Intrinsic value of ServiceNow - NOW

Previous Close

$107.23

  Intrinsic Value

$2.38

stock screener

  Rating & Target

str. sell

-98%

  Value-price divergence*

-139%

Previous close

$107.23

 
Intrinsic value

$2.38

 
Up/down potential

-98%

 
Rating

str. sell

 
Value-price divergence*

-139%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of NOW stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 17.5

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  38.41
  36.30
  33.17
  30.35
  27.82
  25.54
  23.48
  21.63
  19.97
  18.47
  17.13
  15.91
  14.82
  13.84
  12.96
  12.16
  11.44
  10.80
  10.22
  9.70
  9.23
  8.81
  8.42
  8.08
  7.77
  7.50
  7.25
  7.02
  6.82
  6.64
  6.47
Revenue, $m
  1,391
  1,896
  2,525
  3,291
  4,207
  5,281
  6,521
  7,932
  9,516
  11,274
  13,204
  15,306
  17,574
  20,007
  22,599
  25,347
  28,248
  31,298
  34,497
  37,843
  41,335
  44,975
  48,764
  52,705
  56,802
  61,060
  65,486
  70,084
  74,864
  79,833
  85,002
Variable operating expenses, $m
 
  2,208
  2,937
  3,826
  4,888
  6,134
  7,573
  9,209
  11,047
  13,086
  15,326
  17,755
  20,387
  23,208
  26,215
  29,403
  32,768
  36,307
  40,018
  43,899
  47,950
  52,172
  56,567
  61,139
  65,892
  70,832
  75,965
  81,300
  86,845
  92,609
  98,605
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  1,813
  2,208
  2,937
  3,826
  4,888
  6,134
  7,573
  9,209
  11,047
  13,086
  15,326
  17,755
  20,387
  23,208
  26,215
  29,403
  32,768
  36,307
  40,018
  43,899
  47,950
  52,172
  56,567
  61,139
  65,892
  70,832
  75,965
  81,300
  86,845
  92,609
  98,605
Operating income, $m
  -423
  -312
  -412
  -535
  -682
  -853
  -1,052
  -1,278
  -1,531
  -1,812
  -2,121
  -2,449
  -2,812
  -3,202
  -3,617
  -4,056
  -4,521
  -5,009
  -5,521
  -6,056
  -6,615
  -7,197
  -7,804
  -8,435
  -9,090
  -9,772
  -10,480
  -11,216
  -11,981
  -12,776
  -13,603
EBITDA, $m
  -340
  -274
  -365
  -475
  -608
  -763
  -942
  -1,146
  -1,374
  -1,628
  -1,907
  -2,211
  -2,538
  -2,890
  -3,264
  -3,661
  -4,080
  -4,521
  -4,983
  -5,466
  -5,970
  -6,496
  -7,043
  -7,612
  -8,204
  -8,819
  -9,458
  -10,122
  -10,813
  -11,531
  -12,277
Interest expense (income), $m
  0
  18
  36
  62
  92
  129
  172
  222
  279
  342
  413
  491
  575
  666
  764
  868
  979
  1,095
  1,218
  1,346
  1,481
  1,621
  1,767
  1,919
  2,078
  2,242
  2,413
  2,591
  2,776
  2,968
  3,168
Earnings before tax, $m
  -450
  -329
  -449
  -597
  -774
  -983
  -1,224
  -1,500
  -1,810
  -2,155
  -2,535
  -2,940
  -3,388
  -3,868
  -4,381
  -4,924
  -5,499
  -6,104
  -6,738
  -7,402
  -8,096
  -8,818
  -9,571
  -10,354
  -11,168
  -12,014
  -12,893
  -13,807
  -14,757
  -15,744
  -16,771
Tax expense, $m
  2
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  -452
  -329
  -449
  -597
  -774
  -983
  -1,224
  -1,500
  -1,810
  -2,155
  -2,535
  -2,940
  -3,388
  -3,868
  -4,381
  -4,924
  -5,499
  -6,104
  -6,738
  -7,402
  -8,096
  -8,818
  -9,571
  -10,354
  -11,168
  -12,014
  -12,893
  -13,807
  -14,757
  -15,744
  -16,771

