4Q25 results: solid AI business and margin expansion

4Q25 results: solid AI business and marginexpansion Target PriceUS$215.00(Previous TPUS$236.00)Up/Downside84.2%Current PriceUS$116.73 ServiceNowreported 4Q25 results: totalrevenueincreased by 21% YoY toUS$3.57bn, in line withBloombergconsensusestimate; non-GAAP operatingincome grew by 26% YoY to US$1.10bn, 3% ahead of consensus estimate,thanks toAI-enhanced efficiencies and disciplined expense control. For FY26E,managementguidedsubscription revenue to increase by 20.5%-21% YoY toUS$15.53-15.57bn, with further 100bps expansion of both non-GAAP OP/FCFmargin to 32%/36%, underpinned by AI-enabledefficiency gains. AI productmomentum remains strong, with Now Assist ACV surpassing US$600mn in4Q25. We lift FY26-27E non-GAAP operating income forecast by 2-4%, giventhe strong AI business andefficiency gains. We lower our target price toUS$215.0 based on 40x FY26E EV/EBITDA (previous:US$236based on45xFY26E EV/EBITDA), as the sector valuation is impacted by investor concern onmore intense competition from AI & LLM service providers. That said, we remainpositive on ServiceNow’s value proposition as the gateway for enterprise AItransformation, and expect it to benefit fromtheAI tailwind. Maintain BUY. US Software & IT Services Saiyi HE, CFA(852) 3916 1739hesaiyi@cmbi.com.hk Wentao LU, CFAluwentao@cmbi.com.hk Ye TAO, CFA(852) 3850 5226franktao@cmbi.com.hk Solid subscription revenue andcRPO growth.Subscription revenuegrew by 21% YoY to US$3.47bn in 4Q25. cRPO grew by 21% YoY inconstant currency to US$12.85bn in 4Q25, 200bps above the companyguidance, thanks to the strong execution and 100bps contribution fromMoveworks.By vertical, net new ACV oftransportation&logistics/business&consumer services/financial servicesverticals grew by over80/70/40%YoY in4Q25.Lookingahead to1Q26E,managementguidedsubscriptionrevenues to increase by 18.5%-19% YoY andcRPO to increaseby20%YoY in constant currency,both including 1ppt contribution from Moveworks. Stock Data AI product ACV surpassed US$600mn.Now Assist ACV surpassedUS$600mn in 4Q25, ahead of the company’s previous US$500mn targetand on track towards its US$1bn target by FY26-end. The company alsooverachieveditsinitial AI Control Tower targets byover4timesforFY25.Thehybrid monetization model also became more resonant with thecustomers, whichincreased their consumption and purchased Assist Packs.The CustomerService Now Assist dealssawover 70% upsell expansion atrenewal in4Q25, and the number of deals that included 5 or more NowAssist productsgrewby over 10xYoY in 4Q25. Expanding margin andacceleratingshare repurchase.Non-GAAPOPMexpandedby1.4ppt YoY to 30.9% in 4Q25, mainly due to the improvedefficiencyand disciplined expense control. To enhance shareholder return,the companyannouncedan additional US$5bn share repurchase plan, withanimmediate accelerated share repurchaseof US$2bn (c.1% of currentmarket cap). In terms of the recent M&A,managementnoted that: 1) therecentacquisitions of Armis and Veza are to complement ServiceNow’ssecurityand agentic AI solutions, which further expand its TAM to overUS$600bn; 2) the company doesnot have other large-scale M&A on theroadmap now. Source: FactSet Valuation We value ServiceNow at US$215.0per share based on40x2026E EV/EBITDA. Our targetEV/EBITDA is at a premium to the sector average (29x), which is justified by ServiceNow’sstrongearnings growth outlookover 2026-2028E. Disclosures& Disclaimers Analyst CertificationThe research analyst who is primary responsible for the content of this research report, in whole or in part, certifiesthat with respect to the securities or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about the subject securities or issuer; and (2)no part of his or her compensation was, is,or will be, directly or indirectly, related to the specific views expressed by that analyst in this report.Besides, the analyst confirms that neither the analyst nor his/her associates (as defined in the code of conduct issued by The Hong Kong Securitiesand Futures Commission) (1) have dealt in or traded in the stock(s) covered in this research report within 30 calendar days prior to thedate of issue of this report; (2) willdeal in or trade in the stock(s) covered in this research report 3 business daysafter the date of issue of this report; (3) serve as an officer of any of the HongKong listed companies covered in this report; and (4) have any financial interests in the Hong Kong listed companies coveredin this report. CMBIGM RatingsBUY : Stock with potential return of over 15% over next 12 monthsHOLD: Stock with potential return of +15% to-10% over next 12 monthsSELL: Stock with potential loss of over 10% over next 12 monthsNOT RATED: Stock is not rated byCMBIGM :Industry expected to outperform the relevant broad market benchmark over next 12 months:Industry expected to perform in-line with the relevant broad market benchmark over next 12 months:In