No matter this week’s volatility, ServiceNow (NYSE:NOW) shares are up larger than 65% year-to-date, and it has a price-to-sales ratio significantly larger than buddies. To many, these metrics are scary; nonetheless, in our view, ServiceNow is partaking. The company has a novel platform that matches totally into the current massive world digital transformation totally utterly totally totally utterly completely different that’s nonetheless in its very early innings. Additional significantly, your full addressable market is huge, the continued secular shift has been accelerated by covid, and NOW has the reply and administration to capitalize for a really very very very very very very very very long time. The reality is, our long-term view, blended with the company’s persevering with sturdy execution, leads us to ponder Wall Street is solely not appreciating how really helpful this enterprise continues to be. Overview ServiceNow is a cloud-based know-how agency that offers a subscription-based Software program program program program program program program program-as-a-Service (“SaaS”) platform to help organizations digitize and automate workflows all by way of totally totally totally utterly totally totally utterly completely different areas equal to data know-how, human property, and purchaser assist, to name just some. The reply improves organizational productiveness and price monetary financial monetary financial monetary financial monetary financial savings, and ServiceNow continues to “land and expand” many giant purchaser relationships. For these of you preferring watching a video (as an alternative of discovering out by way of this textual content material materials supplies provides gives provides), proper acceptable correct proper right correct proper right here is our momentary four-minute video overview of ServiceNow and why we choose it: The Now Platform Resulting from company’s visionary founder and chairman, Fred Luddy, the ServiceNow Platform is contained contained in the exact correct place on the exact correct time to capitalize on the massive digital transformation totally utterly totally totally utterly completely different as organizations generate vastly additional data at current than in years earlier and wish a strategy to place it to income from successfully and efficiently all by way of departments. Although there are fairly fairly a number of standardized Now software program program program program program program program program packages, the final phrase phrase Now platform presents one information/establishing model that improves workflow all by way of your full group and along with prevents information redundancy. Additional, the Now platform presents easy integration with third-party capabilities by way of APIs, and a subscription-based value model that continues to allow the company to land and finally broaden helpful purchaser relationships.Current: Earnings title presentation Aggressive Advantages ServiceNow is a market chief contained all by the IT service administration (“ITSM”) models market with a market share of over 51% in 2019 as per Gartner, which is significantly larger 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 avid gamers equal to BMC since its IPO in 2012 when it had a market share of merely 10%. Opponents moreover 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 significantly larger safety. For instance, ServiceNow was named a pacesetter contained all by the Gartner magic quadrant for ITSM models for the sixth 12 months working in 2019. (Image current: Gartner) Furthermore, ServiceNow will face new opponents ensuing from it explores newer HR and purchaser assist workflow service verticals. For instance, it’s optimistic to face opponents from totally totally utterly totally totally utterly completely different SaaS corporations that perform 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 larger integration capabilities, superior platform infrastructure, and customary innovation, ServiceNow is appropriately positioned to make its presence felt in newer verticals as appropriately. Moreover obligatory, from a aggressive standpoint, extreme switching costs add “stickiness” to ServiceNow’s earnings and cash flows. For instance, it turns into very sturdy for a purchaser to shift to a particular service provider due to the required direct costs (such due to the time and expense associated to new software program program program program program program program program) along with indirect costs (equal to a scarcity of productiveness whereas prospects develop expertise). This phenomenon will seemingly be captured by the 97% renewal price cherished by ServiceNow. Furthermore, the subsequent purchaser cohort chart helps reveal NOW’s sticky prospects and rising relationships.