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  899
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  2,034
  2,418
  3,220
  4,198
  5,366
  6,736
  8,318
  10,117
  12,137
  14,380
  16,842
  19,523
  22,416
  25,519
  28,825
  32,330
  36,030
  39,922
  44,002
  48,269
  52,723
  57,366
  62,198
  67,226
  72,452
  77,883
  83,527
  89,393
  95,490
  101,828
  108,421
Adjusted assets (=assets-cash), $m
  1,135
  2,418
  3,220
  4,198
  5,366
  6,736
  8,318
  10,117
  12,137
  14,380
  16,842
  19,523
  22,416
  25,519
  28,825
  32,330
  36,030
  39,922
  44,002
  48,269
  52,723
  57,366
  62,198
  67,226
  72,452
  77,883
  83,527
  89,393
  95,490
  101,828
  108,421
Revenue / Adjusted assets
  1.226
  0.784
  0.784
  0.784
  0.784
  0.784
  0.784
  0.784
  0.784
  0.784
  0.784
  0.784
  0.784
  0.784
  0.784
  0.784
  0.784
  0.784
  0.784
  0.784
  0.784
  0.784
  0.784
  0.784
  0.784
  0.784
  0.784
  0.784
  0.784
  0.784
  0.784
Average production assets, $m
  218
  296
  394
  513
  656
  824
  1,017
  1,237
  1,484
  1,759
  2,060
  2,388
  2,742
  3,121
  3,525
  3,954
  4,407
  4,883
  5,382
  5,903
  6,448
  7,016
  7,607
  8,222
  8,861
  9,525
  10,216
  10,933
  11,679
  12,454
  13,260
Working capital, $m
  271
  -190
  -252
  -329
  -421
  -528
  -652
  -793
  -952
  -1,127
  -1,320
  -1,531
  -1,757
  -2,001
  -2,260
  -2,535
  -2,825
  -3,130
  -3,450
  -3,784
  -4,133
  -4,497
  -4,876
  -5,270
  -5,680
  -6,106
  -6,549
  -7,008
  -7,486
  -7,983
  -8,500
Total debt, $m
  508
  1,037
  1,759
  2,639
  3,690
  4,923
  6,347
  7,966
  9,785
  11,803
  14,019
  16,431
  19,036
  21,828
  24,804
  27,958
  31,288
  34,790
  38,462
  42,303
  46,312
  50,490
  54,840
  59,364
  64,068
  68,956
  74,036
  79,315
  84,802
  90,507
  96,440
Total liabilities, $m
  1,647
  2,176
  2,898
  3,778
  4,829
  6,062
  7,486
  9,105
  10,924
  12,942
  15,158
  17,570
  20,175
  22,967
  25,943
  29,097
  32,427
  35,929
  39,601
  43,442
  47,451
  51,629
  55,979
  60,503
  65,207
  70,095
  75,175
  80,454
  85,941
  91,646
  97,579
Total equity, $m
  387
  242
  322
  420
  537
  674
  832
  1,012
  1,214
  1,438
  1,684
  1,952
  2,242
  2,552
  2,883
  3,233
  3,603
  3,992
  4,400
  4,827
  5,272
  5,737
  6,220
  6,723
  7,245
  7,788
  8,353
  8,939
  9,549
  10,183
  10,842
Total liabilities and equity, $m
  2,034
  2,418
  3,220
  4,198
  5,366
  6,736
  8,318
  10,117
  12,138
  14,380
  16,842
  19,522
  22,417
  25,519
  28,826
  32,330
  36,030
  39,921
  44,001
  48,269
  52,723
  57,366
  62,199
  67,226
  72,452
  77,883
  83,528
  89,393
  95,490
  101,829
  108,421
Debt-to-equity ratio
  1.313
  4.290
  5.460
  6.290
  6.880
  7.310
  7.630
  7.870
  8.060
  8.210
  8.320
  8.420
  8.490
  8.550
  8.600
  8.650
  8.680
  8.710
  8.740
  8.760
  8.780
  8.800
  8.820
  8.830
  8.840
  8.850
  8.860
  8.870
  8.880
  8.890
  8.890
Adjusted equity ratio
  -0.451
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -452
  -329
  -449
  -597
  -774
  -983
  -1,224
  -1,500
  -1,810
  -2,155
  -2,535
  -2,940
  -3,388
  -3,868
  -4,381
  -4,924
  -5,499
  -6,104
  -6,738
  -7,402
  -8,096
  -8,818
  -9,571
  -10,354
  -11,168
  -12,014
  -12,893
  -13,807
  -14,757
  -15,744
  -16,771
Depreciation, amort., depletion, $m
  83
  38
  48
  60
  74
  91
  110
  132
  157
  184
  214
  239
  274
  312
  353
  395
  441
  488
  538
  590
