ServiceNow's revenue and profit over the past 5 years is shown below, any years where they have experienced a loss will show up in red.
    Performance last year
    We want to ensure a company is making the most of what it has available. This is done by comparing the return (profit) to a company's available funds, assets and capital.
    • Negative return on shareholders funds (ROE) last year.
    • ServiceNow had negative or no return on assets (ROA) last year.
    • Return based on revenue producing assets (ROCE) is negative or zero.
    X
    Past performance checks
    We assess ServiceNow's performance over the past 5 years by checking for:
    1. Has earnings per share (EPS) increased in past 5 years? (1 check)
    2. Has the EPS growth in the last year exceeded that of the Software industry? (1 check)
    3. Is the current EPS growth higher than the average annual growth over the past 5 years? (1 check)
    4. Is the Return on Equity (ROE) higher than 20%? (1 check)
    5. Is the Return on Assets (ROA) above industry average? (1 check)
    6. Has the Return on Capital Employed (ROCE) increased from 3 years ago? (1 check)
    The above checks will fail if the company has reported a loss in the most recent earnings report. Some checks require at least 3 or 5 years worth of data.
    ServiceNow has a total score of 0/6, see the detailed checks below.

    Note: We use GAAP Earnings per Share in all our calculations.

    Full details on the Past part of the Simply Wall St company analysis model.

    Health

     How is ServiceNow's financial health and their level of debt?

    A company's financial position is much like your own financial position, it includes everything you own (assets) and owe (liabilities).

    The boxes below represent the relative size of what makes up ServiceNow's finances.

    The net worth of a company is the difference between its assets and liabilities.
    Net Worth
    • ServiceNow is able to meet its short term (1 year) commitments with its holdings of cash and other short term assets.
    • ServiceNow's cash and other short term assets cover its long term commitments.
    Balance sheet
    This treemap shows a more detailed breakdown of ServiceNow's finances. If any of them are yellow this indicates they may be out of proportion and red means they relate to one of the checks below.
    Assets
    Liabilities and shares
    The 'shares' portion represents any funds contributed by the owners (shareholders) and any profits.
    • Low level of unsold assets
    • Total debt is covered by short term assets.
    Historical Debt
    Nearly all companies have debt. Debt in itself isn’t bad, however if the debt is too high, or the company can’t afford to pay the interest on its debts this may have impacts in the future.

    The graphic below shows equity (available funds) and debt, we ideally want to see the red area (debt) decreasing.

    If there is any debt we look at the companies capability to repay it, and whether the level has increased over the past 5 years.
    • The level of debt (236%) compared to net worth is high (greater 40%).
    • The level of debt compared to net worth has increased over the past 5 years (0% vs 236% today).
    • Total debt is well covered by annual operating cash flow (greater than 20% of total debt).
    • Company is making a loss, therefore interest on debt is not well covered by earnings.
    X
    Financial health checks
    We assess ServiceNow's financial health by checking for:
    1. Are short term assets greater than short term liabilities? (1 check)
    2. Are short term assets greater than long term liabilities? (1 check)
    3. Has the debt to equity ratio increased in the past 5 years? (1 check)
    4. Is the debt to equity ratio over 40%? (1 check)
    5. Is the debt covered by short term assets? (1 check)
    6. Are earnings greater than 5x the interest on debt (if comapany pays interest at all)? (1 check)
    7. ServiceNow has a total score of 3/6, see the detailed checks below.


    Full details on the Health part of the Simply Wall St company analysis model.

    Dividends

     What is ServiceNow's current dividend yield, its reliability and sustainability?

    Dividends are regular cash payments to you from the company, similar to a bank paying you interest on a savings account.
    Annual Dividend Income
    Dividend payments
    0%
    Current annual income from ServiceNow dividends.
    If you bought $2,000 of ServiceNow shares you are expected to receive $0 in your first year as a dividend.
    Dividend Amount
    Here we look how much dividend is being paid, if any. Is it above what you can get in a savings account? It is up there with the best dividend paying companies?
    • Paying below low risk savings rate. (2.25%)
    • Paying below the markets top dividend payers. (3.18%)
    Historical dividend yield
    It is important to see if the dividend for a company is stable, and not wildly increasing/decreasing each year. This graph shows you the historical rate to count toward your assessment of the stock.

