ServiceNow (NOW) kicked off 2025 with a powerful Q1 performance, reinforcing its reputation as a leading player in AI-driven enterprise software. The company delivered almost flawless results across the board, and the market reacted positively, with its stock climbing almost 6% since the report. It exceeded guidance, grew profitably, and showed investors it is well-positioned for long-term success. However, the concern still lies with the company’s high valuation. P/E of 96x (FWD) is 300% higher than the sector’s median. Still, ServiceNow gave an exemplary report, so let’s break down what it means going forward.
What Went Right in Q1?
ServiceNow reported total revenue of $3.09 billion, up 19% year-over-year, with nearly all of it – $3.005 billion – coming from recurring subscription revenue. That’s a clear sign of a strong, predictable business model. Even more impressive, operating income jumped 36% to $451 million, and net income rose to $460 million, up from $347 million a year earlier.
Profit margins remain healthy: The company posted a 79% gross margin and a 13% net margin, which is excellent for a software business at this scale. Free cash flow over the trailing twelve months reached $3.38 billion, giving ServiceNow the financial flexibility to keep investing in innovation and growth.
A key highlight is that the number of customers spending more than $5 million annually with ServiceNow grew to 508, up from 425 last year. Investors love to see that kind of customer loyalty and expansion.
Future Growth Looks Solid
The company’s remaining performance obligations (RPO), which reflect future contracted revenue, grew 25% to $22.1 billion, while current RPO (expected in the next 12 months) rose 22% to $10.31 billion. That provides strong revenue visibility going forward.
ServiceNow is also extending its global reach, with 36% of revenue coming from outside North America, showing its success in international markets.
The real growth engine, though, is AI. Management emphasized that ServiceNow is now a “platinum standard for enterprise-grade AI.” Recent moves, like the acquisitions of Moveworks and Logik.ai and partnerships with Vodafone (VOD) and NVIDIA (NVDA) -aim to strengthen the company’s AI platform and expand its market.
The Valuation Question
Here’s where investors need to be careful. ServiceNow is trading at extremely high multiples: a PE ratio of 96x, EV/EBITDA (FWD) of 36, and price-to-free-cash-flow of 35. These are well above industry averages and reflect sky-high expectations for future growth.
While the business performs well, the valuation leaves little room for error. In fact, despite strong fundamentals, analysts forecast a decline in EPS growth (6.79%) for the next quarter, likely due to heavy investments and stock-based compensation.
Bottom Line
ServiceNow’s Q1 2025 earnings report confirmed that it’s firing on all cylinders – growing fast, investing wisely, and deepening its position as a leader in AI-powered business solutions. The company’s customer base is expanding, revenue visibility is strong, and profitability remains high.
But at today’s stock price, much of that success is already baked in. For long-term investors, ServiceNow remains a high-quality company worth watching—just be prepared for some bumps if growth expectations aren’t met quarter after quarter.
What Is the Price Target for NOW Stock?
Turning our attention to Wall Street’s ratings, ServiceNow is a Strong Buy, with an average price target for NOW stock at $1,023.70. This implies a 25.96% upside potential.
