Evaluation Date: 2026-01-14 | ← Back to All Stock Evaluations
Key Takeaways: Is NOW a Quality Investment?
This section provides a scannable summary for quick reference.
- Verdict: 🟡 CAUTION — Score: 143/210 (68.1%)
- Moat Strength: Strong — Dominant 44% ITSM market share with 98% customer renewal rate and high switching costs
- Financial Health: Good — $5.4B cash, low debt (Debt/Equity 13%), but ROIC (~8%) below cost of capital
- Valuation: Overvalued — P/E 86x vs 5yr avg 218x (improved), P/FCF ~36x, premium pricing for growth
- Key Risk: Recent $12B M&A spree raises execution risk; ROIC destruction concerns as company grows through acquisitions
This evaluation uses the Charlie Munger Quality Rubric framework analyzing management, moat, financials, and valuation across 8 dimensions.
How This Company Makes Money
ServiceNow operates an enterprise cloud platform generating recurring subscription revenue (97% of total) through digital workflow automation software. The company’s core ITSM (IT Service Management) solution serves as the foundation, with expansion into IT Operations, HR Service Delivery, Customer Service, and Security Operations. Revenue derives from multi-year subscription contracts averaging 3 years, with high switching costs creating a durable competitive moat and predictable cash flows.
Table of Contents
- Key Takeaways
- Executive Summary Scorecard
- Company Overview
- Leadership & Board of Directors
- Business Model Visual
- Dividends & Upcoming Events
- Competitor Comparison Summary
- Visual Score Summary
- Key Graham/Buffett/Munger Quotes Applied
- Detailed Analysis
- Red Flag Analysis
- Final Verdict: Is NOW a Quality Buy per Munger’s Rubric?
- Frequently Asked Questions
- Related Munger Quality Rubric Evaluations
- Source Reliability & Citations
Executive Summary Scorecard
| Category | Score | Max | % | Rating |
|---|---|---|---|---|
| A. CEO & Management | 19 | 25 | 76% | 🟡 |
| B. Board of Directors | 15 | 20 | 75% | 🟡 |
| C. Incentive Structures | 15 | 20 | 75% | 🟡 |
| D. Regulatory & Political | 19 | 25 | 76% | 🟡 |
| E. Business Quality & Moat | 30 | 35 | 86% | 🟢 |
| F. Financial Strength | 24 | 35 | 69% | 🟡 |
| G. Country & Geopolitical | 13 | 15 | 87% | 🟢 |
| H. Valuation & Margin of Safety | 16 | 35 | 46% | 🔴 |
| Raw Subtotal | 151 | 210 | ||
| I. Red Flag Deductions | -8 | 0 | 3 flags | |
| TOTAL | 143 | 210 | 68.1% | |
| Normalized Score | 68.1% | 100% | ||
| J. Graham Screen | 2/7 | Info | FAIL |
Munger Verdict: CAUTION
Scorecard Visualization
Company Overview
- Company: ServiceNow, Inc.
