Following Facebook’s IPO debacle, the market has been somewhat wary of the listing of other IT companies. But recently listed SaaS enterprise IT service management player, ServiceNow, has put concerns to rest for its IPO. Of course, the SaaS IPOs are very different animals from the social media IPOs like Facebook. For one thing, subscription-based SaaS is one of the best, most predictable business models out there, whereas display advertising–based social media businesses tend to be highly volatile and unpredictable. I fully expect all the upcoming SaaS IPOs to have a relatively stable performance in the public market, whereas the display advertising based companies will struggle more. We must note that LinkedIn, a social media company, is largely based on a subscription business model and thus orders of magnitude more stable.
San Diego–based ServiceNow was founded in 2004 by the former CTO of Peregerine Systems and Remedy, Fred Luddy. The company began operations when Fred, whom I interviewed earlier, built a forms-based workflow system in the cloud, Glide, which was the company’s first platform as a service.
Today, ServiceNow is a leading provider of cloud-based services that enable automation of enterprise IT operations. Its service offerings include a portfolio of applications on its proprietary platform that automates workflow and integrates business processes. The company helps transform enterprise IT by automating and standardizing business processes to deliver lower IT operational costs and increased efficiency from the IT organization.
ServiceNow charges their customers a subscription fee for their services. It has seen significant improvement in customer acquisition and revenues over the last few years. Its customer base grew 62% last year from 602 as of December 2010 to 974. The customer list includes the likes of Deloitte, Juniper Networks, and Staples.
For the year ended June 2011, revenues grew 114% over the year to $92.6 million. For the quarter ended March 2012, revenues grew 88% over the year to $47.4 million.
Losses have narrowed significantly over the period. The company turned profitable last year, with earnings of $9.8 million for the year compared with a loss of $29.7 million in 2010. For the six months ended December 2011, revenues grew 93% over the year to $73.4 million. ServiceNow reported a net income of $4.8 million for the half year compared with a loss of $6.7 million a year ago.
Prior to listing on the NYSE earlier last month, the company had received venture funding of $54.9 million from Sequoia Capital and JMI Equity. They sold 9 million shares in the IPO to raise $162 million.
ServiceNow’s Growth Plan
ServiceNow plans to cross a $1 billion revenue run rate in the coming years. As part of its expansion plan, it is working to expand its existing customer base by investing in a direct sales force and strategic resellers and growing its data center footprint. It is also investing heavily in expanding its international presence.
The stock is trading at $25.27 with a market capitalization of $3.04 billion. This is significantly higher than the offer price of $18.00.
Although recent estimates for the industry are not well known, a Forrester research projected the IT service management software market to be worth $2.8 billion in 2013 and the overall IT management software market to be worth $33.6 billion in 2013. According to a Gartner research report, SaaS Continues to Grow in the IT Service Desk Market, Gartner has seen strong growth in their clients buying IT service desk tools that use the SaaS licensing and delivery model. Gartner believes that the SaaS model for an IT service desk will continue to grow and by 2015, more than 50% of all new IT service desk tool purchases will use the SaaS model. ServiceNow is well positioned to take advantage of this strong market growth.