Irrespective of this week’s volatility, ServiceNow (NYSE:NOW) shares are up bigger than 65% year-to-date, and it has a price-to-sales ratio considerably bigger than buddies. To many, these metrics are scary; nonetheless, in our view, ServiceNow is partaking. The corporate has a novel platform that matches utterly into the present big world digital transformation utterly completely utterly utterly completely different that’s nonetheless in its very early innings. Extra considerably, your full addressable market is massive, the continued secular shift has been accelerated by covid, and NOW has the reply and administration to capitalize for a very very very very very very very very long time. The truth is, our long-term view, mixed with the corporate’s persevering with sturdy execution, leads us to ponder Wall Street is solely not appreciating how actually useful this enterprise continues to be. Overview ServiceNow is a cloud-based know-how firm that gives a subscription-based Software program program program program program program program-as-a-Service (“SaaS”) platform to assist organizations digitize and automate workflows all through utterly utterly utterly completely utterly utterly completely different areas equal to information know-how, human property, and purchaser help, to call just a few. The reply improves organizational productiveness and price financial monetary financial monetary financial monetary financial savings, and ServiceNow continues to “land and expand” many large purchaser relationships. For these of you preferring watching a video (as a substitute of discovering out through this textual content material materials supplies provides gives), right acceptable proper right correct proper right here is our momentary four-minute video overview of ServiceNow and why we select it: The Now Platform Due to agency’s visionary founder and chairman, Fred Luddy, the ServiceNow Platform is contained inside the precise proper place on the precise proper time to capitalize on the large digital transformation utterly completely utterly utterly completely different as organizations generate vastly extra information at present than in years earlier and need a approach to position it to revenue from effectively and successfully all through departments. Though there are pretty quite a few standardized Now software program program program program program program program packages, the last word phrase Now platform presents one data/establishing model that improves workflow all through your full group and together with prevents data redundancy. Extra, the Now platform presents simple integration with third-party capabilities through APIs, and a subscription-based value model that continues to permit the corporate to land and ultimately broaden useful purchaser relationships.Present: Earnings title presentation Aggressive Benefits ServiceNow is a market chief contained all by the IT service administration (“ITSM”) units market with a market share of over 51% in 2019 as per Gartner, which is considerably bigger than any of its nearest buddies. The ServiceNow platform is a disruptor contained all by the ITSM residence and has continued to take market share from typical avid avid gamers equal to BMC since its IPO in 2012 when it had a market share of merely 10%. Opponents furthermore comes from new market entrants equal to Micro Focus, Freshworks, and IBM (NYSE:IBM); nonetheless, please phrase that ServiceNow’s product picks are far superior and have considerably bigger security. For example, ServiceNow was named a pacesetter contained all by the Gartner magic quadrant for ITSM units for the sixth 12 months working in 2019. (Picture present: Gartner) Moreover, ServiceNow will face new opponents ensuing from it explores newer HR and purchaser help workflow service verticals. For example, it’s optimistic to face opponents from utterly utterly completely utterly utterly completely different SaaS companies that carry out in these verticals equal to Splunk (NASDAQ:SPLK) in dashboarding and Zendesk (NYSE:ZEN) contained all by the purchaser engagement markets. Nonetheless, we take into accounts that on account of its bigger integration capabilities, superior platform infrastructure, and customary innovation, ServiceNow is appropriately positioned to make its presence felt in newer verticals as appropriately. Furthermore compulsory, from a aggressive standpoint, excessive switching prices add “stickiness” to ServiceNow’s earnings and cash flows. For example, it turns into very sturdy for a purchaser to shift to a selected service supplier because of the required direct prices (such because of the time and expense related to new software program program program program program program program) together with oblique prices (equal to a shortage of productiveness whereas prospects develop experience). This phenomenon will seemingly be captured by the 97% renewal price cherished by ServiceNow. Moreover, the next purchaser cohort chart helps reveal NOW’s sticky prospects and rising relationships.