ServiceNow (NOW) could be one of the most overvalued stocks around. For example, Mr. Market paid $385.50 for ServiceNow on 3 January 2023. Yet, ServiceNow had just $11.106 billion in Total Assets on 30 September 2022.
Moreover, ServiceNow’s share price fell from $630.14 on 3 January 2022. Thus, ServiceNow lost $244.64 in share value in a year.
Yet ServiceNow’s money-making capabilities are small. It reported just $91 million in quarterly operating income on 30 September 2022. The quarterly operating income grew from $74 million on 30 September 2021.
Comparatively, ServiceNow’s quarterly gross profit grew from $1.162 billion on 30 September 2021 to $1.431 billion on 30 September 2022. Similarly, the quarterly revenues grew from $1.512 billion on 30 September 2021 to $1.831 billion on 30 September 2022.
Thus, ServiceNow is a growing company. For example, ServiceNow’s quarterly revenues grew by 21.1% in the quarter ending on 30 September 2022. The quarterly revenue growth fell from 31.25% on 30 September 2021. Yet I do not think the growth justifies the $388.27 share price.
What is ServiceNow (NOW)?
ServiceNow (NYSE: NOW) is a software-as-a-service (SaaS) company that sells decentralized cloud information technology (IT) solutions.
For example, ServiceNow’s “platform of platforms” connects remote workers to a company’s databases and IT services. Similarly, ServiceNow’s cloud can provide cloud-based data and IT services to dispersed operations. ServiceNow’s platform provides IT services for 208 Grupo Bimbo bakeries in the United States.
Solutions ServiceNow offers include: IT Service Management, Overview of IT Workflows, IT Operations Management, Strategic Portfolio Management, IT Asset Management, Enterprise Asset Management, Security Operations, Governance, Risk Management, Compliance, Telecommunications Service Operations Management, and Operational Technology Management.
ServiceNow Employee Workflow solutions include: HR Service Delivery, Workplace Service Delivery, Legal Services Delivery, Procurement Service Management, and Supplier and Lifecycle Management. They also offer employee portals and digital workplace services.
Customer Workflows offer Customer Relationship Management (CRM). The purpose of Customer Workflows is to automate front, middle, and back-office processes with digital workflows. Uses of this include Field Service Management, Financial Services Operations, and Customer Service Management, Connected Operations, and Order Management for Telecommunications.
ServiceNow powers creator workflows by building connected digital workflow apps fast with a low-code platform. The apps connect creators to the platform. This platform includes an App Engine, an Integration Hub, and Connected Workforce for remote workers and workers in the field.
The Now Platform
ServiceNow’s Now Platform includes process optimization, virtual agents, intelligent chatbots, automation discovery, performance analytics, predictive intelligence and artificial intelligence (AI) search. Plus, a ServiceNow vault protects applications with privacy and security controls.
For example, the AI-enabled Virtual Agent offers personalized experiences and conversational interfaces. A Virtual Agent allows users to build virtual agents, while natural language allows chatbots to understand and communicate in everyday language. They claim the Virtual Agent’s communication can evolve.
Virtual Agents can offer conversational analytics, topic recommendations, multi-language support, and issue auto resolution. Other features include third-party interrogations and live-agent hand-offs. Predictive Intelligence can simplify and accelerate work with “built-in machine learning.” Similarly, Performance Analytics monitor performance, prioritize resources, maximize automation, and guide service improvement.
The main purpose of the Virtual Agent is to allow the platform to communicate with customers through a phone app.
How Much Cash is ServiceNow Generating?
ServiceNow (NOW) is generating less cash. For example, the quarterly operating cash flow fell from $320 billion on 30 September 2021 to $265 million on 30 September 2022.
Similarly, the quarterly ending cash flow fell from $35 million on 30 September 2021 to -$416 million on 30 September 2022. However, the quarterly ending cash flow rose to $2.259 billion on 31 March 2022.
Interestingly, the cash and short-term investments rose from $3.031 billion on 30 September 2021 to $3.956 billion on 30 September 2022. Thus, ServiceNow has more cash and less cash flow.
However, ServiceNow’s total debt is stable. The Total Debt fell slightly from $1.577 billion on 30 September 2021 to $1.574 billion on 30 September 2022. Yet, ServiceNow’s debt repayments are small. It reported a $78 million financing cash flow on 30 September 2021 that fell to $40 billion on 30 September 2022.
What Value Does ServiceNow (NOW) Offer?
I view ServiceNow (NOW) as an overpriced stock that offers little value. My prediction is that ServiceNow’s share price will keep falling as Mr. Market realizes it is has little value.
I recommend investors avoid ServiceNow until Mr. Market prices it realistically.