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ServiceNow: Best Of Breed Enterprise SaaS Player

May 14, 2020 4:10 PM ETServiceNow, Inc. (NOW) StockADBE, CRM, ORCL, SAP, SAPGF, WDAY2 Comments
Cornerstone Investments profile picture
Cornerstone Investments
22.92K Followers

Summary

  • ServiceNow provides cloud-based digital workflow platforms for IT service management, HR, and customer service.
  • The company has best-in-class top-line growth and scale, and its SaaS model provides revenue predictability and visibility.
  • We believe ServiceNow is the best way to capture the accelerated transition to digital workflows but its recent relative outperformance gives us pause; we recommend waiting for better entry points.

ServiceNow (NYSE:NOW) has been one of the stronger performers among enterprise service players as investors began to appreciate the secular tailwinds for the company. Coming out of COVID-19, we think ServiceNow will become ever more present in the corporate world as corporations shift towards remote working and further digitize infrastructure.

Essential Service

While many industries have been decimated by the ongoing pandemic, ServiceNow becomes ever more important to its clients many of whom are have shifted towards working from home for most of their employees. ServiceNow is a leading cloud service provider of enterprise software solutions and it began in the IT segment. Over the years, it has expanded beyond its reliance on IT service management to expand into customer service and HR. ServiceNow essentially allows a company to standardize and streamline its business process to drive performance and efficiency. It started its presence in IT and has been expanding to other areas as the world moves towards digitization of workflows and, amid the pandemic, working from home arrangements. These are all secular tailwinds benefiting cloud service providers such as ServiceNow.

(Source: IR Deck)

Back in 2013, IT workflows accounted for 95% of ServiceNow's revenue but that number has since come down to only 66% in Q1 2020. The company remains heavily focused on the IT segment but its push into HR and customer workflows have paid off. All three verticals are essential to corporations even under today's crisis. Under the subscription model, it is not difficult to understand why investors have piled into technology stocks due to their revenue visibility and cash flow profile. Importantly, ServiceNow's HR offerings are focused on improving workflows between HR and other departments that do not compete directly with traditional HCM vendors such as Workday (WDAY), SAP (SAP), or Salesforce (CRM).

(Source: IR Deck)

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