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I am not the author here (Original Author: Rose Celine Investments).But I feel the need to share this analysis as it is arguably the best analysis on NOW that you can find online. Also because I see lots of foolish optimism here on this company saying the market is wrong with the great results. I also see lots of foolish retail brainers who think anything with a PE ratio over 15 isn’t cheap. And I also see lots of foolish pessimism here saying the seat based model will be disrupted by AI. I think all of you should read this post in full and redo your research.
Analysis below:
The easiest takeaway from the Q1 call is that nothing is broken at $NOW. Revenue is still growing above 20%, enterprise demand is still strong, and large customers are still signing large deals. On the surface, it looks like the same high quality business people have been used to owning. But when you slow down and really listen, the story starts to change in a subtle way.
The first thing that stood out to me is not the level of growth, but the direction of it. A business growing 20% sounds strong, but what matters is whether that growth is accelerating, stable, or starting to slow. What we’re seeing here feels more like stabilization with early signs of deceleration. That may sound small, but when expectations are high, small changes matter a lot.
Management says that some large deals slipped rather than disappeared, particularly in the Middle East due to the war. That explanation is completely reasonable on its own because timing issues happen all the time in enterprise sales. The issue is when that explanation appears more than once. That’s usually when it points to something deeper underneath the surface.
It often means sales cycles are getting longer and budgets are getting tighter. The demand is still there, but it’s harder to convert into actual sales. When deals take longer to close, the pipeline can still look strong, but conversion becomes uneven. That is exactly what this quarter hinted at and that’s the kind of thing markets react to quickly.
That’s what I would call friction, not weakness. The business isn’t breaking, but it’s not flowing as easily as it used to. And over time, that friction always finds its way into the numbers. It doesn’t show up all at once, but it builds gradually.
Another piece that deserves more attention is how AI is changing the business. Management is right that AI is a tailwind because it’s clearly driving demand and expanding use cases. But at the same time, it’s priced on a usage based instead of fixed recurring subscriptions like $NFLX. That changes the nature of the business because usage based pricing makes revenue less predictable and harder to forecast.
You get more upside in strong environments, but you lose some visibility. Investors historically paid a premium for $NOW because it felt almost automatic in how it grew. When that predictability starts to fade, the multiple compresses.
Margins are another area where the explanation sounds simple,
but the implications are more complex. $NOW says the Armis acquisition is the reason margins will be pressured in the near term. They should recover but not until 2027, which is further out than investors expected. That tells us something important about the level of investment happening.
When margin recovery gets pushed out that far, it usually means investment intensity is higher than before. That changes the near term economics of the business, even if the long term opportunity is still there. It’s not necessarily worse, but it is different. And in markets, different gets repriced quickly.
Part of the appeal of $NOW has always been the combination of strong growth and expanding profitability. If growth stays solid but margins flatten or compress, the overall profile changes. You don’t get to keep the same multiple with less operating leverage. That’s just how the math works.
The large deal environment also tells an important story if you look closely. They’re still closing multi million dollar deals, which confirms the product remains critical for customers. But the conversation is changing from deal size to deal timing and consistency.
When consistency becomes the focus, it usually means execution is becoming less clean. Not broken, just less precise than before. And when a business goes from very clean to less clean, the market notices. That change in perception is often enough on its own to tank the stock, particularly in the short term and if it was expensively priced.
What ties all of this together is not that any one metric is alarming. Growth is still good, demand is fine, and the product is still deeply embedded. The issue is that several small changes are happening at the same time. And they’re all pointing in the same direction.
Slightly slower growth, slightly longer sales cycles, and slightly more pressure on margins. None of these things break the business individually. But together, they change how the business is viewed. That shift in perception is what really drives the reaction.
Great businesses don’t collapse overnight or suddenly fall apart. They slowly lose a bit of momentum, a bit of visibility, and a bit of operating leverage at the same time. It happens gradually, not all at once.