  645
  702
  761
  822
  886
  953
  1,022
  1,093
  1,168
  1,245
  1,326
Funds from operations, $m
  256
  -292
  -401
  -537
  -700
  -892
  -1,114
  -1,368
  -1,653
  -1,971
  -2,320
  -2,701
  -3,113
  -3,556
  -4,028
  -4,529
  -5,058
  -5,616
  -6,200
  -6,812
  -7,451
  -8,117
  -8,810
  -9,532
  -10,282
  -11,062
  -11,872
  -12,714
  -13,589
  -14,499
  -15,445
Change in working capital, $m
  96
  -50
  -63
  -77
  -92
  -107
  -124
  -141
  -158
  -176
  -193
  -210
  -227
  -243
  -259
  -275
  -290
  -305
  -320
  -335
  -349
  -364
  -379
  -394
  -410
  -426
  -443
  -460
  -478
  -497
  -517
Cash from operations, $m
  160
  -241
  -338
  -460
  -608
  -784
  -990
  -1,227
  -1,495
  -1,795
  -2,127
  -2,491
  -2,887
  -3,313
  -3,769
  -4,254
  -4,768
  -5,311
  -5,880
  -6,477
  -7,102
  -7,753
  -8,431
  -9,138
  -9,872
  -10,636
  -11,429
  -12,254
  -13,111
  -14,002
  -14,928
Maintenance CAPEX, $m
  0
  -22
  -30
  -39
  -51
  -66
  -82
  -102
  -124
  -148
  -176
  -206
  -239
  -274
  -312
  -353
  -395
  -441
  -488
  -538
  -590
  -645
  -702
  -761
  -822
  -886
  -953
  -1,022
  -1,093
  -1,168
  -1,245
New CAPEX, $m
  -124
  -78
  -98
  -120
  -143
  -168
  -193
  -220
  -247
  -274
  -301
  -328
  -354
  -379
  -404
  -429
  -453
  -476
  -499
  -522
  -545
  -568
  -591
  -615
  -639
  -664
  -690
  -717
  -746
  -775
  -806
Cash from investing activities, $m
  -108
  -100
  -128
  -159
  -194
  -234
  -275
  -322
  -371
  -422
  -477
  -534
  -593
  -653
  -716
  -782
  -848
  -917
  -987
  -1,060
  -1,135
  -1,213
  -1,293
  -1,376
  -1,461
  -1,550
  -1,643
  -1,739
  -1,839
  -1,943
  -2,051
Free cash flow, $m
  52
  -341
  -466
  -619
  -803
  -1,018
  -1,266
  -1,548
  -1,866
  -2,218
  -2,604
  -3,025
  -3,479
  -3,966
  -4,485
  -5,035
  -5,616
  -6,227
  -6,868
  -7,537
  -8,237
  -8,965
  -9,724
  -10,513
  -11,333
  -12,186
  -13,072
  -13,993
  -14,950
  -15,945
  -16,980
Issuance/(repayment) of debt, $m
  -2
  529
  722
  880
  1,051
  1,233
  1,424
  1,619
  1,818
  2,018
  2,216
  2,412
  2,604
  2,792
  2,976
  3,155
  3,330
  3,502
  3,672
  3,841
  4,009
  4,178
  4,350
  4,524
  4,704
  4,888
  5,080
  5,279
  5,487
  5,705
  5,933
Issuance/(repurchase) of shares, $m
  66
  444
  529
  694
  891
  1,120
  1,382
  1,680
  2,012
  2,379
  2,781
  3,208
  3,677
  4,178
  4,711
  5,275
  5,869
  6,493
  7,146
  7,829
  8,541
  9,283
  10,054
  10,857
  11,691
  12,557
  13,458
  14,394
  15,366
  16,378
  17,430
Cash from financing (excl. dividends), $m  
  -56
  973
  1,251
  1,574
  1,942
  2,353
  2,806
  3,299
  3,830
  4,397
  4,997
  5,620
  6,281
  6,970
  7,687
  8,430
  9,199
  9,995
  10,818
  11,670
  12,550
  13,461
  14,404
  15,381
  16,395
  17,445
  18,538
  19,673
  20,853
  22,083
  23,363
Total cash flow (excl. dividends), $m
  -11
  633
  785
  955
  1,139
  1,335
  1,540
  1,751
  1,965
  2,180
  2,393
  2,595
  2,802
  3,004
  3,202
  3,394
  3,583
  3,768
  3,951
  4,132
  4,313
  4,495
  4,680
  4,868
  5,061
  5,259
  5,465
  5,680
  5,904
  6,138
  6,384
Retained Cash Flow (-), $m
  180
  -444
  -529
  -694
  -891
  -1,120
  -1,382
  -1,680
  -2,012
  -2,379
  -2,781
  -3,208
  -3,677
  -4,178
  -4,711
  -5,275
  -5,869
  -6,493
  -7,146
  -7,829
  -8,541
  -9,283
  -10,054
  -10,857
  -11,691
  -12,557
  -13,458
  -14,394
  -15,366
  -16,378
  -17,430
Prev. year cash balance distribution, $m
 
