20260724-招银国际-2Q26_results_beat_AI_business_momentum_continues_to_build_6页_1007kb

ServiceNow (NOW US) Summary

Core Content

ServiceNow reported strong performance in 2Q26, with total revenue growing by 24% YoY to US$3.99bn, matching the Visible Alpha (VA) consensus estimate. Non-GAAP operating income increased by 23% YoY to US$1.17bn, exceeding the VA consensus by 12% due to efficient marketing spend and operating leverage. The company also achieved a 21.5% YoY growth in constant currency revenue (cRPO), surpassing guidance by 200bps, primarily driven by the robust growth of its AI offerings.

ServiceNow AI crossed the US$1bn ACV milestone in 2Q26 and is on track to reach US$1.5bn by FY26-end. The AI business saw a 40% QoQ increase in net new ACV, along with a significant growth in the agentic AI customer base and revenue per customer. The company also plans to launch a new conversational service desk experience targeting the mid-market.

Main Points

• Revenue Growth:

  • 2Q26 total revenue reached US$3.99bn, up 24% YoY.
  • Subscription revenue grew by 23% YoY to US$3.88bn, beating the high end of guidance by 150bps.
  • 3Q26E guidance indicates a 20% YoY increase in cRPO and subscription revenue.

• AI Business Momentum:

  • ServiceNow AI surpassed US$1bn in ACV in 2Q26.
  • Net new ACV of AI grew by over 40% QoQ.
  • Agentic AI customer base increased by 9x in nine months.
  • AI-native SKUs drove a 20%-30% price uplift.
  • EmployeeWorks deal volume rose by over 150% QoQ.

• Margin Profile:

  • Non-GAAP operating margin remained at 29.4% in 2Q26, largely flat YoY.
  • Total opex grew by 25% YoY.
  • The company plans to maintain headcount at pre-acquisition levels for 2026.

• Business Forecasts:

  • FY26E revenue is forecasted at US$16.2bn, with FY27E and FY28E at US$19.4bn and US$22.8bn respectively.
  • Non-GAAP net profit is forecasted to grow from US$4.2bn in FY26E to US$6.4bn in FY28E.
  • Non-GAAP EPS is projected to increase from US$4.0 in FY26E to US$6.1 in FY28E.
  • Management raised FY26 subscription revenue growth guidance to +22.5% (previously +22-22.5%).

• Valuation:

  • The target price is US$160.00 based on a 30x FY26E EV/EBITDA.
  • The target EV/EBITDA is a premium to the sector average (22x), justified by strong earnings growth and free cash flow generation.
  • The target equity valuation is US$166,707mn, leading to a valuation per share of US$160.0.

Key Information

• Stock Performance:

  • Current price: US$91.94
  • Up/Downside: 74.0%
  • Market Cap: US$96,261.2mn
  • Average 3-month trading volume: US$1,185.2mn
  • 52-week High/Low: US$782.39/US$83.00
  • Total issued shares: 1,047.0mn

• Shareholding Structure:

  • BlackRock: 8.8%
  • The Vanguard Group: 8.7%

• Earnings Summary:

  • Revenue is expected to grow from US$8,971mn in 2023A to US$22,781mn in FY28E.
  • Adjusted net profit is forecasted to increase from US$2,215mn in 2023A to US$6,381mn in FY28E.
  • EPS (Adjusted) is expected to rise from US$2.82 in FY24A to US$6.15 in FY28E.

• Financial Highlights:

  • Non-GAAP OPM is projected to grow from 31.4% in 2023A to 33.5% in FY28E.
  • Net cash from operations is expected to increase from US$3,398mn in 2023A to US$9,830mn in FY28E.
  • Cash at the end of FY26E is forecasted to reach US$4,113mn.

• Valuation Metrics:

  • P/S ratio: 5.9x (FY26E), decreasing to 4.2x (FY28E).
  • P/E ratio: 66.4x (FY24A), decreasing to 26.1x (FY28E).
  • P/B ratio: 12.3x (2023A), decreasing to 4.5x (FY28E).

Analyst Recommendations

• Rating: BUY
• Target Price: US$160.00
• Reasoning: Strong AI momentum, better-than-expected margin profile, and solid execution in AI offerings.

Risks

1. Heightening competitive pressure from AI labs and software companies.
2. Potential decline in enterprise software budgets.
3. Investment in AI products may impact margins.

Analyst Certification

The research analyst certifies that the views expressed in the report reflect his or her personal views and that no part of his or her compensation is directly or indirectly related to the views in this report.

CMBIGM Ratings

• BUY: Potential return of over 15% over next 12 months.
• HOLD: Potential return of +15% to -10% over next 12 months.
• SELL: Potential loss of over 10% over next 12 months.
• NOT RATED: Stock not rated by CMBIGM.
• OUTPERFORM: Industry expected to outperform the relevant broad market benchmark.
• MARKET-PERFORM: Industry expected to perform in-line with the relevant broad market benchmark.
• UNDERPERFORM: Industry expected to underperform the relevant broad market benchmark.

Important Disclosures

• The report is not investment advice and should not be relied upon for making investment decisions.
• CMBIGM is not a registered broker-dealer in the United States and may not be subject to U.S. rules regarding research reports.
• The report is for the use of intended recipients only and may not be reproduced or distributed without prior written consent.