ServiceNow, Inc. (NOW)

By both methods, the value today (DCF $121 · Multiples $90) is below the market price ($140).

Today — expensive, no margin of safety: at $140 trades ~56.1% above its value discounted to today (~$90); the expected return does not even reach the risk-free rate (4.5%).

At 5 years — Sobrevalorado: the expected total return is negative — the price already discounts a demanding scenario that, if not met, results in a loss.

The bridge: the return at 5 years falls below the risk-free rate (4.5%) — which is why there is not even a discount to today's value. To require a 15% annual return, it would need to be bought at ~$56.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($140) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The price discounts growth (24.8%/year) above our base case (21.0%/year) → it is priced for a demanding scenario and leaves little cushion against a slowdown.

That growth implies ~$7.2 bn of owner earnings in year 5 (vs ~$6.2 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). Cash accumulates the retained surplus —what is not returned as dividend or buyback—, so that EV falls and multiples compress going forward. The valuation is done on Owner-FCF ex-SBC (EV/owner-FCF). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Owner-FCF ex-SBC = OCF net of SBC − maintenance capex. SBC (14.8% of revenue, 47.7% of reported FCF as OCF−capex) is always expensed (§3, the SBC trap): this model's `ocfMargin` is ALREADY net of SBC (OCF−SBC)/revenue ≈21.2% TTM, not the gross OCF margin (36.0%). All capex is treated as maintenance (`maintPct=1`): it is cloud and data-center capacity that scales with revenue, with no separable band of growth capex in the filing. Year 1 starts within the band of the three-year trajectory (20.9%-23.8% year over year, TTM 22.2%) because there is no current quantitative guidance to replace it (FY2026 guidance is qualitative only). Gross buybacks are material (TTM US$3,406 million, around 3.7% of market capitalization) but they do not reduce the count: the period-end shares outstanding series goes from 1,030 million at 30-Jun-2025 —206 million before the five-for-one split settled in January 2026— to 1,034 million at 30-Jun-2026, so stock-based compensation issuance absorbs the entire buyback. That is why the path is flat: the cost of that compensation is already expensed in the valuation metric and also deducting it from the count would charge it twice. The path is kept rather than removed so that the retained surplus continues to be credited to the model's cash.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $112 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $140, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $112 in 5 years and a required return of 4.5% annually, the maximum to pay today is $90. Against the current market price ($140), the margin of safety is -56.1% (trades above the maximum → a premium is paid) and the total return at that price would be -4.4% annually.

• Real entry multiple (ex-SBC). EV/owner-FCF ex-SBC today 63×, well above the archetype's exit multiple (14-20×): future growth has to absorb considerable multiple compression.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✕ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (126%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• ROIC vs. the 10% bar. ROIC ~7.4% on real invested capital (equity + debt − cash), below the 10% bar — the SBC burden on GAAP operating margin weighs on reported returns.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

Customers with annual contract value above US$5 million are the most profitable and highest-expansion-potential account base; their net additions (82 in 2024, 101 in 2025) are a leading indicator of enterprise demand. RPO grew 27% year over year, above the 21% growth in recognized revenue, and anchors the projected deceleration in already-signed contracts. The renewal rate, stable at 98% for three consecutive years, confirms a minimal churn rate.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Contracted demand. RPO +27% year over year, above the +21% growth in recognized revenue — a favorable leading indicator.

• Revenue recurrence. 97% of revenue is subscription recognized over the contract term; renewal stable at 98% for three straight years.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• !Leverage (net debt / EBITDA)Net debt / EBITDA 1.8x
• –Interest coverage (EBIT / interest)no data
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 126% of ROIC
• ✕Value creation (ROIC − 10% bar)-3pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 0.7x — no over-investment
• –Float / working capitalNeutral WC
• !Dilution (SBC % of revenue + shares)SBC 14.8% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Debt coverage by operating cash. TTM OCF $5,308M comfortably covers debt service on total debt of $7,517M.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Capital allocation. Prioritizes buybacks ($3,406M TTM) over dividends (none paid); no proxy available to verify insider ownership in this synthesis.

• motivated-sellers: the U.S. Department of Justice opened an investigation into preliminary findings the company disclosed to government agencies (Note 18 of the 10-K) — a real, disclosed legal/regulatory overhang on the stock, not rumor.
• missing-buyers: broad de-rating of the high-growth enterprise software sector amid the projected slowdown and fear of artificial intelligence agents disrupting the per-seat licensing model.

The cause of the decline is identified and is not company-specific: in February 2026 enterprise software underwent a broad re-rating within days, when the emergence of artificial intelligence agent platforms raised the possibility that per-seat licensing could become obsolete; on top of that came the impact of the Iran conflict on first-quarter subscription revenue and a minor adjustment to second-half subscription guidance. The distinction that decides the thesis is that, over the same period, the company kept growing and raised its annual guidance: the discount stems from a sector re-rating, not a deterioration of the business. The counterpoint is that the fear is not unfounded — erosion of the per-seat licensing model is a structural thesis and is treated as such in the adverse scenario, not as short-term noise. The exact guidance-adjustment figures remain pending verification against the earnings release filed with the securities regulator.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -18%/year (-64% total): the margin of safety protects the downside. The bull (+2%/year, +10% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Department of Justice investigation. Investigation opened following preliminary findings disclosed by the company itself (Note 18, 10-K); outcome uncertain.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  Fails the quality gate: ROIC 7% does not clear the 10% bar.

• Peter Lynch Growth at a reasonable price (GARP)

  A hyper-growth growing 21% at a multiple/growth of 3.0 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 1% (EBIT/EV) + ROIC 7% → falls outside the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts 25% vs our 21%: priced for perfection, no favorable mispricing.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -18%/yr over 5y (material loss) → risk of permanent capital loss.

• Pat Dorsey Moat strength (Five Rules)

  A narrow moat, stable; sources: switching costs, intangibles, efficient scale, network effects → partially passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  The price implies 25% vs our 21%: coherent, but at the optimistic end of the range.