  260
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  448
  256
  261
  248
  215
  158
  71
  -47
  -200
  -388
  -613
  -875
  -1,174
  -1,510
  -1,881
  -2,286
  -2,725
  -3,196
  -3,697
  -4,228
  -4,787
  -5,374
  -5,989
  -6,630
  -7,298
  -7,992
  -8,714
  -9,463
  -10,240
  -11,046
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  430
  235
  227
  205
  167
  114
  48
  -30
  -115
  -203
  -291
  -373
  -446
  -507
  -552
  -581
  -593
  -589
  -569
  -537
  -495
  -446
  -393
  -338
  -284
  -233
  -187
  -146
  -112
  -83
Current shareholders' claim on cash, %
  100
  74.1
  60.8
  50.0
  41.3
  34.1
  28.3
  23.6
  19.7
  16.4
  13.8
  11.6
  9.7
  8.2
  6.9
  5.9
  5.0
  4.2
  3.6
  3.0
  2.6
  2.2
  1.9
  1.6
  1.3
  1.1
  1.0
  0.8
  0.7
  0.6
  0.5

ServiceNow, Inc. provides enterprise cloud-based solutions that define, structure, manage, and automate services in North America, Europe, the Middle East, Africa, the Asia Pacific, and internationally. It offers service management solutions, including incident management, problem management, change management, and request management, as well as service catalog and knowledge base; and information technology (IT), HR, customer service, security operations, facilities, and field service management solutions. The company also provides business management solutions, such as financial management solutions; project portfolio suite that provides capabilities to plan, organize, and manage projects; governance, risk, and compliance solution that provides clarity into compliance and audit initiatives; and performance analytics solutions, as well as offers ServiceNow platform that integrates various business applications. In addition, it offers IT operations management solutions that include ServiceWatch Mapping, a service mapping and discovery solution; ServiceWatch Insight that adds event management to the ServiceWatch Mapping bundle, as well as offers insight on the issues affecting service availability and performance; and ServiceWatch Suite that adds orchestration and cloud management to the ServiceNow ITOM products. Further, the company offers professional, education, and customer support services. It serves enterprises in various industries, including financial services, consumer products, IT services, health care, and technology. The company sells products through its direct sales team, as well as indirectly through third-party channels by partnering with systems integrators, managed services providers, and resale partners. The company was formerly known as Service-now.com and changed its name to ServiceNow, Inc. in May 2012. ServiceNow, Inc. was founded in 2004 and is headquartered in Santa Clara, California.

FINANCIAL RATIOS  of  ServiceNow (NOW)

Valuation Ratios
P/E Ratio -39.7
Price to Sales 12.9
Price to Book 46.4
Price to Tangible Book
Price to Cash Flow 112.2
Price to Free Cash Flow 498.7
Growth Rates
Sales Growth Rate 38.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 39.3%
Cap. Spend. - 3 Yr. Gr. Rate 17.7%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 131.3%
Total Debt to Equity 131.3%
Interest Coverage 0
Management Effectiveness
Return On Assets -23.5%
Ret/ On Assets - 3 Yr. Avg. -16.5%
Return On Total Capital -46.7%
Ret/ On T. Cap. - 3 Yr. Avg. -29.5%
Return On Equity -94.8%
Return On Equity - 3 Yr. Avg. -59.3%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 71.3%
Gross Margin - 3 Yr. Avg. 67.4%
EBITDA Margin -26.4%
EBITDA Margin - 3 Yr. Avg. -19.7%
Operating Margin -30.3%
Oper. Margin - 3 Yr. Avg. -23%
Pre-Tax Margin -32.4%
Pre-Tax Margin - 3 Yr. Avg. -25.8%
Net Profit Margin -32.5%
Net Profit Margin - 3 Yr. Avg. -26.1%
Effective Tax Rate -0.4%
Eff/ Tax Rate - 3 Yr. Avg. -1.6%
Payout Ratio 0%

