20260424-招银国际-1Q26_results_AI_business_momentum_intact_despite_ST_geopolitical_and_margin_headwinds_6页_1mb

ServiceNow (NOW US) Summary

Core Content

ServiceNow reported its 1Q26 financial results, showing total revenue growth of 22% YoY to US$3.77 billion, aligning with the Bloomberg consensus estimate. Non-GAAP operating income increased by 26% YoY to US$1.20 billion, also in line with the consensus. The company raised its FY26 subscription revenue growth guidance to +20.5-21% YoY from +19.5-20% YoY, primarily due to the 125bps contribution from the early close of the Armis acquisition. However, the acquisition is expected to introduce 75bps and 200bps headwinds to FY26 operating and FCF margins, respectively, leading to a revised FY26 operating margin of 31.5% and FCF margin of 35% from the previous guidance of 32% and 36%.

Management is optimistic about AI efficiency gains normalizing the margin expansion trajectory from FY27E onwards. The AI ACV target was raised to US$1.5 billion by the end of FY26 from US$1 billion, indicating strong momentum in AI monetization. Now Assist continues to exceed expectations, with customers spending over US$1 million in ACV increasing by over 130% YoY in 1Q26.

Main Points

• Revenue Growth:

  • 1Q26 total revenue grew 22% YoY to US$3.77 billion.
  • Subscription revenue grew 19% YoY in constant currency to US$3.67 billion.
  • cRPO (constant currency revenue per order) grew 21% YoY to US$12.64 billion, 100bps above company guidance.

• Guidance Adjustments:

  • FY26 subscription revenue growth revised to +20.5-21% YoY.
  • FY26 operating margin lowered to 31.5% and FCF margin to 35% due to integration headwinds.
  • FY26 AI ACV target raised to US$1.5 billion from US$1 billion.

• AI Momentum:

  • Now Assist continues to outperform expectations.
  • EmployeeWorks, a unified AI front door, has already closed 6 deals above US$1 million in net new ACV.
  • AI Control Tower saw average deal sizes more than double in 1Q26 compared to the previous quarter.
  • 50% of net new business now comes from non-seat-based pricing models.

• Financial Performance:

  • Non-GAAP OPM improved to 31.4% in 1Q26.
  • AI efficiency has resolved 90% of employee IT requests.
  • Adjusted net profit for FY26 is forecasted at US$4.4 billion, with a non-GAAP EPS of US$4.2.

Key Figures

Valuation and Target Price

• Target Price: US$160.00 (lowered from US$215.00).
• Valuation Basis: 30x FY26E EV/EBITDA, reflecting a premium to the sector average of 20x.
• EV/EBITDA for FY26E is 30x, leading to a target EV of US$165.037 billion.
• Non-GAAP net profit margin is expected to improve slightly from 27.3% to 28.8% by FY28E.

Market and Financial Overview

• Market Cap: US$88.17 billion.
• Average 3-Month Trading Volume: US$1.6 billion.
• 52-Week High/Low: US$782.39/US$83.00.
• Total Issued Shares: 1.04 billion.

Analyst Ratings

• CMBIGM Rating: BUY.
• Potential Return: Over 15% over the next 12 months.

Analyst Certification

• The research analyst certifies that the views expressed accurately reflect his or her personal views.
• The analyst confirms no conflict of interest in relation to the covered securities.

Disclaimer

• Risks: Inherent in trading any securities.
• No Investment Advice: Provided as general information.
• Past Performance: Not indicative of future performance.
• Confidentiality: Report is for the use of intended recipients only and cannot be reproduced or distributed without prior written consent.

Summary of Key Trends

• AI Integration: Strong growth in AI ACV and customer engagement.
• Margin Impact: Short-term margin headwinds expected in FY26, with recovery anticipated in FY27E.
• Sector Valuation: Decline in sector EV/EBITDA multiples has led to a lower target price.
• Business Model Shift: Continued transformation to non-seat-based pricing models.

Financial Highlights

• Revenue Growth: Expected to continue at a 21.8% CAGR from FY26 to FY28.
• Gross Margin: Stable at 73.8-74.5% for FY26E to FY28E.
• Operating Margin: Expected to increase from 10.8% to 17.4% by FY28E.
• Non-GAAP Net Margin: Projected to rise from 27.3% to 28.8% by FY28E.

Conclusion

ServiceNow is maintaining its BUY rating, despite short-term margin pressures. The company is demonstrating strong AI monetization and business momentum, with enhanced efficiency and revenue growth expected to normalize in the coming years. The revised target price reflects a more conservative valuation in line with sector trends.