For a long time, $NOW was viewed as one of the cleanest compounders in software. Everything lined up almost perfectly quarter after quarter for a very long time. We’ve all seen that beautiful chart reposted hundreds of times on X that’s up and to the right. This call didn’t break that narrative, but it introduced enough noise to make people question it. And once that happens, the multiple rerates.
The market is not reacting to a broken business here. It’s reacting to the idea that the business might be a little less predictable than it looked before. That may not sound like much, but predictability is one of the most valuable things in investing. When that starts to het questioned, even slightly, it forces a reassessment.
The real question going forward is not whether $NOW is still a great business, because it definitely is. The question is whether it remains essential as AI reshapes how enterprises operate. If it does, this will look like a temporary reset in expectations. If it doesn’t, this is the beginning of a much longer and painful rerating.
That’s why this quarter wasn’t good enough. Not because the numbers were bad, but because the story became a little less clean. And when a stock is priced for perfection, good is not enough.
Now let me explain why I bought it. It’s easy to point out the imperfections in a quarter like this, but investing is about weighing those against the opportunity. I’m not looking for perfect businesses, I’m looking for situations where the risk and reward starts to tilt in my favor. And to me, this still looks like one of those setups.
Let’s put things into perspective for a second. $NOW is the fastest enterprise software company ever to reach $15b in revenue, and it’s still growing north of 20% at that scale. Very few businesses in history have been able to maintain that level of growth once they get this large. At this pace, it’s going to double revenue quickly.
That’s where the math starts to change. Going from $15b to $30b is a completely different challenge than going from $1b to $2b. The base is bigger, expectations are higher, and execution has to be very good.
At around a \~$90b market cap, the setup starts to look more balanced to me. You’re no longer paying peak optimism for a perfectly clean narrative. You’re paying for a great business that is starting to show a few cracks. Historically, that’s where opportunities tend to lie, not when everything looks perfect.
The business didn’t suddenly change overnight, and that’s an important distinction. What really changed is the price people are willing to pay for it. Markets don’t just reprice bad businesses, they reprice great businesses the moment the narrative changes even slightly.
This is also a Silicon Valley darling, and that comes with both advantages and trade offs. The talent, the positioning, and the reputation all matter hugely. But it also comes with heavy stock based compensation, which I take seriously and don’t ignore. You’re getting a world class business, but you’re also paying for it through dilution over time, albeit they are buying back shares at an accelerated pace to offset some of that pressure.
For me, this ultimately comes down to a simple question. Does $NOW remain a core system for enterprises in an AI driven world, or does it slowly lose relevance over time. If it remains essential, then what we’re seeing right now is likely just a reset in expectations, not a structural break. If that assumption proves wrong, then the story changes.
There are also clear things I’m watching closely from here. If sales cycles continue to stretch and conversion weakens further, that would matter. If margins don’t show a credible path back over time, that would matter as well. For now, I don’t think we’re there yet, but those are the lines I’m paying attention to.
I’ve seen this pattern before in other businesses that looked almost perfect for a long time. They don’t usually break all at once, but they do go through periods where things get a little less clean. That doesn’t mean the opportunity disappears, but it does mean expectations need to reset. That reset is often where the opportunity comes from.
At the end of the day, I still believe this is a company that can be worth hundreds of billions of dollars over time. The combination of scale, deep enterprise integration, and the ability to expand across workflows is extremely powerful if they continue to execute. This is not a business that needs to reinvent itself, it just needs to stay disciplined and keep doing what it has already proven it can do. If it remains a core system for enterprises and continues to compound at a high rate, the outcome can be much larger than what the market is pricing in today.
The path is not guaranteed, and that’s what creates the opportunity. Expectations have come down slightly, the story is a bit less clean, and that’s exactly when these types of businesses become interesting. If they can work through the current friction and regain consistency over time, the narrative can shift again just as quickly as it changed.
These are my thoughts on the quarter, the business, and my investment in $NOW. It may be a bit lengthy, but like I said at the beginning, I don’t like leaving things unfinished and I wanted to put all the cards face up on the table since I already unlocked Pandora’s box. If you found it useful or interesting, I’d appreciate a like, comment, share, or follow.