ServiceNow succeeded at the high end of its guidance in Q1 2022 on all metrics and signed 52 deals worth more than $ 1 million in the same period, as the platform continues to gain traction across the enterprise. CEO Bill McDermott also told analysts he is confident in the company’s ability to reach its target of $ 10 billion in 2024 and $ 15 billion in 2026.
The company’s stock jumped more than 8% in extended trading on Wednesday, while Wall Street responded favorably to the numbers.
McDermott indicated that ServiceNow is signing deals in several areas beyond the company’s ITSM roots, including IT operations management, supply chain, creative workflows, ESG, employee experience and customers, and security.
We at diginomica have written previously about the ServiceNow opportunity, as its platform has a consistent data model, and how the company promotes an approach of ‘business architecture as IT architecture’. Our recent interview with McDermott outlines the company’s current ambitions.
The Q1 2022 numbers are:
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Subscription revenues of $ 1.63 billion, representing 26% year-over-year growth
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Total revenues of $ 1.72 billion, representing 27% year-on-year growth
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Net income of $ 352 million, compared to net income of $ 306 million in the same period last year
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52 deals worth more than $ 1 million in net new annual contract value, representing 41% year-over-year growth
Commenting on the results, McDermott said:
The world is clearly beginning to understand the power of this platform. We said in January that our rapid growth would accelerate in Q1, it happened. Now, three months later, we expect subscription revenue growth to accelerate for the entire year, it will.
We have strong adoption from existing and net new customers. Our rolling four quarter pipeline remains strong. We deliver predictable, rapid growth with exceptional free cash flow.
Overall, we are very excited about the state of this business. We believe we are really well set up for this, for the rest of 2022 and beyond.
Market trends
McDermott said ServiceNow sees a “sustained demand environment” for the enterprise and that any macroeconomic challenges seen around the world are playing out favorably for the company, as they “emphasize the need to invest in digital business “. McDermott added that ServiceNow has not seen any material impact as a result of Russia’s invasion of Ukraine and the ongoing war.
McDermott said:
The average tenure of a company in the S&P 500 dropped from 30 years in 1996 to 19 years in 2021. So it is very clear that the business can no longer return to a status quo posture, regardless of the environment. We are in the ‘tech to compete’ world now. If you look at our new customer acquisition, here’s the fun.
The business is shifting investments to technologies that deliver them faster with the right results. Cloud native platforms like ServiceNow are seen as an elixir for accelerating new revenue streams and better experiences for people.
The biggest problem in the world is actually ServiceNow’s biggest opportunity. And it all adds to what we’ve been saying consistently. The architecture of technology is now the architecture of business. This is the time for digital business.
ServiceNow saw ITSM at 11 of its top 20 deals, ITOM at 13 of its top 20 deals, and Security and Risk at 13 of its top 20 deals. Commenting on customer trends, McDermott said:
The only way for companies to change the customer experience is to fully integrate their experience with the employee. Customer workflows continue to see strong demand, especially with our vertical SKUs. Barclays is working with ServiceNow to automate cross-agency case management and compliance with EU data privacy requirements.
In this post-pandemic economy, many businesses are creating direct consumer business models. Companies like Telefonica Brazil are partnering with ServiceNow to better serve their next generation of customers.
The workflow of employees in the quarter was also strong. HR is in 14 of the top 20 deals. The global healthcare solutions company, AmerisoBergen, is partnering with ServiceNow to transform their employee experience.
McDermott was also strong about the low-code ServiceNow opportunity, where he said:
In the age of digital business, differentiation cannot be bought, it must be built. IDC now expects 750 million net new applications to be made between 2023 and 2025. With the unprecedented demand for net new innovation coupled with a global shortage of professional developers, low-code application development is a massive market opportunities.
While tech leaders see the value of citizen developers, they don’t want to sacrifice management and security at the enterprise level.
This gives ServiceNow a unique distinction in the low-code market. Check out Daichi Life Insurance, one of the world’s largest insurance companies, which has standardized the app engine for all low-code application development. With creative workflows in 16 of the top 20 deals in Q1, we see this trend accelerating.
Commenting on the coming years, McDermott added:
Here’s the main takeaway, businesses are no longer in the mood to experiment. They keep up with what they know works, which is why the world works with ServiceNow. We are the only one with a fully integrated platform architecture that can address every C-suite business challenge because businesses are now focused on fast time appreciation.
Everything is lined up so we can follow it in Q2 and for the whole year. We are taking steps forward every day to our stated milestone, $ 10 billion-plus in 2024, $ 15 billion-plus in 2026 and beyond. It is worth repeating at this time that we remain on track to be the fastest ever to reach those limits.
What I take
Another strong quarter for ServiceNow, a company that looks very confident about implementing the opportunity that lies ahead of it. I will be going to the ServiceNow Knowledge event in The Hague over the next two weeks, where I hope to speak with customers to gain a deeper understanding of how their use of the Now platform is evolving.
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