- Ticker: NOW
- Exchange: NYSE
- Industry: Business/Productivity Software
- Sector: Technology
- Founded: 2004 (as Glidesoft by Fred Luddy)
- Headquarters: Santa Clara, California, USA
- Employees: ~26,300
- Market Cap: ~$142B (post 5:1 split, Jan 2026)
- FY2024 Revenue: $10.98B
Revenue Breakdown by Segment
| Segment | FY2024 Revenue | % of Total | YoY Growth | Trend |
|---|---|---|---|---|
| Digital Workflow Products | $9.42B | 88.5% | +22.7% | 🟢 |
| ITOM Products | $1.22B | 11.5% | +18% | 🟢 |
| Subscription Total | $10.65B | 97% | +22.5% | 🟢 |
| Professional Services | $0.33B | 3% | +15% | 🟡 |
Geographic Revenue Mix
| Region | % of Revenue | Trend | Note |
|---|---|---|---|
| North America | 63% | 🟢 | Largest market, 11% from federal government |
| EMEA | 26% | 🟢 | Second largest, expanding |
| Asia Pacific & Other | 11% | 🟢 | Fastest growth (+28% YoY) |
Leadership & Board of Directors
Executive Leadership
| Role | Name | Notable Background |
|---|---|---|
| Chairman & CEO | Bill McDermott | Former SAP CEO (2010-2019), tripled ServiceNow revenue since 2019 |
| President & CFO | Gina Mastantuono | Former Ingram Micro CFO, Roblox board |
| President, CPO & COO | Amit Zavery | Former Google Cloud VP, Oracle veteran |
| Chief People Officer | Jacqui Canney | Former Walmart & Accenture HR leader |
| Chief Legal Officer | Hossein Nowbar | Former Microsoft, Oracle legal |
Board of Directors
| Name | Role | Notable Background |
|---|---|---|
| Bill McDermott | Chairman & CEO | SAP CEO, Zoom board |
| Jeffrey A. Miller | Lead Independent Director | Former Oracle, Documentum executive |
| Fred Luddy | Founder, Director | ServiceNow founder, Peregrine Systems CTO |
| Susan L. Bostrom | Independent Director | Former Cisco CMO |
| Teresa Briggs | Independent Director | Former Deloitte Vice Chair |
| Jonathan Chadwick | Independent Director | Former VMware, McAfee CFO |
Business Model Visual
Dividends & Upcoming Events
| Item | Details |
|---|---|
| Dividend | No dividend – growth reinvestment focus |
| Dividend Yield | N/A |
| Stock Split | 5:1 split effective December 18, 2025 |
| Next Earnings | January 28, 2026 (after market close) |
| Annual Meeting | May 22, 2025 (completed) |
| CEO Contract | Extended through 2030 (Dec 2025) |
NOW vs Salesforce vs Microsoft: Enterprise Software Competitor Comparison 2026
| Company | Ticker | Market Cap | P/E | Revenue Growth | ITSM Share | Moat |
|---|---|---|---|---|---|---|
| ServiceNow | NOW | $142B | 86x | 22% | 44% | High switching costs |
| BMC Software | Private | N/A | N/A | ~10% | 15% | Legacy enterprise |
| Atlassian | TEAM | $58B | 85x | 25% | 8% | Developer ecosystem |
| Salesforce | CRM | $280B | 46x | 9% | N/A | CRM dominance |
| Microsoft | MSFT | $3.1T | 36x | 16% | N/A | Platform breadth |
Visual Score Summary
Key Graham/Buffett/Munger Quotes Applied
“The best moats are those that would take decades and billions of dollars to replicate.” — Charlie Munger
ServiceNow’s 44% ITSM market share and 98% renewal rate exemplify a business with formidable switching costs and entrenched customer relationships.
“Price is what you pay, value is what you get.” — Warren Buffett
At 86x earnings and ~36x free cash flow, investors are paying a significant premium for ServiceNow’s growth trajectory. The question is whether the moat justifies the price.
“In the short run, the market is a voting machine but in the long run, it is a weighing machine.” — Benjamin Graham
ServiceNow’s stock has declined 27% year-to-date in 2025, reflecting market reassessment of growth stock valuations despite continued operational excellence.
Detailed Analysis
Section A: CEO & Management (Score: 19/25)
“If you’re looking for a manager, you want someone intelligent, energetic, and moral. But if they don’t have the last one, you don’t want them to have the first two.” — Charlie Munger
A1. Integrity & Honesty (4/5)
Bill McDermott has demonstrated consistent, transparent communication with investors. He sets clear guidance and has generally met or exceeded expectations. However, his aggressive sales-oriented style and recent $12B acquisition spree have raised some concerns about long-term discipline.
Evidence:
- ServiceNow has nearly tripled revenue under his leadership since 2019 (ServiceNow Leadership)
- Contract extended through 2030, signaling board confidence (Bloomberg, Dec 2025)
A2. Track Record – No Scandals (3/5)
Generally clean record, but one notable issue emerged in 2024.