    We also check to see if the dividend has increased in the past 10 years.
    • Not paying a notable dividend.
    • Not paying a notable dividend.
    Current Payout to shareholders
    What portion of ServiceNow's earnings are paid to the shareholders as a dividend.
    • Not paying a notable dividend.
    Future Payout to shareholders
    • Insufficient estimate data to determine if a dividend will be paid in 3 years.
    X
    Income/ dividend checks
    We assess ServiceNow's dividend by checking for:
    1. Firstly is the company paying a notable dividend (greater than 0.5%) - if not then the rest of the checks are ignored.
    2. Current dividend yield, is there one at all, is it higher than the low risk savings rate, and is it above the top 25% of dividend payers? (2 checks)
    3. Have they paid a dividend for 10 years, and during this period has the dividend been volatile (drop of more than 25%)? (1 check)
    4. If they have paid a dividend for 10 years has it increased in this time? (1 check)
    5. How sustainable is the dividend, can ServiceNow afford to pay it from its earnings today and in 3 years (Payout ratio less than 90%)? (2 checks)
    6. ServiceNow has a total score of 0/6, see the detailed checks below.


    Full details on the Dividends part of the Simply Wall St company analysis model.

    Management

     What is the CEO of ServiceNow's salary, the management and board of directors tenure and is there insider trading?

    Management is one of the most important areas of a company. We look at unreasonable CEO compensation, how long the team and board of directors have been around for and insider trading.
    CEO
    John Donahoe, image provided by Google.
    John Donahoe
    AGE56
    CEO Bio

    Mr. John J. Donahoe, II, has been the Chief Executive Officer and President of ServiceNow, Inc. since April 3, 2017. Mr. Donahoe has over 30 years of management experience. Mr. Donahoe served as the Chief Executive Officer and President of eBay Inc. from March 31, 2008 to July 17, 2015, where he oversaw the eBay, PayPal and eBay Enterprise businesses. Mr. Donahoe served as an Interim President of Paypal at eBay Inc. from January 3, 2012 to April 2012. He joined eBay in 2005 as President of eBay Marketplaces, responsible for eBay's global e-commerce businesses. He served as an Interim President of eBay Marketplace at eBay Inc. since September 2010 and served as its President of Auction Business Unit since February 24, 2005. Prior to joining eBay, he served as the Chief Executive Officer and Worldwide Managing Director of Bain & Company, Inc. from 1999 to March 1, 2006 and served as its Managing Director from 1982 to 1999. He joined Bain & Company Inc. in 1982, served as the Head of the San Francisco office for seven years. At Bain, Mr. Donahoe oversaw its 29 offices and 3,000 employees worldwide and served clients in the telecommunications, airlines, aerospace and financial services industries. Prior to that, he worked for the Rolm Corporation and Salomon Brothers. He has been Non-Executive Chairman and Director of PayPal Holdings, Inc. since July 17, 2015. He serves as Vice Chairman of the Advisory Council at Stanford Graduate School of Business. He has been an Independent Director of NIKE, Inc., since June 19, 2014 and Skype Global S.à r.l. (Skype S.à r.l.) since November 2009. He has been a Director of ServiceNow, Inc. since April 3, 2017. He serves as a Member of the Advisory Board and Director of eVolution Global Partners, L.L.C. He serves on the Board of Trustees at Dartmouth College and Sacred Heart Schools. He served as an Independent Director of Intel Corporation from March 2009 to May 18, 2017 and served as its Lead Independent Director from May 2016 to May 18, 2017. He served as a Director at eBay Inc. from January 2008 to July 17, 2015. He served as a Trustee of The Bridgespan Group, Inc., and other charitable organizations. He serves as a Member of the President's Export Council. Mr. Donahoe received a B.A. degree in Economics with high distinction, magna cum laude, Phi Beta Kappa from Dartmouth College and earned an M.B.A. from the Stanford University Graduate School of Business, where he was an Arjay Scholar.

