DCF Studio

    NOW · NYQ · Technology

    ServiceNow, Inc.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 26.84

    Market price

    USD 135.47

    Implied upside

    -80.2%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    AdjustedCapital expenditure runs at 7.6% of revenue against depreciation of 5.7%. A perpetuity has to be a steady state, so the terminal year uses maintenance capex at depreciation and then charges the reinvestment terminal growth requires (g/ROIC of NOPAT). The bridge is shown under Terminal Value.

    Current EV/EBITDA of 53.2x sits outside a defensible 3-20x band, so the exit multiple is capped at 20.0x. A multiple that far out usually means EBITDA is the wrong denominator for this business.

    Value Per Share

    Perpetuity growth
    USD 26.84-80.2%
    Exit multiple
    USD 78.86-41.8%
    Market price
    USD 135.47

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn1bn2bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 16.2bnUSD 19.9bnUSD 24.3bnUSD 29.8bnUSD 36.4bn+22.4%
    EBITUSD 1.6bnUSD 2.0bnUSD 2.4bnUSD 2.9bnUSD 3.6bn+22.4%
    NOPATUSD 1.3bnUSD 1.6bnUSD 2.0bnUSD 2.4bnUSD 2.9bn+22.4%
    Add depreciation & amortisationUSD 931.6mUSD 1.1bnUSD 1.4bnUSD 1.7bnUSD 2.1bn+22.4%
    Less capital expenditureUSD -1.2bnUSD -1.5bnUSD -1.8bnUSD -2.3bnUSD -2.8bn+22.4%
    Less increase in working capitalUSD -95.9mUSD -117.4mUSD -143.7mUSD -175.8mUSD -215.2m+22.4%
    Free cashflow to firmUSD 911.7mUSD 1.1bnUSD 1.4bnUSD 1.7bnUSD 2.0bn+22.4%
    Discount factor0.95220.86340.78280.70980.6436-
    Present valueUSD 868.2mUSD 963.3mUSD 1.1bnUSD 1.2bnUSD 1.3bn+11.0%
    Present Value Of The ForecastUSD 5.4bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.981Reported 0.972, pulled toward 1.0 (Blume)
    Cost of equity10.39%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 140.1bn98.3% of capital
    Total debtUSD 2.4bn1.7% of capital, book value as a proxy
    Tax rate18.5%Effective, capped at statutory
    WACC10.29%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 26.84

    78% of EV

    Forecast FCFF, final year
    USD 2.0bn
    Capex at depreciation, working capital in reinvestment
    USD 2.9bn
    Less reinvestment at g/ROIC (24.3% of NOPAT)
    USD -713.2m
    Capitalised
    USD 2.2bn
    ROIC (WACC floor)
    10.3%
    Terminal value, undiscounted
    USD 29.2bn
    Terminal value, discounted
    USD 18.8bn
    Enterprise value
    USD 24.2bn
    Less net debt
    USD -3.9bn
    Equity value
    USD 28.1bn

    Exit at 20.0x EBITDA

    Value per shareUSD 78.86

    93% of EV

    Terminal value, undiscounted
    USD 113.9bn
    Terminal value, discounted
    USD 73.3bn
    Enterprise value
    USD 78.7bn
    Less net debt
    USD -3.9bn
    Equity value
    USD 82.6bn

    Spread between methods: 98%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    8.29%33.2033.3533.5133.6833.85
    9.29%29.5429.6429.7429.8429.94
    10.29%26.6726.7526.8426.9327.02
    11.29%24.3224.4024.4724.5524.63
    12.29%22.3722.4422.5022.5722.64

    Outlined: this model. Green text: above today's price of 135.47. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year22.4%77.5%+55.1pp
    EBIT margin9.9%52.2%+42.3pp
    Discount rate10.3%3.9%-6.4pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.