ServiceNow (NYSE: NOW) recently announced its third quarter results that surpassed market expectations and sent the stock climbing 7% in the after-hours trading session. ServiceNow also announced a change in leadership, and investors believe that the company’s growth will continue under the new leader.
ServiceNow’s quarterly revenues grew 32% over the year to $885.8 million, marginally shy of the market’s expectations of $886 million. Adjusted earnings of $1.03 per share was ahead of the market’s forecast of $0.99 for the quarter.
For the quarter, non-GAAP Subscription revenues grew 35% to $847.6 million. Professional services and other revenues improved 11% to $51.7 million.
Total billings improved 28% over the year to $921 million with subscription billings growing 29% to $869.1 million and Professional services growing 12% to $51.9 million.
ServiceNow expects to end the current year with subscription revenues of $3.302-$3.307 billion. The market was looking for revenues of $949.68 million for the quarter with an EPS of $0.96 and fiscal year revenues of $3.46 billion with an EPS of $3.24.
ServiceNow’s AI and Mobile Plans
ServiceNow is driving growth through enhancements to its mobile and AI offerings. Earlier last month, it announced the release of native mobile experiences for everyday work across the enterprise. The mobile offering is powered by the Now Platform and helps employees by providing a simple, user-friendly interface. It manages complex enterprise workflows across functions, departments, and systems, thus making complex tasks easier. It also includes a new Onboarding app that helps new employees when they join an organization.
Within AI, ServiceNow announced the acquisition of the cognitive search capabilities of Attivio, an AI-powered answers and insights platform player. Boston-based Attivio was set up in 2007 to deliver natural language processing, machine learning, text analytics, and AI-powered search capabilities to organizations. Terms of the deal were not disclosed. Prior to the acquisition, Attivio had raised $102 million in funding from investors including Per-Olof Söderberg, Tenth Avenue Holdings, General Electric Pension Trust, and Oak Investment Partners.
The addition of Attivio’s search engine to the ServiceNow platform will help ServiceNow improve its search capabilities to move beyond keyword-based search. It will be able to deliver out-of-the-box, conversational AI and search experiences at scale to customers. ServiceNow plans to integrate Attivio’s technologies in its IT, customer, and Employee workflows.
Additionally, ServiceNow continues to expand its market reach through product enhancement and market expansion. Earlier this quarter, it announced that its HR Service Delivery product is available on SAPApp Center, the marketplace for SAP partner offerings. The organizations and their employees will now be able to access their ServiceNow and SAP SuccessFactors task lists and approvals anytime, anywhere through an omni-channel service experience with ServiceNow Virtual Agent and Now Mobile app. Employees will also be able to get a better service on tasks that may begin with one department, but may involve multiple functions or departments to ensure completion.
As part of its geographic footprint expansion, ServiceNow recently opened a development center in Hyderabad, India. This R&D center will be its second largest center globally. The center will lay specific emphasis on AI and mobile experiences for its products.
ServiceNow’s CEO Change
ServiceNow also announced that its CEO John Donahoe will be stepping down by January. He will be replaced by Bill McDermot, who recently announced his exit from SAP. While John Donahoe’s exit came as a shock, analysts are looking forward to Bill’s leadership. Analysts already believe that, as with SAP, he will continue to propel ServiceNow’s growth through acquisitions.
Bill will have plenty of companies to choose from for his acquisition shopping cart. ServiceNow, for instance, could benefit from the addition of IT Business Management vendor like Apptio. Apptio’s SaaS solution helps organizations analyze, plan, optimize, control, and collaborate on the IT investments. An acquisition by ServiceNow will help ServiceNow continue to deepen its presence in all the functions of an organization. Earlier this year, Apptio was acquired by private equity firm Vista Equity Partners for $1.94 billion.
Other interesting players could be Zendesk or Freshworks. Global help desk automation player Zendesk would be an expensive buy. It is currently operating at annual revenues of $800 million with a market capitalization of $8 billion. Zendesk’s rival Freshworks is smaller with annual revenues estimated at $100 million and a valuation of over $1.5 billion. Either of their acquisitions would help ServiceNow expand its ITSM capability significantly.
Its stock is currently trading at $241.22 with a market cap of $45.2 billion. It hit a 52-week low of $147.63 in December last year. In July this year, it touched a record high of $303.17.
This segment is a part in the series : Cloud Stocks