ServiceNow Rises 60% in a Year: Will the Momentum Continue in 2025?

Core Viewpoint - ServiceNow's stock has appreciated significantly, driven by its expanding Generative AI portfolio, strong partner collaborations, and increasing clientele, outperforming the broader market and industry benchmarks [1][2]. Group 1: Stock Performance - ServiceNow shares have increased by 60.3% over the past 12 months, compared to 34.7% for the Zacks Computer & Technology sector and 20% for the Zacks Computers – IT Services industry [1]. - The stock is currently trading above both the 50-day and 200-day moving averages, indicating a bullish trend [2][3]. Group 2: Generative AI and Clientele Expansion - ServiceNow is leveraging AI and machine learning to enhance its solutions, with its total addressable market projected to reach $275 billion by 2026 [8]. - The recent Xanadu update introduces AI-powered solutions across various sectors, including telecom, financial services, and public sector [8][9]. - The integration of Agentic AI is expected to enhance productivity and issue resolution for Customer Service Management and IT Service Management [10]. - ServiceNow plans to add over 150 GenAI innovations to its platform, including AI governance features to ensure secure AI practices [11]. - As of Q3 2024, ServiceNow had 2,020 customers with annual contract values exceeding$1 million, with significant growth in high-value contracts [11][12]. Group 3: Strategic Partnerships - ServiceNow has expanded its collaboration with Amazon Web Services to enhance AI-driven business transformation [13]. - The partnership with Microsoft aims to modernize business processes through the integration of Microsoft Copilot and ServiceNow AI agents [14]. - Additional partnerships with companies like Visa, Snowflake, and IBM are expected to further enhance ServiceNow's market share [15]. Group 4: Financial Guidance and Performance - For 2024, ServiceNow expects subscription revenues between $10.655 billion and$10.66 billion, reflecting a 23% increase from 2023 [16]. - Projected subscription revenues for Q4 2024 are between $2.875 billion and$2.88 billion, indicating a year-over-year growth of 21.5-22% [17]. - The Zacks Consensus Estimate for 2024 earnings is $13.87 per share, representing a 28.66$5.295 billion as of September 30, 2024, with a free cash flow of $471 million in Q3 2024 [20]. - The company expects a free cash flow margin of 31% for 2024, allowing for growth opportunities such as acquisitions and share repurchases [21]. - ServiceNow's stock is trading at a premium valuation, with a forward Price/Sales ratio of 18.08X, significantly higher than the sector average [22][24].