On Wednesday, KeyBanc initiated coverage on shares of ServiceNow (NYSE: NYSE:NOW), assigning an Overweight rating and setting a price target of $1,000. The firm's analysis points to ServiceNow as a standout platform in its sector, particularly highlighting its early lead in AI monetization. The company's Pro-plus SKU, which includes NOW Assist AI capabilities, is priced at a 60% premium over the Pro SKU, demonstrating ServiceNow's successful history in pricing and packaging rollouts.
KeyBanc's confidence in the company's ability to monetize AI exceeds that of many of its large-cap peers. The firm emphasizes ServiceNow's combination of top-line growth, cash flow generation, and scale, which it considers unparalleled in the enterprise software space today. Despite the premium price of ServiceNow's offerings, KeyBanc projects the company to be a cash flow compounder with a growth rate exceeding 20% over the next five years.
The financial model for ServiceNow suggests potential upside to KeyBanc's estimates as the company approaches its 2026 targets. These targets include over $15 billion in Subscription revenue, with the firm forecasting $15.4 billion in revenue and a 140 basis point increase in unlevered free cash flow through 2026. KeyBanc believes that ServiceNow's financial model allows for flexibility, with the potential to exceed revenue expectations through strategic investments or improved margins if revenue growth aligns with projections.
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