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Billion Dollar Unicorns: ServiceNow’s Expanding Market Opportunity

Posted on Friday, Jan 9th 2015

Here is a brief write-up on another Billion Dollar Unicorn Club member — cloud-based IT Services Management (ITSM) vendor, ServiceNow (NYSE: NOW). ServiceNow has shown how to create a multi-billion dollar enterprise by relying solely on domain expertise.

ServiceNow’s Financials

ServiceNow was founded in 2004 by former CTO of Pergerine Corporation, Fred Luddy. Working at Pergerine, Fred was able to develop his domain experience with the IT Service Desk Market. He used that expertise to create a company that offered ITSM capabilities over the cloud. Fred had little idea on how to build ServiceNow. All he knew was that he wanted to do “something involving forms-based workflows” and soon realized that the service-desk opportunity was open to their Internet and cloud-based delivery model.

By 2005, ServiceNow had managed to attract 12 customers during production and started to charge seat-based subscription fee for his services. Soon they clocked $850,000 in revenues in their first year as a real company. In 2010, they had grown to $45 million annual revenue run rate with 350 enterprise customers. Their latest fiscal results are yet to be announced, but they ended fiscal 2013 with revenues of $424.7 million.

Despite the high revenue growth, ServiceNow remains a loss-making organization. They ended fiscal 2013 with a non-GAAP net loss of $0.14 per share. The losses have been attributed to increased spending on sales and marketing and R&D activities.

For the quarter ended September last year, ServiceNow saw revenues increase 61% over the year to $178.7 million. They managed to turn in a profitable quarter with an EPS of $0.03. The market was looking for revenues of $174.7 million and an EPS of $0.01. They had nearly 2,515 customers by the end of September.

ServiceNow continues to earn revenues through a subscription-based model. Subscription revenues grew 62% over the year to $150.4 million. Professional services revenues increased 55% to $28.3 million.

For the December ended quarter, ServiceNow projected revenues of $192 million-$194 million compared with the Street’s forecast of $191.4 million. They expect to report revenues of $677 million-$679 million for fiscal 2014 against the market’s expectations of $671.6 million.

ServiceNow’s Expanding Offerings

ServiceNow continues to improve their product offering to attract more customers. Recently they released Express, a simpler cloud-based ITSM solution. Express offers a more efficient way to run IT service desks. It comes with features such as the ability to improve the speed of assignment and resolution of tickets, a cloud-based single system of record to replace spreadsheet-based asset tracking, a visual task board that gives IT managers the ability to assign the team work through a drag-and-drop interface, and finally one-click reporting on metrics to track performance of the IT team.

ServiceNow’s Market Opportunity

ServiceNow believes that the service desk market is worth $1.2 billion-$2 billion a year. But they believe that additional opportunity lies in offering enhanced services that will help the IT organizations manage their operational areas including application development, application portfolio, and demand management. That in turn should lead to an addressable market opportunity of $4-$6 billion a year. They are convinced that they will be able to offer these services to their clients through a single portfolio.

Additionally, analysts are also seeing the benefits of ServiceNow expanding their opportunity beyond IT. As Goldman’s analyst Greg Dunham pointed out, ServiceNow is displaying an ability to move beyond e-IT services help desk into other areas including human resources, operations, and legal departments.

Prior to listing on the NYSE in 2012, ServiceNow was venture funded with $83.7 million in investments received from JMI equity, Greylock Partners, and Sequoia Capital. They raised $162 million in their IPO. Soon after listing, ServiceNow had touched a valuation of $3 billion. Since then, the stock has skyrocketed. It is currently trading at $68.89 with a market capitalization of $10.22 billion. It touched a 52-week high of $71.80 in February last year. Clearly, a mega hit Unicorn!

 

More investigation and analysis of Unicorn companies can be found in my latest Entrepreneur Journeys book, Billion Dollar Unicorns. Unicorns will also be discussed with some special guests during our 1M/1M Roundtable programs over the next few weeks. To be a part of the conversation, please register here. The term Unicorn was coined in a TechCrunch article by Aileen Lee of Cowboy Ventures.

This segment is a part in the series : Billion Dollar Unicorns


. How Marketo Is Faring In The Public Market
. Workday's Ramp to Multi-Billion Valuation
. Gaurav Dhillon, Founder of Informatica and SnapLogic (Part 1)
. ServiceNow's Expanding Market Opportunity
. Gaurav Dhillon, Founder of Informatica and SnapLogic (Part 2)
. Gaurav Dhillon, Founder of Informatica and SnapLogic (Part 3)
. Gaurav Dhillon, Founder of Informatica and SnapLogic (Part 4)
. Tableau's Valuation Increases to $6 Billion
. A Rare Media Venture Called Vice
. Gaurav Dhillon, Founder of Informatica and SnapLogic (Part 5)
. Gaurav Dhillon, Founder of Informatica and SnapLogic (Part 6)
. Gaurav Dhillon, Founder of Informatica and SnapLogic (Part 7)
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