TTAN · Research
ServiceTitan grows 21% but stock pay runs at 1.88x its free cash
ServiceTitan, the operating system for plumbing, HVAC and other trades contractors, grew revenue 20.9% in its fiscal second quarter, with payments and financing revenue up 24%. It produced about $117M of trailing free cash flow but paid about $219M in stock, so owners kept nothing after stock pay.
1. Summary
The question this piece answers: ServiceTitan holds the records and the payments for the trades businesses that run on it, and it is growing above 20%. Does that position justify about $7.32B of enterprise value when stock pay is almost twice its free cash flow?
What you will get from each section. The Thesis explains why the system a contractor uses to book, dispatch, invoice and get paid is the kind of gate superintelligence agents must pass through, and scores ServiceTitan on our four gate tests. The Valuation sets today's multiples against a five-year bear, base and bull case built on owner free cash flow, which is negative today.
The Financial update shows where growth came from and where the losses narrowed. The Risks develop the three threats that matter most: stock pay and founder control, reliance on one payments processor and the trades cycle, and the cost and uncertainty of the agent build.
The last section names the trigger that would change our call.
Our position: watch. The business passes the gate test, but stock pay of 1.88x free cash flow means our base case lands at 0.80x of today's value, and we want to see stock pay fall below free cash flow before we would own it.
Key numbers
Q2 fiscal 2027 revenue rose 20.9% to $292.76M, and usage revenue from payments and financing rose 24.41% to $72.12M [1].
The net dollar retention rate was over 110% for the quarter [1].
The operating loss narrowed to $27.55M from $34.77M [1].
2. Thesis
ServiceTitan began with plumbing and now serves many trades across homes, businesses and new construction [1]. Its platform runs advertising, job scheduling, dispatching, estimates, invoices and payment processing in one place [1].
It also measures gross transaction volume, the total dollars its customers invoice through the platform, and earns usage revenue on the share it processes or finances [1].
| Gate test | Read |
|---|---|
| Owns the record | Pass. Jobs, customers, estimates and invoices for each contractor live in ServiceTitan [1] |
| Owns the connection | Pass. Dispatch, payments and financing run through the platform, and a third-party processor's fees were about 13% of revenue [1] |
| Outcome pricing | Mixed. Usage revenue tied to invoiced dollars is about 25% of platform revenue, the rest is subscription [1] |
| R&D on the gate | Pass. Research and development rose 38% to 34% of revenue, building Atlas and agent workflows on the platform [1] |
Three passes and a mixed read make this a pass on our gate test. If superintelligence agents start booking jobs, quoting and collecting for contractors, they need the record of the customer and the job and the rails that move the money.
ServiceTitan owns both, and every dollar invoiced through it is a dollar it can take a cut of.
What would invalidate the watch: net dollar retention falling to 100% or below, or usage revenue growth dropping under subscription growth, which would mean the payments gate is not widening.
3. Valuation
Enterprise value is about $7,320.86M on the Oct 28 close and the cover-page count of 96.47M Class A and Class B shares as of Aug 31, 2026. There is no debt to add, since the term loan was repaid and the $250M revolver is undrawn, and we subtract $479.54M of cash and cash equivalents, our calculation [1]. ServiceTitan holds no marketable securities, so cash only and cash plus investments give the same figure [1].
That is 6.88x trailing revenue of about $1,064.74M and 62.64x free cash flow [1][2]. EBITDA is about negative $55.56M and owner free cash flow is about negative $102.34M, so those multiples are not meaningful.
Stock pay is about 1.88x free cash flow and about 1.56x operating cash flow. Free cash flow subtracts about $23.91M of trailing capital spending, of which $19.90M, or 83.23%, is capitalized software, our calculation [1][2].
It does not subtract $2.42M of equipment deposits that the company's own free cash flow measure includes [1].
Five-year view, our calculations. We start from trailing revenue of about $1,064.74M, a 10.98% free cash flow margin and stock pay at 20.59% of revenue [1]
4. Financial update
Q2 revenue was $292.76M against $242.12M a year earlier. Subscription revenue rose 21.53% to $212.37M and usage revenue rose 24.41% to $72.12M, so platform revenue grew 22.24% to $284.50M [1].