Evidence:
- Internal investigation in Q2 2024 regarding hiring of former U.S. Army CIO; individual departed after policy violation found (SEC Filing Q2 2024)
- No securities fraud, FCPA, or major ethical scandals
- Some employee criticism of “cult of Bill” culture on Glassdoor
A3. Capital Allocation Skills (4/5)
Strong organic growth execution, but recent M&A spree ($12B in 2025 alone including Moveworks $2.85B and Armis $7.75B) introduces execution risk. History at SAP included controversial acquisitions.
Evidence:
- $12B+ committed to acquisitions in 2025 alone (Bloomberg, Dec 2025)
- CFO pledges “discipline” in M&A strategy (CFO Dive, 2025)
- All 2025 acquisitions focused on strategic technology areas
A4. Transparency & Communication (4/5)
Regular earnings calls with clear guidance. Company provides detailed metrics including cRPO, net retention, and customer cohort data.
Evidence:
- Consistent quarterly earnings releases with detailed guidance
- Clear communication on FX headwinds (~$175M impact disclosed)
- Active investor relations program
A5. Owner-Orientation (4/5)
McDermott runs the company with growth orientation but maintains focus on shareholder value through operating leverage improvements.
Evidence:
- 5:1 stock split (Dec 2025) to improve retail accessibility
- Operating margin improving to 13.85%
- Free cash flow growing 26% YoY
Section B: Board of Directors (Score: 15/20)
B1. Business Savvy (4/5)
Board includes seasoned technology executives with relevant enterprise software experience.
Evidence:
- Fred Luddy (founder) provides platform continuity
- Jonathan Chadwick (former VMware, McAfee CFO) adds financial expertise
- Susan Bostrom (former Cisco CMO) brings go-to-market perspective
B2. Personal Financial Stake (3/5)
Limited public disclosure of individual board holdings. Insiders have been net sellers in recent months.
Evidence:
- 5 insider sales totaling $1.18M in Nov-Dec 2025 (Nasdaq)
- No significant insider purchases reported
- Institutional ownership dominates shareholding structure
B3. Independence (4/5)
Strong independent board structure with Lead Independent Director (Jeffrey Miller).
Evidence:
- 8 of 9 directors are independent or non-executive
- Regular executive sessions without management
- Established Audit, Compensation, and Nominating committees (Corporate Governance)
B4. Shareholder Representation (4/5)
Board maintains standard governance practices with recent shareholder proposal consideration.
Evidence:
- Annual meeting allows shareholder proposals
- “Right to Cure” governance proposal on 2025 proxy
- Regular engagement with institutional shareholders
Section C: Incentive Structures (Score: 15/20)
“Show me the incentive and I’ll show you the outcome.” — Charlie Munger
C1. Compensation Tied to Long-term Performance (4/5)
Executive compensation heavily weighted toward equity (stock awards).
Evidence:
- McDermott 2024 comp: $37.56M total, with $31.46M in stock awards (84%) (Salary.com)
- RSU vesting over 3+ years with quarterly vesting after initial period
- Performance tied to subscription revenue growth and operating metrics
C2. Management Owns Significant Stock (3/5)
Executives hold meaningful positions but primarily through unvested RSUs rather than outright ownership.
Evidence:
- RSU grants constitute majority of executive wealth tied to company
- Limited open market purchases by executives
- Insider ownership is relatively low as percentage of shares outstanding
C3. Incentives Aligned with Shareholders (4/5)
Compensation metrics include revenue growth, operating margin, and customer success metrics.
Evidence:
- Focus on subscription revenue growth (22.5% achieved)
- Free cash flow generation tracked and reported
- Customer satisfaction metrics (98% renewal rate)
C4. No Perverse Short-term Incentives (4/5)
No evidence of earnings manipulation or aggressive accounting practices.
Evidence:
- Consistent accounting policies
- Clean audit opinions
- No restatements or material weaknesses disclosed
Section D: Regulatory & Political Environment (Score: 19/25)
D1. Political/Regulatory Moat Quality (4/5)
Enterprise software benefits from data privacy regulations and compliance requirements that favor established players.
