Stock-Split Tracking: Tracking ServiceNow Stock?

One of the best performing stocks in recent years is Service Now (NOW 1.88%). The company launched its initial public offering (IPO) at $18 per share in 2012, and the stock has steadily climbed to a price that now exceeds $800 per share at the time of writing.

Because of this nominal price, investors are increasingly looking at ServiceNow as a possible stock split candidate. But how likely is the company to make this move? Let’s take a closer look.

ServiceNow stock status

ServiceNow is an enterprise software company. It provides end-to-end workflow automation software for online businesses. It also uses tools for collaboration and development, using artificial intelligence, machine learning, robotic process automation and other types of software to help companies run more efficiently.

Companies like Salesforce, Atlasian, Broadcomand many others compete in this business. While Atlassian has never split its stock, Salesforce initiated a split in 2013. Broadcom also just split its stock for the first time in its history, splitting 10 for 1 in July.

ServiceNow has never split its stock, nor has it indicated it will. If it initiated a 10-for-1 split similar to Broadcom’s, each share at roughly $800 per share would become 10 shares at $80 per share. This move leaves every investor with the same direct investment.

However, Broadcom, which launched its IPO three years before ServiceNow, waited until its pre-split price was well above $1,000 per share before making such a move.

Also, not everyone agrees that stock splits are necessary. Warren Buffett never broke up Berkshire HathawayA’s stock despite the stock price exceeding $600,000. He also only allowed B shares to be issued to give smaller investors an affordable entry point into the company. So ServiceNow shareholders shouldn’t see this as a move the company needs to make.

Why a split may eventually occur

However, ServiceNow’s growth is set to continue, which will likely increase pressure to split its stock.

For the first half of 2024, revenue of $5.2 billion was up 23% year-over-year. Revenues are also up 24% in 2023, so the growth isn’t a one-off. And even if a tax cut gave a one-time boost to net income in 2023 (and a subsequent dip in 2024), profits should generally rise over the longer term.

Also, as revenue and earnings growth lift the stock over time, liquidity, meaning buying and selling activity, is likely to decrease. Therefore, the company may decide to split its shares to maintain liquidity levels and make it easier for investors to own whole shares of the company. Such interest may be slightly bullish on stocks.

Additionally, if an investor writes a covered call on ServiceNow right now, they are required to own 100 shares, which would now cost $80,000. However, if ServiceNow initiates a 10-for-1 split, that cost drops to $8,000, which should increase covered call activity. Such situations may also cause ServiceNow’s board of directors to approve a spin-off at some point.

ServiceNow and a stock split

ServiceNow has not publicly announced plans to split its stock, meaning investors have no reason to assume it will be the next big tech company to do so. However, investors have no reason to rule out such a move either.

The stock has risen to a price in excess of $800 per share due to the company’s long-term growth history in the enterprise software industry. Since ServiceNow shows no signs of a bullish reversal, we have to assume that the price will continue to rise, increasing the pressure to split its stock.

Of course, not all company heads believe in stock splits. However, ServiceNow has never publicly ruled out such an event. Furthermore, lower prices attract smaller investors and increase overall activity, keeping the stock liquid. Such factors make it more likely that, even if ServiceNow is not the next market split, it is more likely that one will eventually occur.