PATH - ServiceNow: Winning The AI Opportunity Dodging Deal Scrutiny
2024-06-30 10:44:06 ET
Summary
- ServiceNow reported its Q1 FY24 earnings, where revenue and earnings exceeded expectations, driven by strength in Net New ACV as well as deepening adoption among its existing customer base.
- The company grew its customers with over $1M+ in ACB by 14.5% YoY as it sees growing adoption of its genAI products as companies unlock business value across use cases.
- On its Investor Day, management outlined that it expects Subscription Revenue to grow 20% YoY annually until FY26, while its non-GAAP operating margin expands by 100 bps to 31%.
- Although the company is well-positioned to win long-term, I believe its near term valuation has fully priced in its future growth prospects, leaving little room for substantial upside, making it a “hold."
Introduction & Investment Thesis
ServiceNow ( NOW ) is an end-to-end workflow automation platform for enterprises that has slightly underperformed the S&P 500 and Nasdaq 100 this year. I initiated a “hold” rating on the stock before its earnings, with my thesis predicated on the belief that the stock’s price seemed to have fully priced in management’s forward guidance even though the company has strong underlying fundamentals. While the stock dropped more than 11% after I issued my rating, it has since climbed and is currently up 8.77% since the time of my writing, outperforming the S&P 500....
ServiceNow: Winning The AI Opportunity, Dodging Deal Scrutiny