Evidence:
- GDPR, SOX, HIPAA compliance requirements drive demand for workflow solutions
- FedRAMP certification enables government contracts
- Security certifications create barriers to entry
D2. Government Relationship Sustainability (4/5)
Strong federal government presence (11% of revenue) but one-customer concentration is notable.
Evidence:
- 11% of FY2024 revenue from single federal customer (SEC Filing)
- FedRAMP authorized for government cloud deployments
- Internal investigation resolved regarding government hiring practices (2024)
D3. No Corruption/Bribery Scandals (4/5)
Clean FCPA record with one minor hiring policy issue resolved.
Evidence:
- No FCPA violations or bribery allegations
- Internal investigation in 2024 was proactively disclosed and resolved
- Company cooperated with government entities on hiring matter
D4. Antitrust Exposure Assessment (4/5)
Low antitrust risk despite 44% ITSM market share due to fragmented overall enterprise software market.
Evidence:
- No antitrust investigations targeting ServiceNow directly
- Competition remains active (BMC, Atlassian, Salesforce)
- Some regulatory scrutiny possible for large acquisitions (Armis, Moveworks)
D5. Regulatory Tailwinds vs Headwinds (3/5)
Neutral regulatory environment with potential tailwinds from digital transformation mandates.
Evidence:
- Enterprise digital transformation continues driving demand
- Data privacy regulations increase compliance workflow needs
- No specific adverse regulation targeting ServiceNow’s business model
Section E: Business Quality & Moat (Score: 30/35)
“A great business at a fair price is superior to a fair business at a great price.” — Charlie Munger
E1. Sustainable Competitive Advantage (5/5)
ServiceNow has built multiple reinforcing moats: high switching costs, network effects from ecosystem, and scale advantages.
Evidence:
- 44% ITSM market share (leading position) (Apps Run The World, 2024)
- 98% customer renewal rate (ServiceNow Statistics)
- Morningstar assigns “Wide Economic Moat” rating (Morningstar)
E2. Pricing Power (5/5)
Strong pricing power demonstrated through annual uplift clauses and premium positioning.
Evidence:
- 5-10% annual contract uplifts are standard (Software Pricing Guide)
- Enterprise deployments typically $1-8M annually
- “Discount decay” during renewals demonstrates vendor leverage
E3. High Barriers to Entry (4/5)
Significant barriers including platform complexity, certifications, and ecosystem.
Evidence:
- Thousands of certified partners and developers
- Deep enterprise integrations create switching friction
- Years of implementation investment by customers
E4. Low Threat of Disruption (4/5)
Platform approach and continuous innovation reduce disruption risk, though emerging competition in specific verticals exists.
Evidence:
- Proactive acquisition of emerging technology (Moveworks, Armis)
- 150% QoQ growth in enterprise customers using platform automation in 2025
- Continuous platform expansion into adjacent workflows
E5. Industry Structure – Favorable (4/5)
Enterprise software market consolidating around major platforms.
Evidence:
- ITSM market growing at 6.2% CAGR to $15.4B by 2029
- Top 10 vendors control 83% of market
- ServiceNow gains share consistently year-over-year
E6. Intellectual Property & Brand Value (4/5)
Strong Now Platform brand in enterprise IT; expanding recognition in broader business automation.
Evidence:
- Gartner Magic Quadrant Leader in ITSM
- Fortune 500 penetration (70%+ for ITOM)
- Growing brand recognition beyond IT department
E7. Earnings Predictability & Recurring Revenue (4/5)
Highly predictable subscription-based revenue model.
Evidence:
- 97% of revenue from subscriptions
- Net retention rate 105-110%
- Average contract term ~3 years with auto-renewal
- cRPO (contracted future revenue) $10.27B providing visibility
Section F: Financial Strength & Capital Efficiency (Score: 24/35)
“The ideal business earns very high returns on capital and can reinvest at those high returns.” — Warren Buffett
F1. Conservative Debt Levels (5/5)
Minimal debt with strong balance sheet.
