Rose Celine Investments
Equity Investor
Zeta's weaker cash conversion makes its lower sales multiple misleading beside ServiceNow. Based on the other investor's forecast, ServiceNow is already cheaper on EV/free cash flow despite trading at twice Zeta's EV/sales. At 10x sales, Zeta would trade above 70x FCF versus ServiceNow in the high 20s; ServiceNow converts 2.5 times as much revenue into cash. Price-to-sales should be largely ignored because it is far more misleading than useful. x.comÂ
Zeta's selloff is not the market being wrong: the business is still growing, but organic growth is slowing, and investors doubt it can stay high enough to justify a premium valuation. Against the bull case that it trades at about 25x free cash flow, backing $150M out of the six-month financials and redoing the math changes the picture. x.com x.com x.comÂ
ServiceNow's growth and deteriorating margins do not justify its valuation. It grew 3% quarter over quarter against a 107x trailing GAAP P/E, and its margins continue to deteriorate. It remains a great company, but is mostly saturated relative to that valuation. x.com x.com x.comÂ
ServiceNow's unexpected expense surge makes its rich valuation more vulnerable in a struggling software sector. Revenue rose 21%, but spending drove an EPS miss and one quarter of guided cRPO deceleration; wider market conditions could hurt near term. The 20% selloff looks excessive, and few software companies should benefit as much from AI. Management could deliver over 3-5 years, though the stock is only close to a buy again now; below $100 looks good for the long term. x.com x.com x.com x.comÂ
Zeta Global's contracted revenue gives growth more visibility. RPO expected to be recognized within 12 months reached $218.7M, up from $71.3M in Q3 2025. Management makes a compelling comparison with Salesforce's $5.66B Braze deal: Zeta has about twice Braze's forward revenue, higher guided FY26 free cash flow than Braze's FY26 actual, and a lower revenue multiple. That gap alone does not prove Zeta is undervalued; management sees a chance to win customers during integration. x.com x.comÂ
ServiceNow's costs are rising far faster than revenue without the RPO acceleration management promised. Q3 revenue rose 21%, while total cost of revenue climbed 56% and net income fell 45%; stock compensation appears to be using about half of free cash flow. The selloff looks deserved, though the shares are now closer to fair value. Sustainable margins and measurable returns remain the test. x.com x.com x.com x.com x.com x.comÂ
Constellation Software offers the same growth rate as ServiceNow at half its multiple when ServiceNow's after-tax stock-based compensation is factored in. x.comÂ
The market got Salesforce and Zeta Global badly wrong this year. x.comÂ
ServiceNow's third-quarter subscription revenue, cRPO and operating-margin beats make its double-digit selloff look overdone. After a 77% rise from April lows, it needed a big beat and raise; lower fourth-quarter cRPO guidance and back-loaded implications for $30-$32 billion in subscription growth by 2030 leave the stock in show-me mode. x.comÂ
ServiceNow's AI contract growth and improving free cash flow margin make the 18% selloff excessive and its shares a massive discount among leading enterprise AI companies. AI net-new ACV rose 65%; its 2026 AI ACV target rose to $1.7B, up 70% from the start of the year. Adjusted operating margin slipped to 32.5% from 33.5%, but free cash flow margin rose to 20% from 17.5%. Acquisition costs, stock compensation and severance largely drove the GAAP decline. x.com x.com x.comÂ
Zeta Global is the better buy than Cloudflare because it has the same growth at a fraction of the price. Zeta trades near 5x sales and 29x forward earnings with about 39% revenue growth, while Cloudflare trades near 40x sales and 167x forward earnings on about 34% growth. x.comÂ
Cost fears and CRPO misunderstandings caused ServiceNow's selloff. The stock is definitely undervalued; the market's reaction is ridiculous. x.comÂ
