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ServiceNow Q2 Earnings: Even Now It Makes Sense To Buy, On Its Path To Megacap
NOWServiceNow(NOW) Seeking Alpha·2024-07-25 07:22

Core Viewpoint - ServiceNow is positioned to become a megacap stock, with current stock prices offering a fair entry point for investors at 35 times next year's free cash flow [2][8][12] Financial Performance - ServiceNow reported a revenue growth rate indicating a 23% compound annual growth rate (CAGR) for 2024, with expectations of approximately 4.3billioninfreecashflow[5][6]−Thecompanyhasraiseditsfull−yearguidanceforoperatingincomeby50basispoints,suggestingimprovedprofitabilityforthelatterhalfof2024[6][13]MarketPosition−ServiceNowoperatesinahighlycompetitiveenterprisesoftwaremarket,facingchallengesfrommajorplayerslikeMicrosoft,Salesforce,andOracle[10]−ThecompanyhassuccessfullylaunchedAI−drivensolutions,suchasNowAssist,contributingtostrongsubscriptionrevenuegrowthandincreasedadoptionacrossvariousindustries[10]InvestmentThesis−ServiceNow′sstrongfinancialhealth,includingapproximately4.3 billion in free cash flow [5][6] - The company has raised its full-year guidance for operating income by 50 basis points, suggesting improved profitability for the latter half of 2024 [6][13] Market Position - ServiceNow operates in a highly competitive enterprise software market, facing challenges from major players like Microsoft, Salesforce, and Oracle [10] - The company has successfully launched AI-driven solutions, such as Now Assist, contributing to strong subscription revenue growth and increased adoption across various industries [10] Investment Thesis - ServiceNow's strong financial health, including approximately 4 billion in net cash and $3.5 billion in long-term investments, provides a margin of safety for investors [6][12] - The company is expected to maintain a premium growth rate of over 20% CAGR, making it an attractive investment opportunity despite its high valuation [12][13]