Evidence:
- Long-term debt: $1.49B (MacroTrends)
- Debt/Equity: 13.2% (down from 63.8% five years ago) (Simply Wall St)
- Cash exceeds total debt
F2. Strong Credit Rating (4/5)
Investment grade profile based on financial metrics, though specific agency ratings not widely published.
Evidence:
- Debt well covered by operating cash flow (325%)
- Strong interest coverage ratio
- Conservative capital structure
F3. Adequate Cash Reserves (5/5)
Substantial liquidity position.
Evidence:
- Cash and short-term investments: $5.4B (Simply Wall St)
- Short-term assets ($8.4B) exceed both short-term and long-term liabilities
- Operating cash flow: $4.84B TTM
F4. No Aggressive Accounting (4/5)
Clean accounting with standard SaaS revenue recognition.
Evidence:
- No restatements
- Clear deferred revenue and RPO disclosures
- Standard ASC 606 revenue recognition
F5. Return on Invested Capital – ROIC (2/5)
ROIC below cost of capital is a significant concern.
Evidence:
- ROIC: 7.48-8.37% TTM (GuruFocus)
- WACC: 10.57%
- ROIC below WACC indicates value destruction as company grows
- Improving trend but still concerning
F6. Free Cash Flow Generation (4/5)
Strong and growing FCF generation.
Evidence:
- FY2024 FCF: $3.415B (+26% YoY) (MacroTrends)
- FCF/Net Income ratio healthy (cash conversion)
- TTM FCF: $3.96B
F7. Capital Allocation Track Record (3/5 – Reduced due to M&A concerns)
Mixed track record – excellent organic growth but $12B M&A spree in 2025 raises execution questions.
Evidence:
- 7 acquisitions in 2025 totaling $12B+ (
Section G: Country & Geopolitical Risk (Score: 13/15)
G1. Operates in Rule-of-Law Jurisdictions (5/5)
Revenue heavily concentrated in US and developed markets.
Evidence:
- North America: 63% of revenue
- EMEA: 26% of revenue
- Combined developed market exposure: ~89%
G2. Limited Geopolitical Exposure (4/5)
Minimal China/Russia exposure with some emerging market growth initiatives.
Evidence:
- Low exposure to geopolitically sensitive regions
- Expanding in Brazil, Japan, India, Saudi Arabia
- Middle East identified as “big growth area” but from small base
G3. Supply Chain Diversification (4/5)
As software company, limited physical supply chain risk.
Evidence:
- Cloud-native delivery model
- Multi-cloud infrastructure partnerships (AWS, Azure, GCP)
- Data center diversification across regions
Section H: NOW Intrinsic Value, Valuation & Margin of Safety (Score: 16/35)
“The margin of safety is always dependent on the price paid.” — Benjamin Graham
H1. P/E vs Historical Average (3/5)
Current P/E significantly below historical average but still elevated.
Evidence:
- Current P/E: ~86x (post-split adjusted)
- 3-year average P/E: 130x
- 5-year average P/E: 218x
- Trading below historical averages but still premium valuation
H2. P/FCF – Price to Free Cash Flow (2/5)
Elevated P/FCF multiple.
Evidence:
- P/FCF: ~36x (MacroTrends)
- Premium to typical software valuations
- Supported by strong FCF growth trajectory
H3. EV/EBITDA vs Sector (2/5)
Premium to software sector.
Evidence:
- EV/EBITDA: 54.5x
- Above sector median for enterprise software
- Premium reflects growth expectations and moat quality
H4. PEG Ratio – Growth Adjusted (3/5)
PEG ratio suggests reasonable growth-adjusted valuation.
Evidence:
- PEG: 1.57 (Stock Analysis)
- Below 2.0 threshold indicates not severely overvalued
- Growth rate (~22%) partially justifies premium
H5. P/B Ratio – Graham's Value Test (1/5)
Significantly above Graham’s threshold.
Evidence:
- P/B: ~67x
- Far exceeds Graham’s 1.5x threshold
- Typical for high-growth software but fails value test
H6. Graham Number vs Current Price (1/5)
Significantly above Graham Number.
