ServiceNow: AI Takes Center Stage at Analyst Day

ServiceNow NOW highlighted a variety of new solutions at its analyst day that broadly focused on product innovation. We think important new product announcements and the introduction of proprietary generative artificial intelligence models further support the company’s wide moat. The firm also announced its first-ever stock buyback, for $1.5 billion, which we think should please investors. Unsurprisingly, ServiceNow lowered its subscription revenue target for 2026 to $15 billion-plus, from $16 billion previously, to account for about $900 million in unexpected currency headwinds experienced in 2022. This is largely in line with our model, and we therefore maintain our fair value estimate of $600 per share. The stock looks attractive and remains one of our top picks.

In addition to lowering its 2026 target, management also adjusted other targets, including approximately $10.4 billion in subscription revenue in 2024 (from at least $11 billion previously), and 28% non-GAAP operating margin in 2024, up from 27% previously. Management also guided to stock-based compensation decreasing to less than 15% of revenue in 2026 and less than 10% long-term. Our estimates are already near these guideposts and we see little reason to change them based on the company’s analyst day.

Management pointed to a variety of growth vectors in its drive to hit $15 billion in revenue. These include pricing uplift from premium tiers, pricing uplift from industry-specific vertical versions of its solutions, seat expansion and cross-selling within existing customers, signing new customers, geographic expansion, and portfolio expansion. With about 85% of revenue coming from existing customers, we think ServiceNow excels at organic growth and the land-and-expand strategy. The company also identified opportunities to focus on its 200 largest marquee accounts, which already generate more than $3 billion in annual contract value and that management believes can increase about sevenfold.