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What is ServiceNow’s 2018 Acquisition Strategy?

Posted on Wednesday, Feb 28th 2018

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According to a MarketsandMarkets report published last year, the global cloud based ITSM Market is estimated to grow 15% annually over the next few years to $8.78 billion by 2021. The growth is expected to be driven by increased adoption of BYOD policies and mobile devices across organizations.

ServiceNow’s Financials

ServiceNow (NYSE: NOW) recently reported its fourth quarter results that surpassed market expectations. Revenues for the quarter grew 42% over the year to $546.4 million, ahead of the market’s expectations of $535.4 million. Non GAAP EPS of $0.35 was in line with the Street’s forecast earnings for the quarter.

By segment, subscription revenues grew 44% to $497.2 million. Professional services and other segment revenues grew 20% to $49.1 million.

Total billings for the company grew 36% over the year to $727.1 million. Subscription billings recorded a 40% growth to $678.4 million, while Professional services and other billings declined 4% to $48.7 million.

It ended the year with revenues of $1.93 billion and a net loss of $149.1 million, or $0.87 per share.

For the current quarter, ServiceNow projected revenues of $507–$512 million. For the full-year, ServiceNow forecast revenues of $2.31-$2.33 billion.

ServiceNow’s Enterprise Focus

During the quarter, ServiceNow continued to deliver on its enterprise focused solutions. It may have begun as an ITSM focused vendor, but it has enhanced its presence across multiple functions within the organization by simplifying workflows across the enterprise, eliminating silos, and creating seamless interactions. Through its portfolio of products, organizations are now able to deliver an end-to-end employee experience through a single platform. During the quarter, 18 of its top 20 deals included the implementation of at least three products besides the core flagship ITSM product. It is seeing strong demand across its HR service delivery, CSM, and Security Operations products.

To continue to deliver against the demands of these organizations, ServiceNow is investing in four key areas. It is investing in Product and Platform development, with special focus on Machine Learning, mobile user experience and cloud-management capabilities. To enhance customer success, it is restructuring all customer-facing operations including customer success, professional services, training and certification, under the leadership of its Chief Revenue Officer, Dave Schneider. ServiceNow is also investing in talent expansion and finally is focusing on developing its brand.

Questions for ServiceNow’s Board

ServiceNow is a great success story in the SaaS industry. Today the SaaS companies have unprecedented opportunities for growth. Amidst 100,000 seed investments a year in the US alone, the startup world is churning out product after product, many of which could be good acquisitions that can beef up ServiceNow’s product portfolio with a couple of hundred million dollar lines of business.What are those on the company’s radar? Also as Joel Fishbein of BTIG Research speculates, the current year could be a big one for tech consolidation. Last year, ServiceNow had made a few small acquisitions. Does it have some bigger targets in mind for the current year?

Its stock is currently trading at $160.41 with a market cap of $27.8 billion. It had touched a high of $162.60 earlier this month. It has been steadily climbing from the low of $83.42 it had fallen to in March last year.

Photo Credit: Executive Networks Media/Flickr.com

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