Cloud workflow vendor ServiceNow had another strong quarter, beating analyst expectations, with its shares jumping more than 12% in extended trading yesterday. The company reported 22% year-over-year revenue growth in Q3 and said that current outstanding performance obligations of $5.87 billion represent an 18% year-over-year growth.
CEO Bill McDermott is confident in the company’s performance and says that despite macro headwinds, ServiceNow is well positioned to serve the digital needs of organizations.
The growth in enterprise use of ServiceNow has prompted ServiceNow to also announce a new program called RiseUp with ServiceNow, which aims to train one million people on the Now platform by 2024.
Key numbers for Q3 2022 are:
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Subscription revenues of $1.742 billion in Q3 2022, representing 22% year-over-year growth, 28.5% adjusted for constant currency
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Total revenues of $1.831 billion in Q3 2022, representing 21% year-over-year growth, 27.5% adjusted for constant currency
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Current outstanding performance obligations of $5.87 billion in Q3 2022, representing 18% year-over-year growth, 25% adjusted for constant currency
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The number of customers paying more than $10 million in annual contract value in Q3 2022 grew 60% year‑over‑year
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ITSM and ITOM accounted for 17 of ServiceNow’s top 20 deals in the quarter, with six deals each over $1 million.
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Security and risk ranked 15 of the top 20, with five deals over $1 million.
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Customer and Employee Workflows are in 12 of the top 20.
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Creator Workflows are in all of the top 20 deals with nine deals over $1 million.
Commenting on the numbers, McDermott said:
ServiceNow had 69 Q3 deals over $1 million. Our US federal business had its best quarter in Q3. We saw strength across industries and business segments. Our performance was consistent globally with Europe performing well this quarter. Our renewal rate remains best-in-class at 98%.
We are the largest organically grown enterprise software company. We have an unmatched combination of organic growth and profitability at scale. As these Q3 results show, we fully intend to maintain this leadership position.
Navigating uncertainty
McDermott argues that ServiceNow is in a good position to navigate the current macroeconomic climate, which includes inflation, supply chain disruptions, energy costs, and labor shortages driving top- and bottom-line pressures line for companies. He said:
Regarding the operating environment, in recent quarters, we have said that secular tailwinds are stronger than macro crosswinds. They are. We saw nothing in Q3 that changes this core thesis. Digital technology is a deflationary force. The enterprise digital transformation market is proven. The investment thesis is stronger than ever.
Hybrid multi-cloud deployment, adoption of a modern data infrastructure stack, cybersecurity and risk management, AI and data analytics, remote work and collaboration, these trends are not only durable, their relevance is expanding.
The ServiceNow platform directly addresses all of these challenges, which translates into multiple growth vectors for our business.
He added that the main thing he’s hearing from CEOs right now is time-to-value delivery, with technology projects requiring results in weeks, rather than months. McDermott calls this the “great reprioritization”. He reiterated the company’s recent strategy to dive deeper into systems of record, especially ERP. He explained:
In recent decades, waves of enterprise systems have been introduced to meet the market challenges of those times – operating systems, databases, applications. What we’re seeing today is a generational shift from architectures built in the last century to platforms built for it.
If you look at the ERP market, we see customers at different stages of their migration to the cloud. For example, some of the world’s largest manufacturers are consolidating hundreds of legacy procurement processes into a modern workflow experience. It reduces the legacy environment, driving more than $1 billion in cost efficiencies for just one of our many ERP wins this quarter.
A need for skills
As mentioned above, ServiceNow has announced a new skills program called RiseUp to meet the demand it sees for the platform. If ServiceNow wants to continue to facilitate the growth potential it has, it needs people who know how to adopt and get the most out of the platform. McDermott said:
That’s why, today, we’re announcing a new initiative: RiseUp with ServiceNow to train 1 million ServiceNow certified professionals by 2024. Our customers, partners and ServiceNow itself are all growing as ServiceNow workers. We see opportunity everywhere.
At RiseUp with ServiceNow, we’ll give people the knowledge to conquer it. Overall, the demand environment is strong. The market opportunity is growing. The ecosystem is expanding. ServiceNow is a growth company on every level.
I take it
The opportunity is clearly there for ServiceNow. In an environment where macro headwinds have dampened the outlook for some vendors, ServiceNow continues to exceed the expectations it has laid out in recent quarters. The key is execution, but it clearly looks set to have a strong year.