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ServiceNow Counting on AI and Natural Language for Growth

Posted on Friday, Oct 26th 2018

It has been a volatile time for the stock market this week. The Dow crashed more than 600 points earlier this week, erasing all of the gains made during the year. The market is concerned about a slowing economy and rising interest rates. Valuations for startups have been falling, and investor confidence appears to be shaking. It doesn’t help if companies don’t report a strong outlook for the coming quarters. The story was no different for ServiceNow (NYSE: NOW) that surpassed market expectations for the reported quarter but reported a weak billing outlook for the current quarter.

ServiceNow’s Financials

ServiceNow reported its third quarter revenues at $673 million, growing 37% over the year. It ended the quarter with a net income of $0.04 per share and an adjusted EPS of $0.68. The market was looking for revenues of $657.7 million and an adjusted EPS of $0.60 for the quarter.

By segment, Subscription revenues grew 39% to $627 million. Professional services and other segment revenues grew 9% to $46.5 million.

During the quarter, ServiceNow closed 25 transactions with more than $1 million in net new annual contract value. It now has 614 customers with more than $1 million in annual contract value, recording a 37% growth over the year.

Total billings for the company grew 32% over the year to $720.5 million. Subscription billings grew 35% to $674.2 million, while Professional services and other billings grew 1% to $46.4 million.

For the current quarter, ServiceNow forecast subscription billings of $900-$905 million, falling short of the Street’s forecast of $914.7 million. It expects its subscription revenues to come in at $660-$665 million for the quarter.

ServiceNow’s Acquisitions

ServiceNow continued growing inorganically during the quarter. Earlier this month, it announced the acquisition of San Francisco-based FriendlyData. Founded just two years ago, FriendlyData’s technology provides a natural language interface for databases. It simplifies technical terms for non-technical users, making it easier for them to ask quantitative questions in plain English. ServiceNow plans to leverage this technology by integrating it with the natural language query interfaces of the Now platform, applications for IT, Human Resources, Security Operations, Customer Service Management, partner products, and for developers. Terms of the deal were not disclosed.

FriendlyData’s financials are not publicly known. It is estimated to have raised $280,000 in funding from investors including Bulba Ventures, VentureBot, Digital Future, TMT Investments, GWC Innovator Fund, and Starta Accelerator over the last two years at undisclosed valuations.

This was the second natural language focused acquisition for ServiceNow this year. Earlier in the year, it had announced the acquisition of Parlo, an AI startup, for an undisclosed sum. San Francisco-based Parlo was also founded two years ago and is an AI and natural language understanding-based workforce solution. Borca is Parlo’s most advanced natural language and AI-powered virtual agent solution that helps create better experiences for enterprise employees by making machine interactions more conversational. ServiceNow plans to integrate Parlo’s technology across its entire suite of services on the Now Platform as well.

ServiceNow is clearly focusing its efforts on AI to drive the next round of innovations. But it is not the only player counting on AI to drive the next level of growth. Competitors like Zendesk and Freshdesk (now Freshworks) too have their versions of Chatbots that attempt to offer personalized experiences for customers using machine learning and AI tools.

I would like to know from the users about their experience with AI and natural language tools as customers of the service. Do Chatbots understand you and deliver the service you are looking for? Have Chatbots helped reduce your organization’s spend and improved customer experience at the same time?

Its stock is currently trading at $170.21 with a market cap of $30.3 billion. It had touched a 52-week high of $206.30 in September this year. The stock has climbed from the 52-week low of $112.84 that it was trading at in December last year.

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