ServiceNow, Inc. Net Income dropped on 81.1% while Revenue jumped on 30.6%
01/27/2021 • About ServiceNow, Inc. (
$NOW) • By InTwits
ServiceNow, Inc. reported FY2020 financial results today. Overall the company's long term financial model is characterised by the following facts:
- ServiceNow, Inc. is a fast growth stock: FY2020 revenue growth was 30.6%, 5 year revenue CAGR was 35.1% at FY2020 ROIC 4.8%
- EBITDA Margin is expanding: 11.8% in FY2020 vs. 10.4% in FY2019 vs. -24.4% in FY2016
- EBITDA Margin is quite volatile: 11.8% in FY2020, 10.4% in FY2019, 4.1% in FY2018, 2.6% in FY2017, -24.4% in FY2016
- ServiceNow, Inc. motivates its personel by high Stock Based Compensation (SBC): average SBC/Revenue for FY2016-FY2020 was 9.0% while average EBITDA Margin was 5.1% for the sames years
- ServiceNow, Inc. has medium CAPEX intensity: 5 year average CAPEX/Revenue was 8.2%. At the same time it's a lot of higher than industry average of 3.2%.
- CAPEX is quite volatile: $419m in FY2020, $265m in FY2019, $224m in FY2018, $151m in FY2017, $106m in FY2016
- The company has potentially unprofitable business model: ROIC is 4.8%
- It operates with medium-size leverage: Net Debt/EBITDA is 0.9x while industry average is -1.0x
Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.
Revenue and profitability
The company's Revenue surged on 30.6%. Revenue growth showed acceleration in FY20Q4 - it increased 31.4% YoY. Revenue decline was accelerating on average at -2.1 pp per annum in the last 5 years. Having declining revenue the company managed to increase EBITDA margin. EBITDA Margin increased on 2.1 pp from -1.0% to 1.0% in FY2020. EBITDA Margin pursued a growing trend in the last 5 years.
Gross Margin increased slightly on 1.2 pp from 77.0% to 78.2% in FY2020. Gross Margin followed a growing trend at 1.7 pp per annum in the last 5 years. SG&A as a % of Revenue decreased on 3.0 pp from 54.1% to 51.1% in FY2020. SG&A as a % of Revenue followed a declining trend at -2.5 pp per annum in the last 5 years.
Net Income margin dropped on 15.5 pp from 18.1% to 2.6% in FY2020. During the last 5 years Net Income margin topped in FY2019 at 18.1%.
Investments (CAPEX, working capital and M&A)
The company's CAPEX/Revenue was 9.3% in FY2020. The company's CAPEX/Revenue increased slightly on 1.4 pp from 7.8% in FY2017 to 9.3% in FY2020. Average CAPEX/Revenue for the last three years was 8.5%. ServiceNow, Inc. invested a big chunk of EBITDA (78.3%) to CAPEX to fuel its growth.
Return on investment
The company operates at low ROIC (4.8%) and ROE (4.8%). ROIC increased on 2.5 pp from 2.3% to 4.8% in FY2020. ROE dropped on 33.9 pp from 38.7% to 4.8% in FY2020. ROIC pursued a growing trend in the last 5 years. During the last 5 years ROE topped in FY2019 at 38.7%.
Leverage (Debt)
Debt level is 0.9x Net Debt / EBITDA and 4.0x Debt / EBITDA. Net Debt / EBITDA dropped on 0.1x from 1.0x to 0.9x in FY2020. Debt jumped on 88.8% while cash jumped on 116%.
ServiceNow, Inc. has no short term refinancing risk: cash is higher than short term debt (2,321.3%).
Valuation and dividends
The company's trades at EV/EBITDA 189.0x and P/E 849.9x.
Management team
William R Mcdermott "Bill" is a the company's CEO. William R Mcdermott "Bill" has spent 1 year with the company. Gina Mastantuono is a the company's CFO. Gina Mastantuono has spent 1 year at the company.
