ServiceNow Looks Robust

| About: ServiceNow (NOW)
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Summary

ServiceNow recently reported results that surpassed all market expectations.

It continued to enhance its portfolio of services. The company may have begun as an ITSM player, but now it has diversified into other cloud offerings, including human resources, customer service, and security software.

ServiceNow is taking the right moves to expand market reach. But given the presence of the five tech horses that are dominating the technology sector, I won't be surprised if it gets acquired.

ServiceNow (NYSE: NOW) recently reported results that surpassed all market expectations. The company attributes the growth to a successful platform strategy, and rightly so.

ServiceNow's Financials

Revenues for the fourth quarter of the year grew 35% over the year to $391.7 million, ahead of the market's expectations of $379 million. Adjusted EPS of $0.24 compared with the Street's forecast of $0.23 for the quarter.

By segment, revenues from subscriptions grew 43% over the year to $350.3 million and professional services revenues increased 1% to $41.4 million. Subscription billings grew 52% to $483.9 million. The growth was driven by an addition of a record 31 Global 2000 logos in the quarter. Some of the big names added during the quarter included General Mills, DNB Bank, and Renault. The quarter was also impressive due to the number of large deals booked. It added a record 27 deals, with net new average contract value of more than $1 million.

It ended the year with revenues growing 38% to $1.39 billion. Losses came in at $451.8 million or $2.75 per diluted share.

For the current quarter, ServiceNow projected revenues of $416 million-$421 million, compared with the market's projections of $402 million. It expects to end the current year with revenues of $1.86 billion-$1.89 billion, compared above the consensus for $1.79 billion. ServiceNow is confident of reaching its revenue goal of $4 billion by the year 2020.

ServiceNow's Offering Growth

ServiceNow continued to enhance its portfolio of services. The company may have begun as an ITSM player, but now it has diversified into other cloud offerings, including human resources, customer service, and security software. Last year, 72% of its customers bought licenses for products besides ITSM. 46% of its last quarter net new contract value was for non-ITSM work and 94 of its top 100 deals booked in the fourth quarter included products beyond ITSM.

ServiceNow also realizes the importance of machine learning. As part of its intelligent automation initiative, it is working on leveraging the vast troves of data available at its data centers to drive actionable insights and cost savings. It has access to data for more than 10,000 customers worldwide and its customers have access to critical volumes of operational data. ServiceNow plans to leverage this data with machine intelligence to predict outcomes and automate actions that will be able to drive higher productivity and scale of operations. It recently developed ITSM benchmarks that is providing aggregated KPIs for more than 3,000 customers, based on the size of the company and the industry. Benchmarks will help provide areas for performance improvements and other meaningful insights into workflows.

To further strengthen automation, ServiceNow recently acquired machine learning start-up DxContinuum for an undisclosed sum. DxContinuum was founded in 2012 by alumni from Oracle, HP, and Fair Isaac. It has been focused on developing machine learning algorithms and predictive analytics software for sales teams. ServiceNow plans to leverage the acquisition to expand into the Internet of Things automation. By integrating DxContinuum's machine-learning algorithms to its customer's data set, ServiceNow will now be able to train machines on how to route IT, HR, customer service, or other requests with higher accuracy.

ServiceNow is taking the right moves to expand market reach. But given the presence of the five tech horses that are dominating the technology sector, I won't be surprised if it gets acquired. Microsoft (NASDAQ:MSFT) is a likely bidder as the acquisition will help Microsoft leap forward with its already rapidly expanding Cloud strategy.

The ServiceNow stock is currently trading at $90.62 with a market cap of $15 billion. The stock hit a 52-week high of $92.98 after its results announcement last week. It has recovered from the 52-week low of $46 it had fallen to in February last year.