(By Balachander) ServiceNow Inc. (NYSE:NOW) shares were initiated with a "Buy" rating and price target of $34 by Deutsche Bank analyst Tom Ernst Jr.
Ernst said the company is a leading Software as a Service (SaaS) and Platform as a Service (PaaS) provider. It is a leader in the Information Technology Service Management (ITSM) SaaS space. The ITSM market is dominated by traditional on-premise vendors, who have failed to innovate and are ripe for displacement. ITSM is analogous to ERP for IT organization, and is used by IT departments to standardize and streamline their processes.
Servicenow's SaaS offerings offer customers easier implementation, upgrades and a lower TCO. The company also offers Platform as a Service for customers to develop their own custom solutions, the analyst wrote in a note.
Ernst is of the view that the combination of ITSM and PaaS offers a significant market opportunity for Servicenow and its product leadership and subscription model will continue to drive its momentum.
The analyst expects SaaS based ITSM solutions to reach a market size of $13 billion, up from $7 billion in 2012.
The company's PaaS offerings provide it with a significant upsell opportunity, as customers adopt the platform to develop applications outside the IT domain. PaaS is expected to be a $13b market by 2016, and significantly expands the market opportunity for Servicenow, Ernst wrote.
Ernst said Servicenow's subscription model provides it with a predictable, recurring revenue stream with high visibility. The company's leadership in the SaaS ITSM space is driving exponential growth, with revenue CAGR of 100% from 2008 – 2011. This makes Servicenow one of the few companies with an exponential growth momentum at its scale.
The stock, which has been trading between $22.62 and $26.30 over the past year, rose 1.03 percent to trade at $24.60 on Tuesday.