ServiceNow, Inc.NOWNYSE
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DCF Valuation
DCF Valuation Summary
Strong Buy
Fair Value: $182.49 per share(market-calibrated)
+66.8%
Upside to Fair Value
Current
$109.42
Pure Model
$188.79
Fair Value
$182.49
Bull Case
$280.22
Bear Case
$124.30
Market Reality Check
Model Terminal Growth
3.75%
Market-Implied Growth
1.74%
Calibrated Growth
3.05%
Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $188.79.
What's Driving This Ratingfor NOW
✓
CapEx already efficient
CapEx at 5.07% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.
✓
Premium margins already priced in
EBIT margin of 32.01% is already well above sector average. The model holds this level — there's limited room for margin expansion to drive upside. Valuation depends primarily on revenue growth.
↑
Strong near-term revenue growth
Analyst consensus projects 20.23% revenue growth in Year 1, fading to 16.57% by Year 5 and 3.75% by Year 10. Revenue reaches $46.2B by Year 10 (vs $13.3B today).
↔
Perpetuity and exit methods disagree
Perpetuity growth gives $138.61/share (21.1x terminal FCF) while exit multiple gives $238.97/share (43.1x terminal FCF). The 28x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 3.75% growth is more conservative. The base case averages both methods.
🎯
Market pricing in lower growth than model
The market implies only 1.74% perpetual growth — 201bps below the model's 3.75%. This suggests the market sees headwinds or risks not in the model.
✓
Strong cash flow conversion
Year 10 FCF/EBITDA conversion of 64.93% indicates efficient cash generation. FCF reaches $10.8B by Year 10 (23.49% FCF margin).
Weighted Average Cost of Capital (WACC)
Cost of Equity (CAPM)
Risk-Free Rate (Rf)4.50%
Beta (β)0.98
Market Risk Premium4.50%
*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)
Cost of Equity (Re)8.90%
Cost of Debt
Pre-tax Cost of Debt0.64%
Tax Rate22.69%
After-tax Cost of Debt0.49%
Equity Weight (E/V)97.25%
Debt Weight (D/V)2.75%
WACC Calculation
WACC = (E/V × Re) + (D/V × Rd × (1-Tc))
WACC = (97.25% × 8.90%) + (2.75% × 0.49%)
= 8.67%
10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)
| Year | Year 1 | Year 3 | Year 5 | Year 7 | Year 10 |
|---|---|---|---|---|---|
| Revenue | $16.0B | $22.6B | $30.3B | $38.4B | $46.2B |
| EBIT | $5.1B | $7.2B | $9.7B | $12.3B | $14.8B |
| Tax | $1.2B | $1.6B | $2.2B | $2.8B | $3.4B |
| NOPAT | $4.0B | $5.6B | $7.5B | $9.5B | $11.4B |
| + Depreciation | $666M | $943M | $1.3B | $1.6B | $1.9B |
| - Capex | $809M | $1.1B | $1.5B | $1.9B | $2.3B |
| - Δ NWC | $269M | $364M | $430M | $395M | $167M |
| Free Cash Flow | $3.5B | $5.0B | $6.8B | $8.8B | $10.8B |
| Discount Factor | 0.920 | 0.779 | 0.660 | 0.559 | 0.435 |
| Present Value | $3.3B | $3.9B | $4.5B | $4.9B | $4.7B |
FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital
Terminal Value Calculation
Perpetuity Growth Method
Year 10 FCF$10.8B
Terminal Growth Rate3.75%
WACC8.67%
TV = FCF₁₀ × (1+g) / (WACC-g)
Terminal Value$228.7B
PV of Terminal Value$99.6B
Exit Multiple Method
Year 10 EBITDA$16.7B
Exit Multiple (EV/EBITDA)28.0x
TV = EBITDA₁₀ × Exit Multiple
Terminal Value$467.7B
PV of Terminal Value$203.6B
Valuation Summary
Perpetuity Growth Method
PV of Projected FCFs$43.6B
PV of Terminal Value$99.6B
Enterprise Value$143.2B
(-) Net Debt-$523M
Equity Value$143.7B
Shares Outstanding1.0B
Price per Share$138.61
Exit Multiple Method
PV of Projected FCFs$43.6B
PV of Terminal Value$203.6B
Enterprise Value$247.3B
(-) Net Debt-$523M
Equity Value$247.8B
Shares Outstanding1.0B
Price per Share$238.97
Pure Model Fair Value
$188.79
Average of perpetuity growth and exit multiple methods (before market calibration)
Sensitivity AnalysisPrice per Share
| WACC ↓ / Growth → | 2.75% | 3.25% | 3.75% | 4.25% | 4.75% |
|---|---|---|---|---|---|
| 6.67% | $237.57 | $248.48 | $263.12 | $283.81 | $307.14 |
| 7.67% | $204.79 | $210.98 | $218.73 | $228.76 | $242.22 |
| 8.67% | $180.30 | $184.15 | $188.79 | $194.48 | $201.62 |
| 9.67% | $160.85 | $163.42 | $166.41 | $169.96 | $174.24 |
| 10.67% | $144.82 | $146.61 | $148.65 | $151.01 | $153.78 |
How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.
Scenario Analysis
Bear Case
$124.30
13.6% vs current
- • -25% vs analyst consensus
- • Terminal growth: 3.3%
- • Beta: 1.22
Base Case
$188.79
72.5% vs current
- • Analyst consensus
- • Terminal growth: 3.8%
- • Beta: 0.98
Bull Case
$280.22
156.1% vs current
- • +25% vs analyst consensus
- • Terminal growth: 4.3%
- • Beta: 0.83
Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Technology Sector
Growth Assumptions (Select Years)
Year 1 Revenue Growth20.23%
Year 3 Revenue Growth19.20%
Year 5 Revenue Growth16.57%
Year 7 Revenue Growth11.44%
Year 10 Revenue Growth3.75%
Terminal Growth Rate3.75%
Margin & Efficiency
Current EBIT Margin32.01%
Tax Rate22.69%
Historical Capex / Rev5.07%
NWC / Revenue10.00%
Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.
Institutional-Grade Methodology
Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta
Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 28x EV/EBITDA (Technology sector)
This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.