Six-month revenue was $561.58M, up 22.67% [1]. Gross margin rose to 71.41% from 70.77%, our calculation [1].
Research and development rose 38% to $100.63M, including $12.1M more stock pay, as ServiceTitan hired senior staff for its product build [1]. Sales and marketing fell to 26% of revenue from 29% [1].
The operating loss narrowed to $27.55M in the quarter and to $53.31M over six months from $84.31M [1].
Operating cash flow was $56.42M over six months against $25.77M a year earlier [1]. Q2 stock pay was $60.58M, of which $13.52M was for co-founder RSUs [1].
ServiceTitan repaid its $107.0M term loan before amending its credit agreement in January, and the revolver now runs to Jan 30, 2031
5. Risks
Risk 1: stock pay that outruns free cash, under founder control
What the filings say. Trailing stock pay of $219.21M compares with $116.87M of free cash flow [1][2]. Q2 stock pay alone was $60.58M, up from $49.31M, and research and development stock pay more than doubled to $23.85M [1].
The co-founders hold all Class B shares, which carry 10 votes each, and as of July 31 controlled about 60% of the voting power [1]. The 10-Q warns this "will limit your ability to influence the outcome of matters submitted to our stockholders" [1].
Where it shows. Class A shares outstanding rose to 83.86M from 81.96M in six months [1]. Owner free cash flow is negative, and there is no buyback to offset the issuance.
Our judgment. Shareholders are paying for growth in shares, not cash, and they have little say over the pace. The co-founder RSU charge is about $13.5M a quarter, but even without it stock pay runs above free cash flow.
This is our view, not a filing statement.
Risk 2: one payments processor and the trades cycle
What the filings say. Fees from a third-party processor used for customer payments and financing were about 13% of Q2 revenue, and that processor accounted for 20% of accounts receivable at July 31 [1]. Usage revenue depends on the gross transaction volume customers invoice, and the 10-Q lists the share of that volume ServiceTitan can recognize as revenue as a forward-looking uncertainty [1].
Where it shows. Usage revenue is about 25% of platform revenue and is the fastest-growing line [1].
Our judgment. The payments gate is the best part of the thesis, but it runs on one partner's rails. A change in that partner's terms would hit the line that grows fastest.
Usage also rises and falls with contractor job volume, so a slowdown in home repair and new construction would show up here first. This is our view, not a filing statement.
Risk 3: an expensive agent build customers may adopt slowly
What the filings say. The 10-Q warns that customers may be reluctant to adopt its new model-driven tools, "especially agentic workflows, or adopt them more slowly than we expect," and that ServiceTitan has "experienced delays in our internally planned release dates of new products" [1]. It also says it faces "competition from both established and new companies offering services similar to ours" and that customers could build their own [1].
Where it shows. Research and development is now 34% of revenue, up from 30% [1].
Our judgment. The spending is aimed at the right layer, but it is a large and growing bet paid partly in stock. If agents arrive more slowly in the trades, ServiceTitan carries the cost without the revenue.
This is our view, not a filing statement.
6. Catalysts and conclusion
Fiscal third quarter results, for the quarter ending Oct 31, will show whether usage growth holds above subscription growth and whether stock pay falls as a share of revenue. The second catalyst is any disclosure of revenue from Atlas and agent workflows.
Stock position: watch. ServiceTitan owns the record and the payment rails for the trades, but stock pay at 1.88x free cash flow leaves owners with negative cash today and our base case at 0.80x of today's value. Our rules would point to avoid when stock pay exceeds free cash flow, and we hold at watch instead because the gate test passes and losses are narrowing quickly.
The trigger to move to hold is stock pay falling below free cash flow on a trailing basis.
What it means for the future of software. In vertical software, the vendor that holds the job record and moves the money is the one agents must go through. The winners will earn on every invoice their customers send, not on how many technicians log in.
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