The business
ServiceNow sells a platform for running internal work as structured workflows. It began with IT service management (tickets, incidents, change approvals) and expanded to IT operations, security operations, HR service delivery, customer service and custom apps built on the same platform. AI agents are now sold on top, automating the steps the workflows describe.
Customers buy multi-year subscriptions, mostly large enterprises and governments. Revenue in FY2025 was $13.3B, up 20.9%.
Moat and switching costs
Once IT runs every incident and change through ServiceNow, the platform holds the company's operational history, its approvals and its integrations. Replacing it means re-implementing processes across thousands of employees. The single data model is a technical advantage: every new product sees the same data, which makes cross-selling easier than for competitors stitching acquisitions together.
The risk to the moat is AI: if agents can work across systems without a central workflow platform, the platform matters less.
How the technology shows up in the numbers
Gross margin near 78% and free cash flow of $4.6B (35% of revenue) in FY2025. But stock-based compensation was $2.0B, about 15% of revenue, so owner earnings were $2.6B. GAAP operating margin was 13.7%.
The diluted share count still rises slightly each year (0.4% in FY2025) despite growing buybacks ($1.8B). The share counts here reflect the 2025 five-for-one split.
Our read
ServiceNow can compound revenue near 18 to 20% for years because it keeps adding products for the same customers, and its margins should keep widening as stock pay grows slower than revenue.
Cash after stock pay, not the adjusted margins, is the honest measure here, because stock pay is a real cost.
Risks
- Stock pay staying near 15% of revenue, keeping owner earnings far below reported free cash flow.
- AI agents from model vendors or hyperscalers reducing the need for a workflow platform.
- Large-deal timing with governments and big enterprises.
What to watch
- Subscription growth falling below 15%.
- Net revenue retention declining meaningfully.
- Stock pay rising as a share of revenue.