Evidence:
- Current price: ~$137 (post-split)
- Graham Number calculation significantly below current price
- Growth companies rarely meet Graham’s strict criteria
H7. Margin of Safety Assessment (4/5)
Stock down 27% YTD 2025, improving value proposition from prior peaks.
Evidence:
- 52-week range: $135.73 – $239.62
- Trading near 52-week lows
- Analyst consensus target: $228 (67% upside implied)
- 27% decline creates better entry point vs. peak valuations
Section J: Benjamin Graham Defensive Investor Screen
Graham's 7-Point Criteria
# Criterion Threshold NOW Value Pass/Fail 1 Adequate Size Market Cap > $2B $142B ✅ 2 Strong Financial Condition Current Ratio ≥ 2.0 1.06 ❌ 3 Earnings Stability Positive EPS for 10 years Yes (since IPO) ✅ 4 Dividend Record 20+ years uninterrupted No dividends ❌ 5 Earnings Growth 33%+ over 10 years (3yr avg) >100% ✅ 6 Moderate P/E Ratio P/E ≤ 15 ~86 ❌ 7 Moderate P/B Ratio P/B ≤ 1.5 or P/E × P/B ≤ 22.5 ~67 ❌ TOTAL 7 to pass 2/7 FAIL Graham Number Analysis
Metric Value EPS (TTM) ~$1.66 (split-adjusted) Book Value per Share ~$2.05 (split-adjusted) Graham Constant 22.5 Graham Number √(22.5 × 1.66 × 2.05) = $8.76 Current Price ~$137 Price/Graham Number 15.6x Verdict Significantly Overvalued by Graham metrics NCAV Analysis
Component Value Current Assets $8.4B – Total Liabilities ($10.5B) = NCAV Negative Verdict Not applicable (negative NCAV) Graham Screen Summary: ServiceNow fails Graham’s strict value criteria (2/7). This is expected for a high-growth software company. Graham’s framework was designed for mature, dividend-paying value stocks. ServiceNow’s investment thesis rests on Munger’s “wonderful business at fair price” approach rather than Graham’s deep value methodology.
Red Flag Analysis
Governance Red Flags (Max: -35 pts)
Red Flag Present? Deduction Evidence Unrealistic promises to investors N 0 Guidance consistently met or exceeded Excessive CEO compensation (>100x median) Y -5 CEO comp $37.6M vs median ~$150k Related-party transactions N 0 None disclosed Accounting restatements (last 5 years) N 0 Clean record High CFO/auditor turnover N 0 Stable finance leadership Reluctance on tough questions N 0 Open earnings call Q&A Corruption/bribery allegations N 0 Clean FCPA record Governance Subtotal -5 Financial Red Flags (Max: -21 pts)
Red Flag Present? Deduction Evidence High leverage (Debt/EBITDA > 4x) N 0 Debt/EBITDA <1x ROIC below cost of capital (5yr avg) Y -3 ROIC ~8% vs WACC ~10.5% Declining FCF (3 consecutive years) N 0 FCF growing 26% YoY Net share issuance >2% annually N 0 Minimal dilution Gross margin declining >500bps N 0 Margins stable/improving Financial Subtotal -3 Business Risk Red Flags (Max: -14 pts)
Red Flag Present? Deduction Evidence Customer concentration >25% N 0 Largest customer 11% Single-country exposure >50% Y 0 US ~63% (acceptable for US company) Revenue decline in 3+ of last 10 years N 0 Consistent growth Unstable government subsidy dependence N 0 No subsidy dependence Business Risk Subtotal 0 Valuation Red Flags (Max: -13 pts)
Red Flag Present? Deduction Evidence Stock at >2x 5-year average P/E N 0 Below 5yr avg P/E (86 vs 218) P/FCF > 40 (or negative FCF) N 0 P/FCF ~36x Trading >30% above fair value estimate N 0 Down 27% YTD, near analyst targets Valuation Subtotal 0 Red Flag Summary
Category Deduction Max Governance Red Flags -5 -35 Financial Red Flags -3 -21 Business Risk Red Flags 0 -14 Valuation Red Flags 0 -13 TOTAL DEDUCTION -8 -83 Red Flag Count 2 of 19
Final Verdict: Is NOW a Quality Buy per Munger's Rubric?