NOW stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the NOW stock intrinsic value calculation we used $1391 million for the last fiscal year's total revenue generated by ServiceNow. The default revenue input number comes from 2016 income statement of ServiceNow. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our NOW stock valuation model: a) initial revenue growth rate of 36.3% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for NOW is calculated based on our internal credit rating of ServiceNow, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of ServiceNow.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of NOW stock the variable cost ratio is equal to 116.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for NOW stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for ServiceNow.

Corporate tax rate of 27% is the nominal tax rate for ServiceNow. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the NOW stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for NOW are equal to 15.6%.

Life of production assets of 10 years is the average useful life of capital assets used in ServiceNow operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for NOW is equal to -10%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $387 million for ServiceNow - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 162.898 million for ServiceNow is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of ServiceNow at the current share price and the inputted number of shares is $17.5 billion.

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COMPANY NEWS

▶ Why ServiceNow Could Be Actionable At New High   [04:48AM  Investor's Business Daily]
▶ ServiceNow reports 2Q loss   [Jul-26-17 10:33PM  Associated Press]
▶ [$$] Tech M&A: thrift shop picks   [Jun-19-17 06:55AM  Financial Times]
▶ The 3 Best IT Services Companies to Buy in 2017   [Jun-02-17 09:28PM  Motley Fool]
▶ ServiceNow Price Target Hiked On Improving Margins, Cash Flow   [May-25-17 04:08PM  Investor's Business Daily]
▶ 3 Stocks That Look Just Like Google in 2004   [May-20-17 01:18PM  Motley Fool]
▶ ETFs with exposure to ServiceNow, Inc. : May 11, 2017   [May-11-17 05:15PM  Capital Cube]
▶ ServiceNow Launches Trusted Security Circles   [08:00AM  Business Wire]
▶ ServiceNow Launches Cloud Management   [08:00AM  Business Wire]
▶ Stocks To Buy And Watch: Top IPOs, Big And Small Caps, Growth Stocks   [May-09-17 10:33AM  Investor's Business Daily]
▶ Boeing, ServiceNow Get Price-Target Hikes; McDonald's A Buy   [04:40PM  Investor's Business Daily]
▶ ServiceNow reports 1Q loss   [Apr-26-17 04:52PM  Associated Press]
▶ ServiceNow's New CEO To Debut On Q1 Earnings Call   [10:06AM  Investor's Business Daily]
▶ Cramer: You Only Need to Get Rich Once   [Apr-21-17 07:01PM  TheStreet.com]
▶ ETFs with exposure to ServiceNow, Inc. : April 19, 2017   [Apr-19-17 02:28PM  Capital Cube]
▶ [$$] Positive Trend on ServiceNow, Neutral for Red Hat   [Apr-10-17 03:20PM  Barrons.com]
▶ ETFs with exposure to ServiceNow, Inc. : April 7, 2017   [Apr-07-17 05:09PM  Capital Cube]
▶ Oracles Value Proposition in the Software Space   [Mar-31-17 09:05AM  Market Realist]
▶ ServiceNow: Not Now   [Mar-28-17 03:06PM  TheStreet.com]
▶ ETFs with exposure to ServiceNow, Inc. : March 27, 2017   [Mar-27-17 04:01PM  Capital Cube]
▶ How Wall Street Analysts View Oracle Stock   [Mar-21-17 10:35AM  at Market Realist]
▶ 3 Growth Stocks That Could Double   [Mar-15-17 08:06AM  Motley Fool]
▶ 3 Growth Stocks That Could Double   [08:06AM  at Motley Fool]
▶ Everything-as-a-Service Pays Off for ServiceNow   [Mar-08-17 07:00AM  Morningstar]
▶ Former eBay CEO named chief executive of ServiceNow   [Feb-27-17 05:35PM  at bizjournals.com]
▶ IBM and ServiceNow Announce Global Strategic Partnership   [Feb-14-17 08:00AM  PR Newswire]
▶ ServiceNow to Present at Upcoming Investor Conferences   [Feb-13-17 08:00AM  Business Wire]
▶ ServiceNow: Cramer's Top Takeaways   [06:24AM  at TheStreet]
Stock chart of NOW Financial statements of NOW
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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