Good morning investors!

Welcome to our latest “Deep Dive” — a high level, easy to follow stock analysis designed to give our Edge+ members an EDGE when it comes to properly valuing a company. We do the heavy lifting so you can make more sound investing decisions.

Today’s deep dive target is NOW — a large enterprise software company that helps Fortune 500 companies run their IT and internal operations.

In today’s article we will look at the company’s performance, recent results, and dive deeper into its valuation to determine whether the stock is a BUY, SELL, or HOLD, based on our opinion alone.

Alright, grab your coffee and let’s dive in.

ServiceNow isn’t the kind of software company that usually grabs headlines. It’s not a consumer brand, it doesn’t launch flashy products, and most people never interact with it directly. Instead, it sits quietly inside large organizations, running the workflows that keep IT systems, employees, and internal operations functioning day to day. That lack of visibility is exactly why it’s often misunderstood.

What makes ServiceNow compelling is how deeply embedded it has become in the enterprise. Once deployed, it tends to expand across departments, tying together IT service management, HR workflows, security operations, and customer support. These systems are not easy to rip out or replace. Switching costs are high, implementations are complex, and customers often rely on ServiceNow as a system of record for critical processes. That creates durable revenue and strong renewal behavior, even when IT budgets tighten.

At the same time, ServiceNow is not standing still. The company is pushing aggressively into artificial intelligence and automation, positioning its platform as a way for enterprises to move beyond ticketing and toward end-to-end digital workflows. This shift introduces real upside, but also real questions. How AI is priced, how it affects margins, and whether it changes revenue predictability will matter far more than marketing narratives.

We’ve spent time digging into ServiceNow’s financials, valuation, competitive landscape, and execution risks. The business generates substantial free cash flow and enjoys strong visibility through long-term contracts, but the stock already reflects high expectations. Growth is slowing from peak levels, competition from large platform vendors is intensifying, and investors are increasingly sensitive to how software companies monetize AI without sacrificing stability.

ServiceNow sits in an interesting middle ground. It is neither an early-stage growth story nor a mature, low-multiple software name. Instead, it offers exposure to enterprise digitization and automation with a proven business model and meaningful downside support, but limited room for error at today’s valuation. The key question is whether ServiceNow can continue compounding at a premium rate while navigating this next phase of growth, or whether expectations have already moved ahead of fundamentals.

This deep dive explores why ServiceNow looks high quality but obviously not cheap, and what would need to change for the risk reward to meaningfully improve.

We have been diligently working behind the scenes to develop several stock analysis systems for our members, including The Edge Scoring System.

The system takes tons of data and provides a score for 5 different metrics:

The system then takes these five metrics and provides an overall rating for the stock, which we refer to as the Edge Score.

Here is our full Edge Score for ServiceNow:

Below, we will further break down each category and share our methodology for scoring for this company.

ServiceNow is an American enterprise software company headquartered in Santa Clara, California. It was founded in 2004 by Fred Luddy, a former technology executive at Peregrine Systems, with the goal of simplifying how IT departments manage service requests and internal workflows. The company began as a niche tool for IT service management, focused on replacing manual ticketing systems with a cloud-based platform.

Over time, ServiceNow expanded well beyond IT. What started as a system for handling incidents and change requests evolved into a broader workflow platform used across large organizations. Today, ServiceNow helps enterprises manage IT operations, employee onboarding, HR case management, security operations, customer service workflows, and other internal processes that sit at the center of day-to-day business activity.

ServiceNow operates primarily as a subscription software business, selling its platform to large enterprises and government agencies. Customers typically deploy the software in one department and then expand usage across additional teams and workflows over time. This land-and-expand model has been a key driver of the company’s growth and has helped make ServiceNow deeply embedded within customer operations.

Over the past decade, the company has steadily moved upmarket, with a growing focus on large global organizations. Many of its customers now use ServiceNow as a system of record for critical internal processes, which increases switching costs and strengthens long-term customer relationships. As the platform has expanded, ServiceNow has invested heavily in integrations, automation tools, and data capabilities to support complex enterprise environments.

More recently, ServiceNow has positioned itself as a platform for enterprise automation and artificial intelligence. Management is pushing the idea that workflows, data, and AI can be combined to help organizations reduce manual work and improve productivity. While this strategy introduces new growth opportunities, it also raises questions around pricing, margins, and revenue predictability as the business evolves.

Today, ServiceNow sits among the largest enterprise software companies in the world. It is no longer just an IT tool, but a core piece of infrastructure inside many large organizations. Its challenge going forward is to continue expanding its role in the enterprise while maintaining the financial discipline and revenue stability that have defined its success so far.

ServiceNow generates revenue primarily by selling subscription access to its cloud-based software platform. Unlike hardware or project-driven businesses, ServiceNow’s revenue is largely recurring, contract-based, and tied to long-term customer relationships. The company reports revenue across two main categories, with subscriptions accounting for the overwhelming majority of total sales.

Subscription Revenue (~95% of total revenue)
Subscriptions are the core of ServiceNow’s business and drive nearly all growth and profitability. Customers pay annual or multi-year fees to use the ServiceNow platform and its modules. These subscriptions are typically sold to large enterprises and government agencies and expand over time as customers add new workflows and users.

Key subscription areas include:

Subscription contracts are typically multi-year, which provides revenue visibility through backlog and remaining performance obligations. Customers often start with one or two modules and expand usage over time, making net revenue retention a critical driver of overall growth.

Professional Services and Other (~5% of total revenue)
This category includes implementation, consulting, and training services, primarily used to help customers deploy and customize the platform. Professional services are not a major profit driver and are often priced to support adoption rather than maximize margins.

Management intentionally keeps this segment small, relying heavily on system integrators and partners to handle large-scale implementations. This approach allows ServiceNow to focus on high-margin software revenue while still supporting complex enterprise deployments.

Revenue Model Characteristics

ServiceNow’s revenue model is defined by high recurring subscription revenue, strong customer retention, and a land-and-expand sales motion. Growth is driven less by new customer adds and more by expanding usage within existing accounts. This creates a durable revenue base but also means that pricing, packaging, and renewal dynamics play an outsized role in long-term performance.

As the company introduces more automation and AI-driven features, how these capabilities are priced and monetized will be increasingly important. The core question is whether ServiceNow can layer new revenue streams onto its subscription model without introducing volatility or weakening the predictability that has historically been one of its biggest strengths.

In this section we will go over the company’s recent earnings results and dive into their financial performance over the last few years.

Thank you for joining us for this Deep Dive of ServiceNow.

If you enjoyed this deep dive, be sure to LEAVE A COMMENT. We look forward to hearing your thoughts on ServiceNow and our analysis. And let us know what stocks you want to see in the future.

Thank you, and until next time investors!

Mark & Chris

The Stock Investor’s Edge

This deep dive is for educational and informational purposes only. The authors are NOT financial advisors, thus cannot recommend for you to personally to buy or sell any positions. Positions taken on a particular stock are opinions of the authors and only the authors. It is very important that you do your own research and make investments based on your own personal circumstances, preferences, goals and risk tolerance.