Investment Thesis Summary
The Bull Case:
ServiceNow represents one of the highest-quality enterprise software franchises available today. With a dominant 44% market share in ITSM, a 98% customer renewal rate, and high switching costs, the company has built precisely the kind of “unbreachable moat” that Munger seeks. The Now Platform has become mission-critical infrastructure for over 2,100 enterprise customers with >$1M annual contracts, creating deeply embedded relationships that compound over time. Management under Bill McDermott has nearly tripled revenues since 2019 while expanding operating margins. The company’s aggressive push into enterprise automation and workflow orchestration positions it well for secular digital transformation trends.
The Bear Case:
ServiceNow’s premium valuation (86x earnings, ~36x FCF) requires near-perfect execution to justify. The most concerning issue is that ROIC (7.5-8.4%) remains below the cost of capital (~10.5%), meaning the company technically destroys value as it grows – a fundamental red flag that Munger would scrutinize heavily. The $12B acquisition spree in 2025 alone (including Armis at $7.75B and Moveworks at $2.85B) raises legitimate concerns about capital allocation discipline, particularly given CEO McDermott’s mixed M&A track record at SAP. CEO compensation at $37.6M appears excessive relative to industry peers. The stock’s 27% decline in 2025 reflects market skepticism about growth sustainability.
Bottom Line:
ServiceNow is a wonderful business trading at a premium price – not quite the “great business at fair price” that Munger prefers. The moat is exceptional, but ROIC below WACC and aggressive M&A activity warrant caution. At current valuations near 52-week lows, long-term investors with tolerance for volatility may find an acceptable entry point, but this is not a screaming buy. Score: 143/210 (68.1%) – CAUTION rating.
Who Should Consider NOW?
Investor Type Suitable? Rationale Value Investors No Fails Graham criteria, trades at premium multiples Growth Investors Yes 22%+ revenue growth, expanding TAM, strong execution Dividend Investors No No dividend, growth reinvestment focus Long-term Holders Cautious Yes Wide moat business, but ROIC concern needs monitoring Price Considerations
Scenario Entry Point Rationale Aggressive Current (~$137) Analyst target $228 implies 67% upside; moat justifies premium Moderate $115-120 ~15% pullback; better margin of safety Conservative $100-110 ~25% pullback; approaches more reasonable P/FCF levels “Price is what you pay, value is what you get.” — Warren Buffett
Frequently Asked Questions: NOW Stock Analysis 2026
Is ServiceNow a good stock to buy in 2026?
Based on the Munger Quality Rubric evaluation, ServiceNow (NOW) scores 143/210 (68.1%), earning a CAUTION rating. The company possesses exceptional competitive advantages including a 44% ITSM market share and 98% customer renewal rate. Key strengths include strong switching costs and predictable recurring revenue (97% subscriptions). Main concerns are the premium valuation (86x P/E) and ROIC below cost of capital. Investors seeking high-quality enterprise software exposure may consider NOW, but should be prepared for volatility and ideally wait for better entry prices.
What is ServiceNow's competitive moat?
ServiceNow’s competitive advantage stems from multiple reinforcing moat sources: high switching costs (enterprise implementations take years and create deep dependencies), strong network effects (large partner ecosystem with thousands of certified developers), and scale advantages (44% market share enables continued R&D investment). Morningstar assigns a “Wide Economic Moat” rating. The Business Quality & Moat score of 30/35 (86%) reflects strong durability of these competitive advantages.
Is NOW stock overvalued or undervalued?
At current prices (~$137 post-split), ServiceNow trades at approximately 86x trailing earnings and 36x free cash flow. Compared to its 5-year average P/E of 218x, the stock appears more reasonably valued today, though still commanding a premium. The Graham Number analysis suggests significant overvaluation by strict value metrics. However, the 27% year-to-date decline in 2025 has improved the risk/reward profile. Our Valuation score of 16/35 (46%) reflects the premium pricing relative to fundamental value.
