U.S. stocks edge higher; solid earnings season continues
On Tuesday, UBS analyst Karl Keirstead adjusted the price target for ServiceNow (NYSE:NOW) stock, reducing it to $1,000 from the previous $1,250 while continuing to recommend a Buy rating. The stock, currently trading at $815, has seen a significant 26% decline year-to-date, though InvestingPro data shows it maintains impressive gross profit margins of 79%. The revision follows ServiceNow’s announcement of acquiring Moveworks, a privately-held company, in a deal valued at $2.85 billion, paid in a combination of cash and stock. Despite the acquisition, ServiceNow expects no impact on their margin targets.
ServiceNow’s recent acquisition represents less than 2% of its $170 billion market cap, but it is viewed as a strategic move to enhance the company’s artificial intelligence capabilities. The company’s current Pro+ AI offering has seen substantial growth, almost doubling its Annual Contract Value (ACV) to $200 million since the end of the third quarter of 2024. With revenue growing at 22% year-over-year and a strong five-year CAGR of 26%, ServiceNow demonstrates robust expansion potential. Get deeper insights into ServiceNow’s growth metrics and 18 additional exclusive ProTips with InvestingPro.
Moveworks is known for its advanced AI assistant and enterprise search technology, which has been described as an "AI agent tech" and likened to a ChatGPT for enterprises. In 2023, Moveworks revamped its architecture to better support this technology. ServiceNow’s decision to acquire Moveworks is seen as a deliberate effort to expand into customer relationship management (CRM), a domain traditionally dominated by Salesforce (NYSE:CRM). This move comes at a time when Salesforce itself has announced plans to enter ServiceNow’s core IT Service Management (ITSM) market.
ServiceNow’s stock valuation, according to UBS, stands at 29 times the firm’s Free Cash Flow (FCF) estimate for the calendar year 2026. The company’s aggressive expansion into AI and CRM areas could potentially bolster its market position and product offerings.
This acquisition and the positive outlook from UBS come amidst a competitive landscape where companies are increasingly looking to leverage AI technologies to gain an edge in various business domains. ServiceNow’s strategic acquisition of Moveworks is an indication of the company’s commitment to maintaining its growth trajectory and expanding its influence in the enterprise software market. According to InvestingPro’s analysis, the company maintains a healthy financial position with moderate debt levels and strong cash flows, while analyst consensus remains overwhelmingly positive with a target range of $716 to $1,426.
In other recent news, ServiceNow has announced its acquisition of Moveworks, an AI assistant provider, for $2.85 billion. This strategic move is anticipated to enhance ServiceNow’s AI and automation capabilities. Analysts from multiple firms have weighed in on the acquisition, with RBC Capital adjusting their price target for ServiceNow to $986 while maintaining an Outperform rating. Similarly, Mizuho (NYSE:MFG) Securities revised their price target to $1,100 but also reaffirmed an Outperform rating.
JMP analysts have maintained a $1,300 price target and a Market Outperform rating, projecting consistent revenue growth for ServiceNow through 2027. Goldman Sachs has reiterated a Buy rating with a $1,200 price target, emphasizing the strategic value of the acquisition for enhancing ServiceNow’s existing offerings. Evercore ISI has kept a $1,150 price target and an Outperform rating, highlighting the potential for a significant increase in Annual Recurring Revenue by 2025.
ServiceNow’s recent quarterly earnings have been considered in these analyses, with expectations of revenue growth and strong financial performance. The acquisition aligns with the company’s broader AI strategy, aiming to bolster its market position and expand its customer base. Despite varying price target adjustments, the overall sentiment among analysts reflects confidence in ServiceNow’s strategic direction and growth prospects.
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