Stock Analysis on Net

ServiceNow Inc. (NYSE:NOW)

Present Value of Free Cash Flow to the Firm (FCFF)

Microsoft Excel

Intrinsic Stock Value (Valuation Summary)

ServiceNow Inc., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 13.45%
01 FCFF0 2,722
1 FCFF1 3,002 = 2,722 × (1 + 10.27%) 2,646
2 FCFF2 3,319 = 3,002 × (1 + 10.58%) 2,579
3 FCFF3 3,680 = 3,319 × (1 + 10.89%) 2,521
4 FCFF4 4,093 = 3,680 × (1 + 11.20%) 2,471
5 FCFF5 4,564 = 4,093 × (1 + 11.51%) 2,429
5 Terminal value (TV5) 262,936 = 4,564 × (1 + 11.51%) ÷ (13.45%11.51%) 139,918
Intrinsic value of ServiceNow Inc. capital 152,563
Less: Long-term debt (fair value) 1,236
Intrinsic value of ServiceNow Inc. common stock 151,327
 
Intrinsic value of ServiceNow Inc. common stock (per share) $738.18
Current share price $759.00

Based on: 10-K (reporting date: 2023-12-31).

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.


Weighted Average Cost of Capital (WACC)

ServiceNow Inc., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 155,595 0.99 13.54%
Long-term debt (fair value) 1,236 0.01 1.26% = 1.53% × (1 – 17.75%)

Based on: 10-K (reporting date: 2023-12-31).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 205,000,000 × $759.00
= $155,595,000,000.00

   Long-term debt (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (21.00% + 18.55% + 7.63% + 20.57% + 21.00%) ÷ 5
= 17.75%

WACC = 13.45%


FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

ServiceNow Inc., PRAT model

Microsoft Excel
Average Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Selected Financial Data (US$ in millions)
Interest expense 24 27 28 33 33
Net income 1,731 325 230 119 627
 
Effective income tax rate (EITR)1 21.00% 18.55% 7.63% 20.57% 21.00%
 
Interest expense, after tax2 19 22 26 26 26
Interest expense (after tax) and dividends 19 22 26 26 26
 
EBIT(1 – EITR)3 1,750 347 256 145 653
 
Current debt, net 92
Long-term debt, net, less current portion 1,488 1,486 1,484 1,640 695
Stockholders’ equity 7,628 5,032 3,695 2,834 2,128
Total capital 9,116 6,518 5,271 4,475 2,823
Financial Ratios
Retention rate (RR)4 0.99 0.94 0.90 0.82 0.96
Return on invested capital (ROIC)5 19.20% 5.32% 4.85% 3.23% 23.13%
Averages
RR 0.92
ROIC 11.15%
 
FCFF growth rate (g)6 10.27%

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

1 See details »

2023 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 24 × (1 – 21.00%)
= 19

3 EBIT(1 – EITR) = Net income + Interest expense, after tax
= 1,731 + 19
= 1,750

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [1,75019] ÷ 1,750
= 0.99

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 1,750 ÷ 9,116
= 19.20%

6 g = RR × ROIC
= 0.92 × 11.15%
= 10.27%


FCFF growth rate (g) implied by single-stage model

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (156,831 × 13.45%2,722) ÷ (156,831 + 2,722)
= 11.51%

where:

Total capital, fair value0 = current fair value of ServiceNow Inc. debt and equity (US$ in millions)
FCFF0 = the last year ServiceNow Inc. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of ServiceNow Inc. capital


FCFF growth rate (g) forecast

ServiceNow Inc., H-model

Microsoft Excel
Year Value gt
1 g1 10.27%
2 g2 10.58%
3 g3 10.89%
4 g4 11.20%
5 and thereafter g5 11.51%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 10.27% + (11.51%10.27%) × (2 – 1) ÷ (5 – 1)
= 10.58%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 10.27% + (11.51%10.27%) × (3 – 1) ÷ (5 – 1)
= 10.89%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 10.27% + (11.51%10.27%) × (4 – 1) ÷ (5 – 1)
= 11.20%