Cloud-based enterprise services provider ServiceNow (NYSE: NOW) continues to outperform market expectations. It recently announced a leadership change when it brought over former eBay and Bain & Co. CEO John Donahoe as the new CEO. ServiceNow’s exiting CEO Frank Slootman took the company from $75 million in revenues to revenues of $1.4 billion last year. And now, the new leader is aiming to grow faster to cross the $5 billion milestone.
Revenues for the first quarter grew 36% over the year to $416.8 million, ahead of the market’s expectations of $409 million. Adjusted EPS of $0.24 was significantly better than the Street’s forecast of $0.17 for the quarter.
By segment, revenues from subscriptions grew 43% over the year to $382.7 million and professional services increased 6% to $40.6 million. For the quarter, Subscription billings grew 44% to $478.7 million and professional services and other billings increased 11% to $50.5 million. Total billings of $529.2 million translated to a 40% growth over the year.
For the current quarter, ServiceNow expects revenues to be between $458-$463 million, far ahead of the Street’s forecast of $450.9 million. ServiceNow forecast the year’s revenues at $1.86-$1.88 billion, ahead of the Street’s forecast of $1.837 billion.
ServiceNow’s Product Growth
ServiceNow has been improving its product offerings to gain a bigger foothold in the enterprise market. And this quarter was no different. Earlier this month, it announced the release of several new services. By the third quarter of the year, its customers would have access to ServiceNow’s Trusted Security Circles, which is a new cloud-based application that gives enterprises the ability to share and receive hyper-relevant threat intelligence in near real-time. ServiceNow believes that most enterprise security teams fight threats in isolation. The new service would allow security teams to reach out to peers, suppliers, and partners and be informed about threats and their associated risks. They can thus be forewarned of targeted attacks and help build safety within the community.
To manage risk, it also announced Vendor Risk Management, another cloud-based application that organizations can use to automate third party risk management, onboard new vendors, and gain visibility of their overall risk posture. Since most organizations work with different vendors who have access to sensitive data, the new application offers a centralized system of action that automates the third-party risk management process.
It is also leveraging its earlier acquisition of DxContinuum and released the Intelligent Automation Engine. The new service can be used by organizations to develop models that prioritize and route tasks across departments. The engine can help businesses identify problems to prevent service issues, benchmark services, and predict performance. It will help organizations with application development, knowledge management, performance analytics, reporting, and subscription management.
It continued to build on the theme of communities within its offerings and announced ServiceNow Communities, a new application in its Customer Service Management solution. The Communities provides a personalized, self-service experience for every customer. It offers capabilities such as managed forums, curated topics, support for multiple content types, moderation, and granular permissions. It has been integrated with the ServiceNow Customer Service Portal to deliver a personalized offering where customers can see or edit their profile details, cases, products, services, and notifications in the same place where they can engage with the community. It also offers seamless contextual searching to help customers get information faster with a single search and focuses on a customer-specific activity stream that provides relevant content and updates in the forefront.
To help organizations keep better track of their software assets, it also announced the industry’s first software asset management solution. Software Asset Management combines catalog, procurement, and orchestration in one system so that enterprises can quickly allocate and reclaim software licenses to address non-compliance and avoid issues arising out of vendor audits. The Software Asset Management allows enterprises to automate software license spend, get a real-time view of licensed software compliance position, take a proactive approach to reconciliation and remediation and optimize license usage.
I still think that ServiceNow remains an attractive target for Microsoft. Under Satya Nadella, Microsoft has been focused on all things cloud and the acquisition of a company like ServiceNow would help it make bigger, and faster, inroads into the market.
One last word on the choice of the new CEO. John Donahoe is a highly respected CEO in the industry, but his background is more in consumer businesses like eBay and Paypal. Why ServiceNow chose John as the leader to take them to the next level is somewhat baffling to me.
Its stock is currently trading at $97.95 with a market cap of $16.66 billion. It has recovered from the 52-week low of $63.51 it had fallen to in June last year. It had reached a 52-week high of $99.09 earlier this month.
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