Financial and operational results
ServiceNow, Inc. ($NOW) key annual financial indicators| mln. $ | 2016 | 2017 | 2018 | 2019 | 2020 | 2020/2019 |
|---|
P&L
|
|---|
| Revenue | 1,391 | 1,918 | 2,609 | 3,460 | 4,519 | 30.6% |
| Gross Profit | 992 | 1,419 | 1,986 | 2,664 | 3,532 | 32.6% |
| SG&A | 859 | 1,106 | 1,499 | 1,873 | 2,309 | 23.3% |
| EBITDA | -340 | 49 | 107 | 358 | 535 | 49.3% |
| EBIT | -423 | -64 | -42 | | | |
| Interest expence | 33 | 53 | 53 | | | |
| Tax | 2 | 3 | -12 | | | |
| Net Income | -452 | -117 | -27 | 627 | 119 | -81.1% |
| Stock Based Compensation | 318 | 394 | 544 | | | |
Balance Sheet
|
|---|
| Cash | 401 | 726 | 566 | 776 | 1,677 | 116.1% |
| Accounts Receivable | 323 | 437 | 575 | | | |
| Accounts Payable | 38 | 32 | 31 | | | |
| Short Term Debt | 0 | 543 | 0 | 53 | 72 | 37.2% |
| Long Term Debt | 508 | 630 | 662 | 1,078 | 2,063 | 91.3% |
Cash flow
|
|---|
| Capex | 106 | 151 | 224 | 265 | 419 | 58.3% |
| Acquisitions | 34 | 58 | 37 | | | |
Ratios
|
|---|
| Revenue growth | 38.3% | 38.0% | 36.0% | 32.6% | 30.6% | |
| EBITDA growth | 220.5% | -114.6% | 116.6% | 234.4% | 49.3% | |
|
|---|
| Gross Margin | 71.3% | 73.9% | 76.1% | 77.0% | 78.2% | 1.2% |
| EBITDA Margin | -24.4% | 2.6% | 4.1% | 10.4% | 11.8% | 1.5% |
| EBIT Margin | -30.4% | -3.4% | -1.6% | | |
| SG&A, % of revenue | 61.8% | 57.6% | 57.5% | 54.1% | 51.1% | -3.0% |
| SBC, % of revenue | 22.8% | 20.5% | 20.9% | | |
| Net Income Margin | -32.5% | -6.1% | -1.0% | 18.1% | 2.6% | -15.5% |
| CAPEX, % of revenue | 7.6% | 7.8% | 8.6% | 7.7% | 9.3% | 1.6% |
|
|---|
| ROIC | -43.0% | -4.4% | -2.2% | 2.3% | 4.8% | 2.5% |
| ROE | -94.7% | -20.0% | -2.8% | 38.7% | 4.8% | -33.9% |
| Net Debt/EBITDA | | 9.0x | 0.9x | 1.0x | 0.9x | -0.1x |
| Interest expence / Average debt | 6.6% | 6.4% | 5.7% | | | |
People
|
|---|
| Insider ownership | 0.8% | 0.8% | 0.8% | | | |
| Employees | 4,801 | 6,222 | 8,154 | | | |
| Revenue/Employee, th. $ | 290 | 308 | 320 | | | |
ServiceNow, Inc. ($NOW) key quoterly financial indicators
| mln. $ | FY20Q1 | FY20Q2 | FY20Q3 | FY20Q4 | | YoY change |
|---|
P&L
|
|---|
| Revenue | 1,046 | 1,071 | 1,152 | 1,250 | | 32.6% | 28.4% | 30.0% | 31.4% |
| EBITDA | 145 | 166 | 175 | 111 | | 166.3% | 235.8% | 27.8% | -5.8% |
| Net Income | 48 | 41 | 13 | 17 | | - | - | -68.3% | -97.2% |
Balance Sheet
|
|---|
| Cash | 809 | 837 | 1,348 | 1,677 | | 26.4% | 43.5% | 116.4% | 116.1% |
| Short Term Debt | 61 | 66 | 68 | 72 | | 45.2% | 42.5% | 37.7% | 37.2% |
| Long Term Debt | 1,142 | 1,133 | 2,135 | 2,063 | | 8.7% | 6.8% | 98.6% | 91.3% |
Ratios
|
|---|
| Gross Margin | 78.7% | 78.2% | 78.2% | 77.7% | | 2.3% | 2.0% | 0.8% | -0.1% |
| EBITDA Margin | 13.9% | 15.5% | 15.2% | 8.9% | | 7.0% | 9.6% | -0.3% | -3.5% |
| Net Income Margin | 4.6% | 3.8% | 1.1% | 1.3% | | 4.8% | 5.1% | -3.5% | -61.6% |
Peers in Systems Software
Below you can find ServiceNow, Inc. benchmarking vs. other companies in Systems Software industry. It's shown for the period of 5 years for the key financial metrics. Each table has median value for all the companies in the industry together with individual financial data of the top-5 companies in the industry by particular financial metric.
