ServiceNow exceeds Q1 2022 guidance as the platform continues to gain traction across the enterprise

Derek du Preez Profile picture for user ddpreez April 28, 2022 Audio mode
Summary:
ServiceNow CEO Bill McDermott is also confident about the firm hitting its target of $10 billion revenue by 2024.

Image of Bill McDermott ServiceNow CEO

ServiceNow beat the high end of its guidance in Q1 2022 across all metrics and signed 52 deals worth over $1 million in the same period, as the platform continues to gain traction across the enterprise. CEO Bill McDermott also told analysts that he is confident about the firm’s ability to hit its target of $10 billion by 2024 and $15 billion by 2026. 

The company’s stock jumped more than 8% in extended trading on Wednesday, as Wall Street reacted favourably to the numbers. 

McDermott indicated that ServiceNow is signing deals across a number of areas that extend beyond the company’s ITSM roots, including IT operations management, supply chain, creative workflows, ESG, employee and customer experience, and security. 

We at diginomica have written previously about ServiceNow’s opportunity, given that its platform has a consistent data model, and how the company is pursuing a strategy of ‘business architecture as IT architecture’. Our recent interview with McDermott outlines the company’s current ambitions. 

The numbers of Q1 2022 are: 

  • Subscription revenues of $1.63 billion, representing 26% year-over-year growth

  • Total revenues of $1.72 billion, representing 27% year-over-year growth 

  • Net income of $352 million, compared with net income of $306 million in the same period last year

  • 52 deals worth over $1 million in net new annual contract value, representing 41% year-over-year growth 

Commenting on the results, McDermott said: 

It's clear that the world is beginning to understand the power of this platform. We said in January that our fast growth would accelerate in Q1, it did. Now, three months later, we expect subscription revenue growth to accelerate for the full year, it will.

We have strong adoption from existing and net new customers. Our rolling four quarter pipeline remains ever strong. We're delivering predictable, fast growth with exceptional free cash flow.

Overall, we're super excited about the state of this business. We believe it sets us up really well, for the remainder of 2022 and beyond.

Market trends

McDermott said that ServiceNow is seeing a “sustained demand environment” for the enterprise and that any macroeconomic challenges that are being seen globally are playing favourably for the company, as these have “underscored the urgency of investment 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 has declined from 30 years in 1996 to 19 years in 2021. So it's very clear that business can no longer revert to a status quo posture, no matter the environment. We're now in a ‘tech to compete’ world. If you look to our new customer acquisition, here is what resonates.

Business is shifting investments in technologies that get them to the right outcomes faster. Cloud native platforms like ServiceNow are seen as an elixir to speed up new revenue streams and better experiences for people.

The world's biggest problems are really ServiceNow's biggest opportunities. And it all adds up to what we said consistently. The technology architecture is now the business architecture. This is the era for digital business.

ServiceNow saw ITSM in 11 of its top 20 deals, ITOM in 13 of its top 20 deals, and Security and Risk in 13 of its top 20 deals. Commenting on customer trends, McDermott said: 

The only way for companies to transform the customer experience is to fully integrate their employee experience. Customer workflows continue to see strong demand, particularly with our vertical SKUs. Barclays works 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-to-consumer business models. Companies like Telefonica Brazil work with ServiceNow to better serve their next-generation customers.

Employee workflows were also strong in the quarter. HR was in 14 of the top 20 deals. Global healthcare solutions company, AmerisoBergen, works with ServiceNow to transform their employee experience. 

McDermott is also bullish about ServiceNow’s low-code opportunity, where he said: 

In the digital business era, differentiation can't be bought, it must be built. IDC now forecasted 750 million net new applications will be created between 2023 and 2025. With the unprecedented demand for net new innovation together with a global shortage of professional developers, low-code application development is a massive market opportunity.

While tech leaders see the value of citizen developers, they don't want to sacrifice the enterprise-grade governance and security.

This is what gives ServiceNow a unique differentiation in the low-code market. Look at Daichi Life Insurance, one of the world's largest insurance companies, which is standardized on app engine for all low-code application development. With creative workflows in 16 of the top 20 Q1 deals, we see this trend accelerate.

Commenting on the years ahead, McDermott added: 

Here's the key takeaway, businesses are no longer in the mood to experiment. They go 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 enterprises are so focused now on fast time to value.

Everything is lined up for us to follow suit in Q2 and for the full year. We're taking steps forward every day to our stated milestone, $10 billion-plus by 2024, $15 billion-plus by 2026 and beyond. It's worth reiterating at this time that we remain on track to be the fastest ever to hit those thresholds.

My take

Another strong quarter for ServiceNow, a company that appears very confident about executing on the opportunity that is in front of it. I’ll be heading to the ServiceNow Knowledge event in The Hague in the next couple of weeks, where I look forward to speaking to customers to get a deeper understanding of how their use of the Now platform is evolving. 

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