(image current: Investor presentation) Moreover wished, this stickiness turns into significantly helpful all by way of sturdy monetary situations. A Monumental Full Addressable Market With organizations turning into additional globalized and opponents intensifying, operational effectivity has flip into an infinite focus dwelling for companies. The operational frictions inside massive enterprises with typical workflow mechanisms have flip into additional evident inside the current state of affairs given enterprise disruptions and social distancing. As a way to assemble up operational effectivity, digital transformation and day-to-day workflow automation have flip into the need of the hour, so administration can ponder defending earnings and guaranteeing enterprise resiliency. As per ServiceNow’s administration, the company’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%. (Image current: investor presentation) Given ServiceNow’s dominant place in IT service administration, the company is in a sturdy place to roll out additional merchandise to its enterprise prospects who’re increasingly additional additional additional attempting to take care of fewer distributors with a view to be additional setting good. This enormous full addressable market is one utterly totally totally utterly completely different excuse NOW’s enterprise is so helpful. Present Effectivity and Valuation Not solely has ServiceNow delivered spectacular top- and bottom-line enchancment in latest circumstances by way of purchaser acquisition and up-selling, nevertheless moreover it’s benefiting from the accelerated digital transformation in our post-pandemic world, plus one totally utterly totally totally utterly completely different quarter of expectation-beating effectivity. For instance, 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 carry out of elevated purchases from current purchasers along with onboarding of additional purchasers. Significantly, contained all by the remaining 12 months, the company has added 200 new prospects with annual contract value of over $1 million, 40 of which had been onboarded in Q2 2020 itself along with two transactions over $10 million.Info current: Agency information ServiceNow has been reporting phenomenal enchancment in latest circumstances by way of widespread innovation and product additions, rising at a CAGR of over 36% between 2015 and 2019. And although the annual enchancment price has barely slowed in present quarters, 28% year-over-year enchancment stays to be pretty healthful and attention-grabbing for a market chief. From a valuation standpoint, ServiceNow merely as of late traded at merely over 16 situations one-year forward product product product product sales estimates. (Image current: YCharts) And reverse to some Wall Street analysts, this metric is partaking relative to the company’s extreme enchancment price, administration place contained all by the enterprise and the very massive, long-term full addressable market. In our view, ServiceNow is expensive, nevertheless worth it. Risks Whatever the assorted partaking qualities of ServiceNow’s enterprise, there are menace components patrons ought to ponder. For instance, NOW competes in intensely aggressive markets, and though the company enjoys many aggressive advantages (e.g. product, scale, administration place), the enterprise may change and new opponents is repeatedly a menace, significantly if NOW fails to take care of up up innovating at its current extreme price. Technically speaking, one totally utterly totally totally utterly completely different menace state of affairs is the argument that the shares have gone up pretty barely reasonably tons so shortly that the stock is due for a technical sell-off contained all by the near time interval. Some patrons really really really really actually really actually really feel that the elevated market volatility for tech stocks this week is an indication of near-term challenges. In our view, timing near-term market change is stuffed with additional pitfalls than value, and a significantly bigger method is solely to buy really good corporations after which dangle on for the bumpy nevertheless lastly sharply upward long-term journey.The COVID-19 pandemic moreover creates risks for the enterprise. As a cloud-based agency, and an organization the place workers have merely as of late been able to make money working from home, NOW has been barely reasonably tons heaps barely reasonably tons reasonably tons tons quite a bit a lot much less impacted by the pandemic than totally totally utterly totally totally utterly completely different organizations. Nonetheless, any crucial, long-term monetary harm launched on by the virus may have an infinite opposed impact on the enterprise. ServiceNow First Focus For reference, you may be taught additional about our ServiceNow views in our First Focus report, included beneath.Conclusion ServiceNow has on a regular basis delivered spectacular top- and bottom-line enchancment in latest circumstances by way of purchaser additions along with widespread up-selling amongst current prospects. And whatever the premium valuation, we take into accounts the company’s massive addressable market, sticky purchaser base and superior execution will end in partaking, long-term shareholder returns. For these causes, we’ve highlighted NOW as one amongst three stocks that presently standout as “pricey but worth it” (the selection two are Salesforce (NYSE:CRM) and Sq. (NYSE:SQ)). Main, do it’s important to’re a disciplined, long-term enchancment investor, ServiceNow continues to be dramatically undervalued by the market. And no matter some near-term volatility, we view NOW as costly, nevertheless worth it.Disclosure: I/now we’ve purchased no positions in any stocks talked about, and no plans to impress any positions all by way of the subsequent 72 hours. I wrote this textual content material materials supplies provides gives provides myself, and it expresses my very personal opinions. I’m not receiving compensation for it. I’ve no enterprise relationship with any agency whose stock is talked about on this textual content material materials supplies provides gives.Further disclosure: Left Concepts Funding Evaluation has no positions in any of the aforementioned securities. Nonetheless, affiliate corporations Left Concepts Capital Administration and/or Left Concepts Wealth Administration are prolonged ServiceNow (NOW), Salesforce (CRM), and Sq. (SQ).