ServiceNow (NOW)

Business Overview

ServiceNow is high-growth seat SaaS at scale. FY2025 revenue was $13.3B, up 20.9%. Subscription was 97% of it ($12.9B). Gross margin was 77.5%. GAAP operating margin was 13.7%; adjusted operating margin was 31.2% ($4.1B of adjusted operating income on the company's reconciliation).

Stock-based compensation was 14.7% of revenue. Free cash flow was $4.6B, or 34.5% of revenue; after stock pay the margin was 19.7%. R&D was 22.3% of revenue and sales and marketing 33.0%. Capex was 6.5%. Remaining performance obligations were $28.2B, with about 46% due within a year. The renewal rate was 98% for 2023-2025, defined as 100% less attrition measured on lost annual contract value.

How the Numbers Read

High renewal and mid-teens stock pay sit in the same filing. Revenue growth of 20.9% plus FCF margin of 34.5% sums to 55.4 before stock pay; after stock pay the sum is 40.6. The GAAP operating margin of 13.7% against 31.2% adjusted is almost entirely that stock-pay and other adjustment wedge.

A 98% renewal rate on lost ACV is a gross-retention style measure; Snowflake's two-year cohort figure is net revenue retention. Reading them as the same number is a common error; the definitions guide separates them. Current RPO at about 46% of the $28.2B book is higher than Microsoft's roughly 30% share, which often reflects shorter average remaining contract life. Capex at 6.5% of revenue is higher than Salesforce's 1.4%, so the FCF margin already carries more capital spend before stock pay is charged.

How the Model Values This Kind of Company

For high-growth seat SaaS, retention durability and stock pay as a share of revenue do most of the work. A high renewal rate supports the recurring book; a mid-teens stock-pay line is why GAAP margin and adjusted margin sit so far apart, and why free cash flow after stock pay is much thinner than reported FCF.

Capex and deferred-revenue inflows still matter, but they are secondary to whether renewal holds and whether stock pay fades as the company scales. Terminal growth should come from retention and new business, not from a separate growth claim.

What to Watch in the Financials

Renewal rate on lost ACV. 98% across 2023-2025. A step down would show up before revenue growth fully reflects it.

Stock pay as a share of revenue. 14.7% in FY2025. That is the main bridge from 34.5% FCF margin to 19.7% after stock pay, covered in the before-versus-after guide.

Current share of RPO. About 46% of $28.2B. Watch whether that share rises or falls as contract lengths change.

GAAP versus adjusted operating margin. 13.7% against 31.2%. The gap is the reminder that growth SaaS profitability depends on which margin line you start from.

Key Risks

Stock-pay intensity. At 14.7% of revenue, cash after stock pay is far thinner than reported FCF. Dilution or buyback cost is the economic twin of that expense.

Retention definition mismatch. Comparing the 98% renewal rate to a peer's net revenue retention without aligning bases misstates relative durability.

Sales and marketing at 33% of revenue. Sustaining 20%+ growth is what pays for that line; a growth step-down without cutting spend compresses margins quickly.

Capex share. 6.5% of revenue is well above Salesforce's 1.4%, so free cash flow already carries more infrastructure spend.