Cloud workflow vendor ServiceNow has had another strong quarter, beating analyst expectations, with its shares jumping over 12% in extended trading yesterday. The company reported 22% year-over-year revenue growth in Q3 and said that its current remaining performance obligations of $5.87 billion represented an 18% year-over-year growth.
CEO Bill McDermott was confident in the company’s performance and said that despite the macro headwinds, ServiceNow is well positioned to deliver on organizations’ digital demands.
The growth in the use of the ServiceNow in the enterprise has spurred ServiceNow to also announce a new programme called RiseUp with ServiceNow, which aims to skill one million people on the Now platform by 2024.
The key numbers for Q3 2022 are:
Subscription revenues of $1.742 billion in Q3 2022, representing 22% year‑over‑year growth, 28.5% adjusted for constant currency
Total revenues of $1.831 billion in Q3 2022, representing 21% year‑over‑year growth, 27.5% adjusted for constant currency
Current remaining performance obligations of $5.87 billion as of Q3 2022, representing 18% year‑over‑year growth, 25% adjusted for constant currency
Number of customers paying over $10 million in annual contract value in Q3 2022 grew 60% year‑over‑year
ITSM and ITOM were in 17 of ServiceNow’s top 20 deals in the quarter, with six deals each over $1 million.
Security and risk were in 15 of the top 20, with five deals over $1 million.
Customer and Employee Workflows were each in 12 of the top 20.
Creator Workflows were in all the top 20 deals with nine deals over $1 million.
Commenting on the numbers, McDermott said:
ServiceNow had 69 Q3 deals greater than $1 million. Our U.S. federal business had its best quarter ever in Q3. We saw strength across industries and business segments. Our performance was consistent globally with Europe executing especially well this quarter. Our renewal rate remains best-in-class at 98%.
We are the largest organically grown enterprise software company. We have an unmatched combination of organic growth and profitability at scale. As these Q3 results demonstrate, we fully intend to maintain this leadership position.
McDermott is adamant that ServiceNow is in a good position to navigate the current macroeconomic climate, which includes inflation, supply chain disruption, energy costs, and labour shortages fuelling pressures on the top and bottom lines for companies. He said:
Regarding the operating environment, in recent quarters, we said that secular tailwinds were stronger than macro crosswinds. They are. Nothing we saw in Q3 changes this core thesis. Digital technology is a deflationary force. The enterprise digital transformation market is validated. The investment thesis is stronger than ever.
Hybrid multi-cloud deployments, adoption of a modern data infrastructure stack, cybersecurity and risk management, AI and data analytics, remote work and collaboration, these trends are not only durable, their relevance is expanding.
ServiceNow's platform directly addresses all these challenges, which translates to numerous growth vectors for our business.
He added that the main thing he hears from CEOs at the moment is delivering on time to value, with technology projects needing to generate results in weeks, instead of months. McDermott calls this the “great reprioritization”. Again he highlighted the company’s recent strategy to dive deeper into systems of record, particularly ERP. He explained:
In past decades, waves of enterprise systems were introduced to meet market challenges of those times - operating systems, databases, applications. What we see now is a generational shift from architectures built in the last century to platforms engineered for this one.
If you look at the ERP market, we see customers at various stages of their move to the cloud. Some of the world's largest manufacturers, for example, are consolidating hundreds of old procurement processes into a modern workflow experience. This declutters the legacy environment, driving more than $1 billion in cost efficiencies for just one of our many ERP wins this quarter.
A need for skills
As noted above, ServiceNow has just announced a new skills programme called RiseUp in order to meet the demand it is seeing for the platform. If ServiceNow wants to continue to facilitate the growth potential it has, it needs people that know how to adopt and get the most out of the platform. McDermott said:
In light of this, today, we're announcing a new initiative: RiseUp with ServiceNow to skill 1 million ServiceNow certified professionals by 2024. Our customers, partners and ServiceNow itself are all growing as ServiceNow workforces. We see opportunity everywhere.
With RiseUp with ServiceNow, we'll give people the knowledge to seize it. Overall, the demand environment is strong. The market opportunity is growing. The ecosystem is expanding. ServiceNow is a growth company on every level.
The opportunity is clearly there for ServiceNow. In an environment where the macro headwinds have dampened some vendors' outlook, ServiceNow continues to exceed the expectations it laid out in previous quarters. The key is going to be execution, but it clearly looks like it’s set to have a strong year.