ServiceNow Diversifies

| About: ServiceNow (NOW)

Summary

ServiceNow is diversifying its service portfolio out of IT service management into management software for human resources, customer service and security.

ServiceNow believes options provided by current players in cloud-based customer service may be good at customer engagement, but these options don't necessarily integrate the engineering and operational aspects.

The biggest advantage ServiceNow has is that at its core, it is a cloud-based organization that has always been focused on service management.

According to recent reports on cloud services, global spending on public cloud Infrastructure as a Service hardware and software is estimated to grow to $38 billion in 2016 and the market is estimated to grow to $173 billion in 2026. The Software as a Service (SaaS) and Platform as a Service (PaaS) parts of cloud hardware and infrastructure software spending are estimated to grow to $12 billion this year and will grow to $55 billion by the year 2026. Another report by IDC estimates that by 2020, penetration of SaaS versus traditional software deployment will be more than 25% and packaged software consumption in enterprise segment will shrink to 10% of new installations. Most cloud companies are therefore switching gears to address this rapidly expanding market.

ServiceNow's Financials

Earlier last week, ServiceNow (NYSE:NOW) reported impressive quarterly results. Revenues for the second quarter of the year grew 38% over the year to $341.31 million, ahead of the market's expectations of $333.96 million. Net loss for the quarter came in at $0.30 per share. On an adjusted basis, ServiceNow reported an EPS of $0.15 compared with the Street's forecast of $0.09 for the quarter.

By segment, revenues from subscriptions grew 45% over the year to $290.68 million and professional services revenues increased 9% to $50.63 million.

For the current quarter, ServiceNow projected revenues of $350 million-$354 million, compared with the market's projections of $351.6 million. It expects to end the year with revenues of $1.37 billion-$1.38 billion compared with the market's forecast of $1.37 billion.

ServiceNow's Diversification

ServiceNow is now diversifying its service portfolio out of IT service management into management software for human resources, customer service and security. Called the Customer Service Management, the new service will make ServiceNow compete with other cloud players especially Salesforce.com.

ServiceNow believes that the options provided by current players in cloud-based customer service, such as Oracle (NASDAQ:ORCL) and SAP (NYSE:SAP), may be good at customer engagement, but these options don't necessarily integrate the engineering and operational aspects. ServiceNow, instead, is counting on its platform to be able to deliver a streamlined service that can make processes like onboarding of a resource as simple as ordering products from Amazon.

The biggest advantage ServiceNow has over Oracle and SAP is that at its core, it is a cloud-based organization that has always been focused on service management and offers a wide range of inbuilt service management tools such as tasks, workflows and forms. Since its launch in May this year, the Customer Service Management offering already has 40 customers, 30% of which are new to ServiceNow and 31% of which are Global 2000s.

To help with the expansion into security services, ServiceNow announced the acquisition of BrightPoint Security earlier this summer. Terms of the acquisition were not disclosed. San Mateo-based BrightPoint was founded in 2011 and was known as Vorstack until a year ago. BrightPoint is best known for its distributed analytics approach to cyber security prevention and detection. Its solutions help organizations identify and understand the level of an attack and measures to deal with it. ServiceNow plans to leverage the acquisition to enhance its cloud application offering so that its firms will benefit from the secure and controlled information sharing to rapidly prioritize and better deal with threats.

Its stock is currently trading at $73.23 with a market cap of $11.93 billion. It has recovered from the 52-week low of $46 it had fallen to in February this year. It is still a far cry from the 52-week high of $91.28 it touched in December last year.