Shares of enterprise cloud workflow automation company ServiceNow (NOW) - Get ServiceNow, Inc. Report rose Thursday after analysts at Goldman Sachs added the company to its conviction list, while reiterating its buy rating with a $695 price target.
Goldman Sachs recently hosted a virtual meeting with ServiceNow CEO Bill McDermott and CFO Gina Mastantuono, and came away with a positive view of ServiceNow's long-term fundamentals.
"In our view, ServiceNow’s scale and breadth of offerings across [IT service management, IT operations management, customer service management], HR and workflow engine uniquely position the company to grow its 2020 revenue of $4.5bn more than 3x, potentially reaching $15bn of revenue in C26, driven by multiple secular themes including Digital Transformation, Workflow Automation, and Low-code No-Code," analyst Kash Rangan said.
ServiceNow shares rose more than 4% to $484.93 in morning trading Thursday.
Goldman believes that ServiceNow can exceed its internal guidance for $15 billion of subscription revenue in 2026, driven by multiple secular tailwinds and growth opportunities.
Goldman notes that average deal sizes are very large and the firm sees ServiceNow being able to complement Salesforce.com (CRM) - Get salesforce.com, inc. Report and Workday (WDAY) - Get Workday, Inc. (WDAY) Report.
ServiceNow's total addressable market is expected to hit $175 billion in 2024, but the company only has about 7,000 customers currently, giving it room to run.
Goldman Sachs sees ServiceNow's customer base potential approaching 100,000 in the long run, given the "broad horizontal applicability of the product."
"ServiceNow may reaccelerate revenue growth in C22. With 80%+ of net new business historically coming from existing customers and the pandemic impacting ~20% of NOW’s customer base, this drove the weaker net new business growth in C20," Rangan wrote.