Great progress has been made in digital transformation, and there are clearly winners in the software field. Including the US IT service provider ServiceNow, since its IPO in June 2012, its share has increased by more than 1600%.
ServiceNow started building a cloud platform early on, enabling customers to automate, manage and customize IT services more effectively. The established provider of local software solutions did not realize the early signs and had to watch ServiceNow gradually steal market share from it.
The growth story is true
ServiceNow has now become the market leader in enterprise service management solutions, and it is the most innovative company in the world on the Forbes list.
By looking at the latest quarterly data, you can see that the growth is still intact. In the third quarter of 2019, subscription sales increased by 33%. For the entire 2019, the company predicts subscription revenue will grow 36% to 37%.
The company has a very loyal customer base and knows how to grow organically (the number of customers has increased by more than 32% in a year) and through strategic smart acquisitions (the company has acquired artificial intelligence and voice applications).
The strong expansion of the product portfolio in the mobile service sector also brings illusions to growth (here, the Israeli mobile application analysis platform Appsee was taken over in 2019).
Despite several setbacks, the rally continues
Last year, ServiceNow’s share achieved an outstanding performance of more than 55%. However, the price increase is accompanied by some price weakness, on the one hand due to investors’ high expectations of quarterly results, and on the other hand due to the shocking changes at the top. Old CEO John Danahoe switched to Nike, replaced by former SAP boss Bill McDermott. The sudden departure of long-term CFO Mike Scarpelli also caused market uncertainty.
At the same time, the stock is again close to its historical high of around $304, and the 20 P/E ratio is 72, while the current EV/sales ratio is 18, which is definitely not a bargain. However, a great growth story has its costs. The technical momentum and the realization of new historical highs also represent the continuation of the rebound.
ServiceNow’s growth story remains the same. Unfortunately, the shareholders proposed to stop in the fourth quarter of 2019. Interested investors observe the shares on the watch list and wait for the frustration to reappear.
The author Emil Jusifov has a direct position on the following financial instruments mentioned in the publication or related derivatives that can benefit from any resulting price increases: ServiceNow
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