(picture present: Investor presentation) Furthermore wished, this stickiness turns into considerably useful all through sturdy financial conditions. A Monumental Full Addressable Market With organizations turning into further globalized and opponents intensifying, operational effectivity has flip into an infinite focus dwelling for firms. The operational frictions inside big enterprises with typical workflow mechanisms have flip into further evident inside the present state of affairs given enterprise disruptions and social distancing. As a method to construct up operational effectivity, digital transformation and day-to-day workflow automation have flip into the necessity of the hour, so administration can ponder defending earnings and guaranteeing enterprise resiliency. As per ServiceNow’s administration, the corporate’s full addressable market stood at $110 billion in 2018 and is anticipated to know $165 billion by 2023, rising at a CAGR of 8%. (Picture present: investor presentation) Given ServiceNow’s dominant place in IT service administration, the corporate is in a sturdy place to roll out further merchandise to its enterprise prospects who’re more and more extra extra further making an attempt to maintain fewer distributors with a view to be further setting good. This huge full addressable market is one completely utterly utterly completely different excuse NOW’s enterprise is so useful. Current Effectivity and Valuation Not solely has ServiceNow delivered spectacular top- and bottom-line enchancment in newest circumstances through purchaser acquisition and up-selling, however furthermore it’s benefiting from the accelerated digital transformation in our post-pandemic world, plus one utterly completely utterly utterly completely different quarter of expectation-beating effectivity. For example, ServiceNow reported subscription earnings of $1.02 billion in Q2 2020, which represents a formidable year-over-year enchancment price of 30%. And this sturdy enchancment was primarily a perform of elevated purchases from present purchasers together with onboarding of extra purchasers. Considerably, contained all by the remaining 12 months, the corporate has added 200 new prospects with annual contract value of over $1 million, 40 of which had been onboarded in Q2 2020 itself together with two transactions over $10 million.Information present: Firm data ServiceNow has been reporting phenomenal enchancment in newest circumstances through widespread innovation and product additions, rising at a CAGR of over 36% between 2015 and 2019. And though the annual enchancment price has barely slowed in current quarters, 28% year-over-year enchancment stays to be fairly healthful and attention-grabbing for a market chief. From a valuation standpoint, ServiceNow merely as of late traded at merely over 16 conditions one-year ahead product product product gross sales estimates. (Picture present: YCharts) And reverse to some Wall Street analysts, this metric is partaking relative to the corporate’s excessive enchancment price, administration place contained all by the enterprise and the very big, long-term full addressable market. In our view, ServiceNow is costly, however worth it. Dangers Regardless of the assorted partaking qualities of ServiceNow’s enterprise, there are menace elements patrons should ponder. For example, NOW competes in intensely aggressive markets, and although the corporate enjoys many aggressive benefits (e.g. product, scale, administration place), the enterprise may change and new opponents is repeatedly a menace, considerably if NOW fails to maintain up up innovating at its present excessive price. Technically talking, one utterly completely utterly utterly completely different menace state of affairs is the argument that the shares have gone up fairly barely moderately lots so shortly that the stock is due for a technical sell-off contained all by the close to time interval. Some patrons actually actually actually actually truly actually really feel that the elevated market volatility for tech stocks this week is a sign of near-term challenges. In our view, timing near-term market change is filled with further pitfalls than value, and a considerably larger technique is solely to purchase actually good companies after which dangle on for the bumpy however lastly sharply upward long-term journey.The COVID-19 pandemic furthermore creates dangers for the enterprise. As a cloud-based firm, and a company the place employees have merely as of late been in a position to earn a living from home, NOW has been barely moderately lots heaps barely moderately lots moderately lots lots a lot much less impacted by the pandemic than utterly utterly completely utterly utterly completely different organizations. Nonetheless, any very important, long-term financial damage launched on by the virus may have an infinite opposed have an effect on on the enterprise. ServiceNow First Focus For reference, you may be taught further about our ServiceNow views in our First Focus report, included beneath.Conclusion ServiceNow has all the time delivered spectacular top- and bottom-line enchancment in newest circumstances through purchaser additions together with widespread up-selling amongst present prospects. And regardless of the premium valuation, we take into accounts the corporate’s big addressable market, sticky purchaser base and superior execution will finish in partaking, long-term shareholder returns. For these causes, we’ve highlighted NOW as one among three stocks that presently standout as “pricey but worth it” (the choice two are Salesforce (NYSE:CRM) and Sq. (NYSE:SQ)). Primary, do you have to’re a disciplined, long-term enchancment investor, ServiceNow continues to be dramatically undervalued by the market. And irrespective of some near-term volatility, we view NOW as expensive, however worth it.Disclosure: I/now we’ve bought no positions in any stocks talked about, and no plans to impress any positions all through the next 72 hours. I wrote this textual content material materials supplies provides gives myself, and it expresses my very private opinions. I’m not receiving compensation for it. I’ve no enterprise relationship with any firm whose stock is talked about on this textual content material materials supplies provides.Additional disclosure: Left Ideas Funding Analysis has no positions in any of the aforementioned securities. Nonetheless, affiliate companies Left Ideas Capital Administration and/or Left Ideas Wealth Administration are extended ServiceNow (NOW), Salesforce (CRM), and Sq. (SQ).