Does ServiceNow pay dividends?
No, ServiceNow does not currently pay dividends and has never paid a dividend since its 2012 IPO. The company reinvests all earnings into growth, including R&D, sales expansion, and acquisitions. Management prioritizes revenue growth and market share gains over shareholder returns. Dividend investors should look elsewhere, though long-term holders may benefit from capital appreciation as the company continues its growth trajectory.
What are the main risks of investing in NOW?
The primary risks identified include: (1) ROIC below cost of capital (7.5-8.4% vs 10.5% WACC), which means the company may destroy value as it grows through acquisitions; (2) aggressive M&A activity ($12B in 2025) introduces execution and integration risk; and (3) premium valuation (86x earnings) leaves little margin for error. Our Red Flag analysis identified 2 concerns totaling -8 points in deductions, primarily related to excessive CEO compensation and ROIC concerns.
How does ServiceNow compare to competitors?
In the ITSM sector, ServiceNow dominates with 44% market share, followed by BMC Software (~15%) and Atlassian (~8%). Key differentiators include ServiceNow’s enterprise-grade platform breadth, extensive partner ecosystem, and strong brand recognition among Fortune 500 companies (70%+ penetration for ITOM). ServiceNow commands premium pricing but delivers superior renewal rates (98%) compared to competitors.
Related Munger Quality Rubric Evaluations
Same Sector (Technology/Software)
- Microsoft (MSFT) Evaluation — Score: 173/210 (82.4%) 🟢 PASS
- Salesforce (CRM) Evaluation — Not yet evaluated
- Atlassian (TEAM) Evaluation — Not yet evaluated
Similar Verdict (CAUTION)
- ServiceNow (NOW) Prior Evaluation — Score: 146/210 (69.5%) 🟡 CAUTION
Recently Evaluated
- Broadcom (AVGO) Evaluation — Score: 156/210 (74.3%) 🟢 PASS
- Alphabet (GOOGL) Evaluation — Score: 166/210 (79.0%) 🟢 PASS
- Meta Platforms (META) Evaluation — Score: 161/210 (76.7%) 🟢 PASS
- Netflix (NFLX) Evaluation — Score: 156/210 (74.3%) 🟢 PASS
Source Reliability & Citations
Source Summary
- Total Sources Used: 35+
- HIGH Reliability: 28 (80%) — SEC filings, company IR, major financial news (Bloomberg, CNBC, Yahoo Finance)
- MEDIUM Reliability: 7 (20%) — Industry publications, analyst reports
- Sources Removed: 0 — All sources met reliability standards
Primary Sources (SEC Filings)
All Citations
- ServiceNow Statistics 2025 – Cyntexa
- ServiceNow Q4 FY2024 Results – Newsroom
- ServiceNow Revenue History – MacroTrends
- Bill McDermott – Wikipedia
- ServiceNow Leadership
- ServiceNow CEO Contract Extension – Bloomberg
- ServiceNow $12B Deal Spree – Bloomberg
- ServiceNow Glassdoor Reviews
- ServiceNow CEO Salary – Salary.com
- ServiceNow Corporate Governance
- ServiceNow Insider Activity – Nasdaq
- Top 10 ITSM Vendors – Apps Run The World
- ServiceNow Moat Rating – Morningstar
- ServiceNow ROIC – GuruFocus
- ServiceNow FCF History – MacroTrends
- ServiceNow Long Term Debt – MacroTrends
- ServiceNow Balance Sheet – Simply Wall St
- ServiceNow CFO M&A Discipline – CFO Dive
- ServiceNow P/E Ratio – MacroTrends
- ServiceNow Statistics – Stock Analysis
- ServiceNow Stock Price – Yahoo Finance
- ServiceNow Revenue by Geography – Bullfincher
- Gina Mastantuono Bio – ServiceNow
- Fred Luddy – Wikipedia
- ServiceNow Pricing Guide – Software Pricing Guide
- ServiceNow Brand Colors – SchemeColor
- ServiceNow – Wikipedia
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