ServiceNow, Inc. (NOW) stock intrinsic value fair value estimate & owner earnings analysis

ServiceNow sells subscriptions to a cloud platform that large organizations use to run IT, employee, customer and security workflows. Subscriptions were 97% of 2025 revenue of $13.28 billion, which grew 21%. Contracts usually run three years, and the company reports that it kept 98% of its contract value at renewal in each of 2023, 2024 and 2025. At the end of 2025 it had $28.2 billion of contracted revenue not yet recognized, up 26% in a year, and $29.0 billion at June 30, 2026. It had 603 customers paying more than $5 million a year, up from 502. About 63% of revenue comes from North America (the United States is 94% of that), 26% from Europe, the Middle East and Africa, and 12% from Asia Pacific and other regions. How we measure earnings. We start from operating cash flow. We then take out stock-based compensation ($1.96 billion in 2025, 14.7% of revenue), because paying staff in shares is a real cost to owners. We also take out working-capital swings, including the $1.18 billion rise in 2025 in cash customers paid in advance. That customer prepayment is real cash, but it is the timing of billing, not profit. Leaving it out is a conservative choice worth about $1 billion a year to cash flow at today's growth rate. Sales commissions are treated as the cash cost they are. Capital spending needed to maintain the business is deducted. Spending to support growth is not. On this basis, earnings to owners were $617 million in 2023, $1.18 billion in 2024 and $2.01 billion in 2025 ($0.60, $1.13 and $1.92 per share). That is 6.9%, 10.7% and 15.1% of revenue. The rise came mostly from share-based pay shrinking as a share of revenue (17.9% to 14.7%) as the business scaled. Before 2023 the company earned almost nothing on this basis, so earlier years describe a smaller, earlier-stage business. We start from the 2025 level of $1.92 per share. The first half of 2026 supports it: owner earnings of about $1.09 billion on revenue up 23%, a margin of about 14%. Amortization of acquired intangibles is added back as a non-cash charge. The cost of replacing that acquired technology is carried by the roughly $3 billion a year of research spending that we already treat as an expense. What changed in 2026. ServiceNow has become a meaningful acquirer. In 2025 it bought Moveworks (about $2.4 billion, partly paid in stock) and Logik.io ($506 million). In December 2025 it agreed to acquire Armis for about $7.75 billion and Veza for about $1.25 billion, both in cash. In the first half of 2026 it paid $8.8 billion in cash for acquisitions and added $6.3 billion of goodwill. We take those figures to reflect the Armis and Veza purchases. Long-term debt rose from $1.5 billion to $5.4 billion, the company also issued commercial paper, and it bought back $2.2 billion of stock in the half. Cash fell to $2.5 billion. Net non-operating income was about $437 million in 2025. Leaving out a $360 million unrealized gain, it was only about $86 million in the first half of 2026. We charge about $430 million a year after tax, around $0.41 per share, for the interest income lost on the cash spent and the interest now owed on the new debt. Operating profit in the second quarter of 2026 was $162 million, against $358 million a year earlier, mainly because amortization of acquired intangibles rose to $219 million from $25 million. Base case ($120 per share). Revenue growth runs at 21% in 2026, supported by the contracted backlog and first-half growth of 23%. It then slows by one to three points a year to 6% by 2035, and fades from 5% to 2% over 2036 to 2045. Owner-earnings margin starts at 14.5% in 2026, a little below 2025 because of costs from the new acquisitions and higher cloud-hosting costs. It rises about a point a year to 21% by 2033, a slower climb than the four points a year achieved in 2024 and 2025. This makes 2026 owner earnings about $2.00 per share after the financing cost, 4% above 2025, compared with actual growth of 70% in 2025. After 2045 we assume no new growth: earnings shrink 2% a year, which is the attrition implied by the 98% renewal rate. Roughly $44 of the $120 comes from years after 2045. That value depends on the company's high renewal rate and its research spending continuing to protect the installed base. Bear case ($32 per share). Artificial intelligence changes how companies purchase workflow software, and the company's own filings flag possible shifts to consumption-based pricing. Growth slows to 12% in 2027, 7% by 2029 and 3% by 2033, then stops. Margins stay near 14 to 16%. Subscription gross margin already fell from 82% to 80% in 2025, and the company has committed to $4.66 billion of public-cloud purchases, $2.83 billion of it in 2030. The 2025–2026 acquisition spree also continues at about $1 billion a year of acquisitions that add nothing beyond this growth path. After 2045, earnings decline 5% a year. Bull case ($228 per share). Growth holds near 20% through 2028 and is still 9% in 2035 before fading to 3% by 2045. That growth is carried by the backlog, expansion within large customers and the acquired security and AI products. Share-based pay keeps falling as a share of revenue, taking margins to 25%. The acquisition debt is paid down by 2036, and earnings hold flat in the long run. The main things that would make the estimate wrong: the margin gains of 2024 and 2025 reversing, renewal rates slipping below 98%, or the $9 billion of 2026 acquisitions earning little. The margin-of-safety price is about $62 per share, roughly half the base value, which leaves room for the wide gap between the cases; from that price the base case implies strong returns.