    CEO Compensation
    • ServiceNow has a new CEO, we can't show their compensation history.
    • CEO's compensation information is not available.
    Management Team Tenure

    Average tenure of the ServiceNow management team:

    Management tenure
    2.4 years
    • The tenure for the ServiceNow management team is about average.
    Management Team

    Michael Scarpelli

    TITLE
    Chief Financial Officer
    COMPENSATION
    $16,786,024
    AGE
    50

    David Schneider

    TITLE
    Chief Revenue Officer
    COMPENSATION
    $16,799,462
    AGE
    49

    CJ Desai

    TITLE
    Chief Product Officer
    COMPENSATION
    $50,130
    AGE
    46

    John Donahoe

    TITLE
    Chief Executive Officer
    AGE
    56

    Chris Bedi

    TITLE
    Chief Information Officer

    Robert Specker

    TITLE
    Vice President
    Board of Directors Tenure

    Average tenure of the ServiceNow board of directors:

    Board tenure
    4.6 years
    • The tenure for the ServiceNow board of directors is about average.
    Board of Directors

    Frank Slootman

    TITLE
    Chairman of the Board
    COMPENSATION
    $9,016,517
    AGE
    58

    John Donahoe

    TITLE
    Chief Executive Officer
    AGE
    56

    Ron Codd

    TITLE
    Independent Director
    COMPENSATION
    $389,955
    AGE
    62

    Jeff Miller

    TITLE
    Independent Director
    COMPENSATION
    $386,411
    AGE
    66

    Sue Bostrom

    TITLE
    Independent Director
    COMPENSATION
    $376,955
    AGE
    57

    Charlie Giancarlo

    TITLE
    Lead Independent Director
    COMPENSATION
    $368,651
    AGE
    60
    Recent Insider Trading
    • ServiceNow insiders have sold more shares than they have bought in the past 3 months.
    Who owns this company?
    X
    Management checks
    We assess ServiceNow's management by checking for:
    1. Is the CEO's compensation unreasonable compared to market cap and profit (greater than 0.5% of the company's profit + 0.03% of market cap)? (1 check)
    2. Has the CEO's compensation increased more than 20% whilst the EPS is down more then 20%? (1 check)
    3. Is the average tenure of the management team less than 2 years? (1 check)
    4. Is the average tenure of the board of directors team less than 3 years? (1 check)
    5. ServiceNow has a total score of 6/6, this is not included on the snowflake, see the detailed checks below.


    Note: We use the top 6 management executives and board members in our calculations.

    Note 2: Insider trading include any internal stakeholders and these transactions.

    Full details on the Management part of the Simply Wall St company analysis model.

    Company News

    Company Info

    Description

    ServiceNow, Inc. provides enterprise cloud computing solutions that define, structure, manage, and automate services for enterprises worldwide. The company offers service management solutions for customer support, human resources, security operations, and other enterprise departments. It operates ServiceNow platform that provides workflow, configuration management database, service catalog, service portal, knowledge management, reporting and analytics, data benchmarking, visual task boards, built-in and optional encryption capabilities, and collaboration and developer tools. The company also provides information technology (IT) solutions, such as IT service management product suite for enterprise’s employees, customers, and partners; IT operations management that connects a customer’s physical and cloud-based IT infrastructure with applications and platforms; and IT business management product suite that enables customers to manage their IT priorities. In addition, it offers customer service management product for customer service cases and requests; HR service management product; and security operation management product for security operations management requirements of third-party. Further, the company provides professional services, training services and certification programs, and customer support services. It serves enterprises in various industries, including financial services, consumer products, IT services, healthcare, and technology. The company sells products through its direct sales team, as well as indirectly through third-party channels by partnering with systems integrators, managed services providers, and resale partners. The company was formerly known as Service-now.com and changed its name to ServiceNow, Inc. in May 2012. ServiceNow, Inc. was founded in 2004 and is headquartered in Santa Clara, California with additional offices in North America, South America, Europe, and Asia.

    Details
    Name:ServiceNow, Inc.
    Ticker:NOW
    Exchange:NYSE
    Founded:2004
    Market Cap:$18,848 million
    Website:http://www.servicenow.com
    Listings
    Map

    2225 Lawson Lane, Santa Clara, 95054, United States

    Number of employees
    Street

    Current staff
    Staff numbers
    4,801
    ServiceNow employees.
    Industry
    Industry:Systems Software
    Sector:Software and Services