Top companies by Revenue growth, %
| Top 5 | FY2016 | FY2017 | FY2018 | FY2019 | FY2020 |
|---|
| Zscaler, Inc. ($ZS) | - | 56.5% | 51.3% | 59.2% | 42.4% |
| SailPoint Technologies Holdings, Inc. ($SAIL) | - | 40.5% | 33.8% | 15.9% | 26.6% |
| Rapid7, Inc. ($RPD) | - | 27.6% | 21.5% | 33.9% | 25.9% |
| Tenable Holdings, Inc. ($TENB) | - | 50.9% | 42.4% | 32.6% | 24.2% |
| Allot Communications Ltd. ($ALLT) | - | -9.3% | 16.9% | 14.9% | 23.5% |
| |
|---|
| Median (23 companies) | 12.9% | 14.0% | 19.0% | 15.9% | 12.9% |
|---|
| ServiceNow, Inc. ($NOW) | - | 38.0% | 36.0% | 32.6% | 30.6% |
Top companies by Gross margin, %
| Top 5 | FY2016 | FY2017 | FY2018 | FY2019 | FY2020 |
|---|
| Check Point Software Technologies Ltd. ($CHKP) | 88.5% | 88.6% | 89.6% | 89.5% | 89.4% |
| Progress Software Corporation ($PRGS) | 83.8% | 82.6% | 83.1% | 81.8% | 86.0% |
| Varonis Systems, Inc. ($VRNS) | 90.5% | 90.4% | 89.8% | 86.2% | 84.9% |
| Vmware, Inc. ($VMW) | 85.2% | - | 85.5% | 83.9% | 83.4% |
| Tenable Holdings, Inc. ($TENB) | 88.6% | 86.4% | 83.9% | 82.8% | 82.4% |
| |
|---|
| Median (23 companies) | 73.6% | 74.1% | 73.5% | 75.4% | 76.5% |
|---|
| ServiceNow, Inc. ($NOW) | 71.3% | 73.9% | 76.1% | 77.0% | 78.2% |
Top companies by EBITDA margin, %
| Top 5 | FY2016 | FY2017 | FY2018 | FY2019 | FY2020 |
|---|
| Check Point Software Technologies Ltd. ($CHKP) | 49.8% | 50.7% | 48.8% | 46.0% | 45.1% |
| Qualys, Inc. ($QLYS) | 23.8% | 25.1% | 28.4% | 36.5% | 40.3% |
| SolarWinds Corporation ($SWI) | -8.0% | 44.0% | 44.8% | 44.7% | 39.8% |
| Progress Software Corporation ($PRGS) | 2.4% | 28.6% | 32.9% | 23.4% | 34.4% |
| Fortinet, Inc. ($FTNT) | 7.2% | 11.1% | 15.9% | 19.8% | 23.9% |
| |
|---|
| Median (23 companies) | -8.0% | -5.4% | -4.7% | -1.4% | -1.1% |
|---|
| ServiceNow, Inc. ($NOW) | -24.4% | 2.6% | 4.1% | 10.4% | 11.8% |
Top companies by CAPEX/Revenue, %
| Top 5 | FY2016 | FY2017 | FY2018 | FY2019 | FY2020 |
|---|
| Zscaler, Inc. ($ZS) | 7.8% | 6.5% | 8.0% | 9.5% | 12.0% |
| Qualys, Inc. ($QLYS) | 11.7% | 16.4% | 8.2% | 8.6% | 8.3% |
| Zuora, Inc. ($ZUO) | 3.4% | 3.3% | 2.8% | 5.7% | 7.8% |
| Proofpoint, Inc. ($PFPT) | 9.2% | 9.0% | 4.1% | 4.0% | 6.9% |
| Allot Communications Ltd. ($ALLT) | 1.8% | 3.5% | 3.6% | 3.4% | 5.6% |
| |
|---|
| Median (23 companies) | 2.0% | 2.2% | 2.5% | 3.4% | 2.8% |
|---|
| ServiceNow, Inc. ($NOW) | 7.6% | 7.8% | 8.6% | 7.7% | 9.3% |
Top companies by ROIC, %
| Top 5 | FY2016 | FY2017 | FY2018 | FY2019 | FY2020 |
|---|
| Fortinet, Inc. ($FTNT) | 5.3% | 15.0% | 28.0% | 29.0% | 46.3% |
| Check Point Software Technologies Ltd. ($CHKP) | 24.7% | 26.8% | 25.5% | 24.2% | 25.6% |
| Qualys, Inc. ($QLYS) | 13.7% | 12.3% | 14.3% | 18.7% | 22.0% |
| Vmware, Inc. ($VMW) | 15.9% | - | - | 18.1% | 19.6% |
| Progress Software Corporation ($PRGS) | -4.9% | 13.5% | 18.5% | 7.6% | 16.0% |
| |
|---|
| Median (23 companies) | 0.0% | -2.9% | -0.9% | -6.4% | -6.4% |
|---|
| ServiceNow, Inc. ($NOW) | -43.0% | -4.4% | -2.2% | 2.3% | 4.8% |
Top companies by Net Debt / EBITDA
| Top 5 | FY2016 | FY2017 | FY2018 | FY2019 | FY2020 |
|---|
| SolarWinds Corporation ($SWI) | - | 6.2x | 4.1x | 4.4x | 4.1x |
| Proofpoint, Inc. ($PFPT) | - | - | - | -27.4x | 2.5x |
| Progress Software Corporation ($PRGS) | -7.5x | -0.1x | 0.1x | 1.5x | 2.1x |
| Vmware, Inc. ($VMW) | -0.7x | - | -0.8x | 0.3x | 1.5x |
| CyberArk Software Ltd. ($CYBR) | -4.1x | -5.7x | -4.5x | -3.6x | 0.9x |
| |
|---|
| Median (11 companies) | -1.2x | -0.8x | -0.5x | -0.3x | -0.1x |
|---|
| ServiceNow, Inc. ($NOW) | - | 9.0x | 0.9x | 1.0x | 0.9x |
