Cloud Stocks: ServiceNow Steady in Turbulent Seas

The current coronavirus conditions have done little to hurt the tech giants. Under the leadership of its new CEO Bill McDermott, ServiceNow (NYSE: NOW) continued to report a stellar quarter. The stock even climbed to a 52-week high recently.

ServiceNow’s Financials

ServiceNow’s first quarter revenues grew 33% over the year to $1.046 billion, ahead of the market’s expectations of $1.02 billion. Adjusted earnings grew 63% to $1.09 per share and were also significantly ahead of the market’s forecast of $0.95 per share.

For the quarter, subscription revenues grew 34% over the year to $995 million, ahead of the Street’s forecast of $978.4 million. Professional services and other revenues grew 6% to $52 million. The company announced that it has closed 37 transactions with more than $1 million in average contract value (ACV).

ServiceNow expects to end the second quarter with subscription revenues of $1-$1.01 billion, missing the Street’s forecast of $1.02 billion. ServiceNow reduced its fiscal year subscription revenue expectations to $4.19 billion compared with the earlier forecast of $4.23 billion. While most companies are not publishing an outlook, it is interesting to note that ServiceNow is confident enough to publish it.

ServiceNow’s Platform Growth

ServiceNow continues to drive adoption of its platform through the launch of several new apps and AI initiatives. To address the pandemic, it has launched four key apps that help organizations with better crisis management and business outcomes. Of the four apps, the Emergency Response Operations app was developed by the Washington State’s Department of Health on the Now platform. It help the department to digitize processes and enable quick allocation of critical Incident Management Team positions.

The other three apps include the Emergency Outreach, Emergency Self Report and Emergency Exposure Management workflow apps. These were developed in-house by the ServiceNow team and help organizations manage their workflow designs better in the current situations. Since the time of the launch, these apps have already registered more than 5,000 installations.

ServiceNow is also leveraging AI in the development of its Platform services. In March this year, it released Orlando, its most innovative Now Platform release ever. Orlando features Now Intelligence that provides customers with access to AI, analytics, and mobile capabilities across the Now Platform and can support any workflow design experience. For instance, a ServiceNow virtual assistant on Orlando can help employees request and reset passwords based on a few questions asked by the assistant. The system uses natural language processing to understand the request and then acts upon it. ServiceNow believes that Orlando is its biggest product launch in a decade. With its predictive analysis capabilities, the tool will help push ServiceNow deeper into the enterprise segment.  

Earlier this year, I had talked about how SaaS companies need a PaaS strategy to drive growth to the next level. I think ServiceNow is trying to follow a comprehensive PaaS strategy. It allows developers to build apps on the Now platform that can also be accessed by other organizations through their app store. ServiceNow does not divulge detailed statistics and usage metrics about these apps. But I think ServiceNow focuses on large system integrators, not smaller startups. I would have liked to see them provide similar commitment to the startup ecosystem.

ServiceNow is looking to hit $10 billion in annual revenues in the next few years. Its trajectory may have slowed down a bit this year, but the company believes that hitting the milestone is inevitable. Its stock is currently trading at $381.83 with a market cap of $72.8 billion. It hit a 52-week high of $386.57 this week. In October last year, the stock was trading at a 52-week low of $213.99.

This segment is a part in the series : Cloud Stocks