ServiceNow is an enterprise software developer (ITSM solutions leader). The company's services allow you to automate the manual labor of employees and, thanks to the low-code approach, are very popular with companies.
Like many other SaaS firms, ServiceNow has been hit by a recent market correction: its shares are trading 20% below their highs. At the same time, there are no reasons for the decline in interest in the digitalization of business processes – the drop in quotations is purely speculative. Similar dynamics are observed for other similar companies: Salesforce, Adobe, CrowdStrike, and so on.
ServiceNow's revenue is 95% made up of subscriptions. Revenue is growing at a rapid pace: as a result of the last four quarters, it increased by 33%, 28%, 30% and 29% yoy, respectively. Management forecasts growth of 25% in the first quarter of 2021.
An important point: revenue at the end of 2020 amounted to $4.519 billion,while the size of free cash flow – $1.367 billion, or 30% of the revenue. ServiceNow consistently maintains this proportion: as revenue increases, so does cash flow.
ServiceNow's revenue is expected to grow to $5.7 billion, which means the stock is currently trading at 16x forward sales. Considering the fact that SaaS companies that do not have a good financial history were worth more than 20x forward sales a month ago, ServiceNow shares look quite attractive.