CIO 'partnership' drives strong year-end for ServiceNow

Profile picture for user slauchlan By Stuart Lauchlan January 30, 2019
Summary:
Revenue growth, customer growth and a narrowed loss bring 2018 to a strong close.

John Donahoe, CEO ServiceNow
John Donahoe, CEO ServiceNow

A hefty end to the fiscal year for ServiceNow with substantial growth, strong customer wins and a potentially lucrative tie-up with IBM that sees its Multicloud Management Platform integrated with ServiceNow's IT Service Management (ITSM) tools.

All told, CEO John Donohoe calls it the company’s strongest fourth quarter to date. Some stats:

  • Revenue of $715.4 million, up 30% year-on-year.
  • Subscription revenues up 33% year-on-year to $666 million.
  • Net income of $7 million.
  • Full year revenue of $2.61 billion on narrowed loss of $26.7 million, down from $149.1 million.
  • 51 new customer deals worth more than $1 million a year.

Donohoe points to the customer growth numbers:

We are now helping to enable the digital transformation of almost 5,400 enterprise customers, including almost 75% of the Fortune 500. We now have 678 customers doing more than a $1 million in business annually with us, and we have 74 customers, who are doing greater than $5 million, up 54% year-over-year. And the number of customers doing greater than $10 million has more than tripled year-over-year to 18, including three above $20 million. Our renewal rate for the quarter was a strong 98%.

From a product perspective:

Both our HR and customer service products for example, now have more than 20 customers doing more than a $1 million, and 19 of our top 20 deals in the quarter included three or more products. Even more important, net new business in our core IT workflow products reaccelerated in 2018. This underscores the strength of our flagship product, the strategic partners we’re building with CIOs and the continued market opportunity to expand the impact of our core IT workflow products.

The C-partners

The “partnership” with CIOs is what’s driving growth, argues Donohoe:

In the fourth quarter, I had an opportunity to meet with 50 of the world’s most respected CIOs. They reiterated common themes…[that] I continue to hear in my customer conversations worldwide - the business imperative for digital transformation, the need for trusted technology partners, and the challenges of driving cultural change. These leading CIOs understand the power of our Now platform and products.

They view ServiceNow as a strategic partner. But as one CIO put it, he doesn’t view us as just another cloud partner. He sees ServiceNow as the platform that creates a multiplier effect in his cloud ecosystem. Our enterprise capabilities link together other systems and platforms enabling seamless digital workflows that create great experiences and unlock productivity and that’s what every C-suite executive I speak with is looking for.

Donohoe says he detects more cross-functional thinking going on at C-level, citing end-to-end employee experience as a case in point:

Everyone wants to digitally connect with their employees in a world where we got to – recruit Millennials and retain them and everyone wants productivity. That requires an employee experiences [that is] by definition cross functional, where an employee doesn’t really care if they’re dealing with IT or HR or finance or facilities. And so we’re seeing more and more customer initiatives, where they’re looking for cross functional support to drive a better employee experience. So IT’s involved, but they’re partnering with their CHRO or HR. They’re partnering with facilities or partnering with finance.

I was at major Fortune 100 customers and all those people were in the room and they’re turning to us saying, ‘We want to build an end-to-end employee experience and we believe your platform connects effectively in with many of the other core systems of record, be it a Concur for T&A or an AFE for payroll or Workday for an HCM, or many others’. And they look to us to stitch the workflow together…It’s not like we’re only in IT or only in HR or only in customer service. Increasingly, you’re seeing a kind of a shared services mindset.

Looking ahead at 2019, Donohoe suggests that ServiceNow’s proposition is one that can ride out any macro-economic bumps in the road, such as Brexit - ServiceNow has a big international expansion push - or another shutdown of the US Federal Government, a market that's a big focus:

Most of our customers are under the gun to be honest, to deliver strong digital transformation results and digital transformation results include better employee and customer experiences and productivity. As we look into 2019, we can’t really forecast macro-economics and we’re not going to try too, but we see companies continuing to invest in technology as a core enabler of digital transformation.

Our focus is very much on demonstrating business value, demonstrating economic value. The fact is, we automate workflows. In automated workflows, he has to provide better experiences, but they also drive productivity. So even in an environment if spend gets tougher over time, we want to be at the top of the list as a productivity enhancer.

My take

A blow out quarter by any standards. ServiceNow pushes into 2019 in a very strong position and with a compelling story to tell the C-suite. It’s interesting to note that the firm is launching its first brand marketing push to raise the company’s profile at boardroom level. That’s an important tipping point in any tech firm’s growth - CEO name recognition. Oracle has it. Salesforce has it. So do Microsoft, SAP, IBM etc etc. 2019 could be the year when ServiceNow follows suit.