That’s because these enterprise software companies provide a platform-as-a-service (PaaS) business model for essential tools to work in today’s fast-paced digital market.
Businesses big and small rely on one or both companies to organize customer lists, unify omnichannel sales and marketing efforts, and integrate back-end operations with customer-facing business unites.
But when comparing Salesforce vs ServiceNOW stock, which is best?
Both were founded at the tail end of the initial dotcom bubble of the late 1990s. Rising from these ashes wasn’t easy, and they each accomplished it by leveraging cloud-based solutions that give businesses a firm sense of control, security, efficiency, and continuity in their processes.
Some analysts are bullish on both stocks, despite a disappointing industry outlook from competitor SAP SE (NYSE:SAP), let’s see why.
Salesforce Revenues Pop 29%
Salesforce is trading lower recently, and much of this is because of SAP’s disappointing earnings report. Bearish analysts believe this is a key indicator of enterprise software spending heading downward.
Still, the company reported strong results for its second fiscal quarter for 2021, with a 29 percent revenue increase of $5.15 billion.
Its third fiscal quarter revenue was $5.25 billion, which gave it the confidence to forecast $20.7 billion to $20.8 billion in revenue for the year, a 22 percent year-over-year increase.
However, SAP’s underperformance is likely more indicative of how Snowflake (NYSE:SNOW) in the aftermath of its IPO.
Saleforce’s cloud-based software-as-a-service (SaaS) tools are deeply integrated into major companies like Amazon Web Services (which also has its own competitor in Redshift), Spotify (SPOT), Toyota (TM), T-Mobile, and The New York Post.
Its customer relationship management (CRM) platform and data-based solution is an integral part of these companies’ ability to track, manage, and act on customer preferences and data. Newer tools for processes like data analytics, social media marketing, or ad buys work in tangent with Salesforce.
The company’s nearly $220 billion market cap represents a 93.63 P/E ratio, which is relatively low for the cloud industry. Here’s how it compares to ServiceNOW.
ServiceNOW Top Line Soared By 73%
ServiceNOW stock prices are hovering around $500 per share in the fourth quarter of 2020, giving it a market cap approaching $100 billion. Its P/E ratio is 136.96, and the company’s cloud-based tools are focused on workflow solutions.
Where it really started to gain buzz and market pricing in 2020 was in its integration with Zoom Video Communications (NASDAQ:ZM). Zoom became the belle of the ball during the coronavirus pandemic, as lockdown orders forced everything from school to work and play to go virtual.
The company’s second-quarter revenue came in at $1.07 billion in the second quarter of 2020, which represents $1.23 adjusted earnings per share. This was a 73 percent increase from the prior year’s earnings of $0.71 per share.
Much of the company’s revenue comes from subscriptions, which makes it somewhat easier to forecast future earnings. This was driven by government, healthcare, and financial services organizations investing in the company’s products for its infrastructure. The company has partnerships with Accenture and IBM (IBM) to further expand its reach.
This drove the price to a historic high point from which some believe it may fall in the turbulent recession market of 2021.
Can Microsoft or Amazon Dislodge Salesforce?
The risks of investing in enterprise software are nothing new – in fact, Salesforce stock made headlines in the fourth quarters of both 2019 and 2020 as possibly risky investments because of changing sales trends.
While bearish analysts believe Salesforce may be inflated, the bulk of analysts give it a Buy rating, with only a handful of Hold and Sell recommendations.
Salesforce was affected by the Great Recession of 2007-2009, during which it hit its high in 2008. This could signal that Salesforce may deflate over the next two years.
In fact, the company is already short of its 52-week high. However, the company proved its mettle in the past and could prove to be a discounted value for investors who get in at the right time.
Even during the coronavirus crash, ecommerce grew while traditional brick-and-mortar struggled, so Salesforce does have risk of competition like Microsoft (MSFT) and Amazon (AMZN) muscling into its territory.
Dangers of Buying ServiceNOW
Like Salesforce, the biggest risk to ServiceNOW is that its clientele is unable to afford increasing their IT presence.
It mostly gained throughout 2020, but there were several times it underperformed the general market, even losing value while the S&P 500 makes small gains.
The company’s P/E ratio shows it may be overvalued, even though investors have a positive outlook for its near-term earnings, which beat estimates throughout the year.
The company’s workflows and partnerships should hold in the steady gains. Only if subscriptions start to waiver could the company have stumble.
ServiceNOW vs Salesforce Stock: The Bottom Line
Both ServiceNOW and Salesforce have important enterprise software solutions that may be pivotal for businesses working their way through the economic aftermath of the coronavirus pandemic. They assist with keeping data organized, uniting all business units, and generating profits.
With purse strings tightening, a minority of investors worry that IT spending will go down – the majority saw how the 2020 pandemic forever changed the way we do business. While the world will eventually go back to normal, virtual work, school, and meetings will always be an option.
Whether you invest in Salesforce or ServiceNOW stock, you’ll be investing in the backend infrastructure running behind some of your favorite companies. Neither company is likely to close its doors, and they both proved in 2008 they can overcome adversity.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.