ServiceNow IPO Looks Well Positioned For Long-Term Growth

| About: ServiceNow (NOW)
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IT Service Management company ServiceNow (NYSE:NOW) is set to debut during Friday's trading session. The company priced a total of 11.65 million shares at $18 each. The predicted range was $15-$17, so it seems there was demand for shares. Proceeds from the IPO will be used for working capital and may also be used in expanding data centers, marketing product, or building office facilities.

The company, founded in 2003, helps transform IT organizations and is a leader in the cloud-based IT field. Competitors include IBM (NYSE:IBM), BMC Software CA Inc., and Hewlett-Packard Co. (NYSE:HPQ). ServiceNow offers services that help businesses in various fields, including financial, consumer products, IT services, healthcare, and technology. Companies listed as customers on ServiceNow's website are Cerner Corporation (NASDAQ:CERN), Equifax Inc. (NYSE:EFX), PriceWaterhouseCoopers, and Temple-Inland.

Services listed by ServiceNow on its website are as follows:

  • Strategy: Service Portfolio, Project and Portfolio, IT Cost, IT Governance, Risk and Compliance
  • Design: Service Catalog, Service Level, IT Asset and Contract, Software Development, Lifecycle
  • Transition: CMDB/CMS, Change, Release, Knowledge, Runbook Automation, Discovery
  • Operations: Incident and Problem, Request, Field Service, Social IT Chat and Live
  • Business Applications: Custom Applications
  • Platform as a Service: Reporting, Mobile, Graphical Workflow, Configuration, Integration

Solutions offered by ServiceNow include:

  • Broad set of integrated functionality and modular deployment
  • Automation of IT operations
  • Highly configurable and extensible tom meet business needs
  • Efficient implementations and integration
  • Scalable, secure and reliable multi-insurance architecture

ServiceNow grew customers by 61% YOY to 1,074 in the most recent quarter, ending March 31, 2012. Net revenue increased 88% in the quarter ending March, versus last year. The reported revenue was $47.4 million. The company had a net income loss of $5.6 million in the most recent quarter, versus a profit of $3 million in the prior year. The most recent ending fiscal year saw revenue surge 114% to $92.6 million. Net income grew to a profit of $9.8 million, versus a net loss of $29.7 million in the prior year.

Revenue by segment (in $ million):

Fiscal Year 2009 2010 2011
Subscription 17.8 40.1 79.2
Professional Services 1.5 3.3 13.5
Total Revenue 19.3 43.4 92.7

International sales accounted for 25% of fiscal 2011 sales and 28% of the most recent quarter. The company's average subscription contract is 30 months, providing a decent stream of revenue. The contracts typically vary from 12 months to 120 months. Frank Slootman was named the new CEO in 2011. Slootman brings with him experience as the CEO of Data Domain, a company that was acquired by EMC Corporation (EMC). The founder and former CEO is now serving as the chief product officer.

ServiceNow has an in demand product for businesses. As businesses shift towards the cloud, they rely on products that ServiceNow offers. Growth has been tremendous and will slow down at some point, but I don't think shares are overpriced here. The company is recently profitable and is growing customer count at a great rate. Smaller companies will soon realize that ServiceNow products can save them money in IT costs. Look for shares of ServiceNow to shoot higher in tomorrow's open. If shares stall or don't hit $19, I would consider buying. There is a huge amount of shares available to be sold after a 180-day lockup. Investors may want to get in and out before then or consider buying in after any selling has taken place.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in NOW over the next 72 hours.