ServiceNow’s Value Proposition in the US Software Space



ServiceNow’s scale in the systems software space

Earlier in this series, we discussed ServiceNow’s (NOW) 1Q16 results and 2Q16 expectations. Now, let’s look at the value proposition of the company among select software companies in the United States. Let’s start with ServiceNow’s size.

As of April 22, 2016, Microsoft was the largest software player by market capitalization on a global scale, followed by IBM (IBM). Salesforce.com (CRM), Red Hat (RHT), and ServiceNow are among the leading players in the systems software space.

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Enterprise value multiples

Now, let’s look at ServiceNow’s EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple and those of select software players in the United States.

ServiceNow was trading at a forward EV-to-EBITDA multiple of ~26.45x on April 22, 2016. This metric was lower than Salesforce’s EV-to-EBITDA multiple of ~25.4x. The same metric for Red Hat (RHT) was ~16.98x as of April 22. Unlike its peers Microsoft and IBM, ServiceNow doesn’t pay dividends.

For diversified exposure to companies in the US telecommunications space, you may consider investing in the Technology Select Sector SPDR ETF (XLK). XLK has ~38% exposure to the application software space.


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