ServiceNow beats Wall Street expectations, raises guidance and CEO Bill McDermott declares “we are just getting started”

Profile picture for user ddpreez By Derek du Preez October 29, 2020
Summary:
ServiceNow has had a strong third quarter, as its Now Platform appears to resonate with companies looking to adapt to the COVID-19 economy.

Image of Bill McDermott ServiceNow CEO
(Image sourced via Bill McDermott’s Twitter)

ServiceNow has delivered a strong set of third quarter results, beating market expectations, whilst raising its full year guidance. The workflow automation vendor also announced that it signed its largest ever deal with its largest ever customer in Q3 and CEO Bill McDermott was confident on the earnings call that the Now Platform is well positioned to help companies adapt to the new COVID-19 economy. 

ServiceNow also announced today that it has appointed a new Chief Talent Office to replace Pat Wadors, who is leaving the company to join an early stage company. Gabrielle Teldano will begin her new role in January and most recently was COO of Keystone Strategy, but brings with her 30 years of leadership experience in HR and operations. 

In addition, Larry Jackson, who is Global Creative Director of Apple Music, will be joining ServiceNow's Board of Directors. 

On the Q3 results, the headline figures are: 

  • Subscription revenues of $1.09 billion, representing 31% year over year growth 

  • 41 transactions over $1 million in net new annual contract value

  • 1,012 total customers with over $1 million in annual contract value

  • Raising guidance on subscription revenue for the full year to range between $4.257 billion and $4.262 billion - representing 31% year over year constant currency growth

In recent months ServiceNow has launched a range of products on the Now Platform to support businesses grappling with the challenges presented by COVID-19. These include workplace management products, as well as business continuity and legal support. 

However, the key message from CEO Bill McDermott this week off the back of the earnings call is that ServiceNow is uniquely positioned to take advantage of digital investments being made by companies in the coming months, as the demand for new employee and customer experiences will be driven by a need to redesign enterprise workflows - the cornerstone of the Now Platform's proposition. 

McDermott said: 

Everyone is adapting to new employee and customer expectations. It's all about people. Getting teams to collaborate across the enterprise is now more important than ever. The workplace of the future will be distributed. Managing complex digital workflows will be critical. Enterprises need innovation without disruption. It's clear that speed has become the differentiator.

ServiceNow is leading this once-in-a-generation opportunity to make work better for people. And this is what we're seeing. All value chains are being split apart. They are being reformed into modern digital workflows across the enterprise. More than $3 trillion have been invested in digital transformation initiatives. But as IDC research shows us, only 26% of the investments have delivered meaningful ROI.

Massive investments are simply not creating massive change. This is fueling the workflow revolution. The missing link is integration. Systems, silos, departments and processes must come together into holistic cross enterprise workflows. The Now Platform unlocks this ROI by offering speed, agility and resilience. Companies need it now.

On the above point, ServiceNow has been positioning itself for years now as the ‘platform of platforms', allowing customers to tap into existing systems of record and redesign workflows and processes on top with the Now Platform. McDermott added: 

It gives companies the ability to deliver at scale the experiences employees and customers demand. That's the power of the Now Platform, a single architecture and data model that serves the enterprise platform or all other platforms.

Broadening scope

What was encouraging about this set of results was the detail McDermott laid out regarding ServiceNow's success with customers outside of ITSM. ServiceNow found early success in ITSM, but has since looked to branch out into other buying centres, claiming that a ‘workflow is a workflow' and that the platform can scale across the enterprise. 

ITSM is still the bedrock of ServiceNow's business, but it seems that the message is now resonating with buyers that area expanding their Now Platform footprint. 

McDermott said that of ServiceNow's top 20 deals in Q3, customers bought three or more products. ITSM was unsurprisingly included in 17 of the top 20 deals, but 13 of the top 20 also included CSM (eight of which were greater than $1 million). 

CFO Gina Mastantuono also revealed that of the 41 deals larger than $1 million this quarter, nine of those were with net new customers. She said: 

Our ability to land new logos despite the macro uncertainty that COVID has introduced is a testament to our amazing products and our brand that continues to resonate with the C-suite.

McDemott also highlighted success in the government sector and said: 

We won deals with Mount Sinai and the federal Defense Information Systems Agency. Our customer workflows continue to be a growth driver, 13 of the top 20 deals included CSM, 8 of those deals were greater than $1 million. Our customer wins in Q3 demonstrate how ServiceNow is becoming the enterprise workflow standard. For example, Q3 was our largest federal quarter ever. We now have nine federal customers over $10 million in ACV.

Deals included the US Air Force, US Army and the US Department of Veteran Affairs. And we have new customer wins with agencies, such as the US Senate and Federal Claims Court. In our largest deal ever, the Department of Veteran Affairs is modernizing its enterprise service management and IT capabilities. They are using the Now Platform to have real-time visibility into the health, availability and costs of their critical business services.

McDermott reiterated ServiceNow's previous ambition to reach an annual run rate of $10 billion and said that the company remains "focused, disciplined…[and] committed". 

Finally, commenting on ServiceNow's position in the market as structural changes in the economy persist as a result of COVID-19, McDermott added: 

In so many ways, we are just getting started. This year's unprecedented headwinds have only strengthened our digital transformation tailwinds. We have the platform businesses need, the workflow standard for enterprise transformation, the missing link for integration of existing technology investments and the creation of modern enterprise workflows.

Remember, behind every great experience is a great workflow. Whatever challenge a business is facing, we workflow it, we will make workflow a verb. ServiceNow is incredibly well positioned to become the defining enterprise software company of the 21st century. We will not slow down in pursuit of this goal. We couldn't be more fired up to finish this year very strong.

My take

All the evidence suggests that whilst companies are cutting budgets in a number of areas to preserve cash during the pandemic, investments in strategic digital projects are accelerating. And it seems that investments are primarily focused on customer and employee experience, as companies fight for the attention of customers that are making choices in challenging economic times. ServiceNow is in a strong position to take advantage of buyers looking to adapt their processes as they pursue this agenda, but as always, execution will be key.