ServiceNow price target raised at Evercore ISI on new Gen AI monetization opportunities

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ServiceNow price target raised at Evercore ISI on new Gen AI monetization opportunities
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Evercore ISI analysts hiked the price target on ServiceNow (NYSE: NOW ) stock by $50 to $650 per share, citing new Gen AI monetization opportunities.

ServiceNow is preparing to introduce its Vancouver release in late September, which will encompass several of its initial Generation AI services. While it's still in the nascent stages, the analysts offered their thoughts on the potential for monetization tied to these offerings and the introduction of the new Pro+ pricing SKU.

“We see the Pro+ SKU being a potential ~7-10% uplift to FY25 NNACV and 1-3% uplift to the current ~$15bn FY26 subscription revenue target. This is predicated on ~5% penetration per year, with a ~20% ‘realized’ pricing uplift vs. the ~60% list price uplift that management has discussed,” they said in a client note.

“Our penetration and realized pricing assumptions are purposefully conservative relative to what NOW saw in terms of the Pro adoption given that we believe AI introduces some new variables in terms of data preparation and potentially fewer seats in some scenarios.”

It's important to acknowledge that the company evaluates the penetration rates of the Pro SKU as a percentage of total customers, whereas Evercore’s forecast is based on a percentage of total ACV (Annual Contract Value).

This additional layer of caution suggests that larger customers, who are likely early adopters, might exhibit higher penetration rates in terms of total ACV than what is indicated by percentages of total customers.

All-in-all, the new price target is based on the expectations that “NOW’s AI services coupled with an improving macro backdrop could have a positive impact” on the CY24 estimates.

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