Cloud workflow vendor ServiceNow has announced an impressive fourth-quarter and full-year 2023 set of earnings, beating expectations and raising its guidance for 2024. CEO Bill McDermott’s decision to move quickly with AI - particularly generative AI - appears to be paying off, with new products fuelling growth.
ServiceNow’s share price remained relatively flat on the news, but it’s clear from McDermott’s comments during the earnings call that the vendor plans to be aggressive in scaling its offering over the next 12 months. He said:
To all of our shareholders who continue to invest your trust in ServiceNow, we thank you, and we've got your back. We're building a masterpiece here, and we're only getting started.
2024 will show that we're putting AI to work for the world because now, as ever, the world works with ServiceNow.
The key figures for the quarter and full-year 2023 include:
Subscription revenues of $2.365 billion in Q4 2023, representing 27% year‑over‑year growth, 25.5% in constant currency
Total revenues of $2.437 billion in Q4 2023, representing 26% year‑over‑year growth, 24% in constant currency
Current remaining performance obligations of $8.60 billion as of Q4 2023, representing 24% year‑over‑year growth, 23% in constant currency
168 transactions over $1 million in net new ACV in Q4 2023, up 33% year‑over‑year
ServiceNow has also raised its 2024 outlook, which CFO Gina Mastantuono said “partially reflects the early success we've seen with our Gen AI products as those investments are accelerating the build of our already robust pipeline with customers lining up to be first movers in this next wave of business transformation”.
ServiceNow, for 2024, has raised its subscription revenue outlook by $165 million at the midpoint to a range of $10.555 billion to $10.575 billion, representing 21.5% to 22% year-over-year growth or 21.5% on a constant currency basis.
Our large new logo count continued to accelerate in Q4. We had a record 10 new customers signing deals over $1 million in NNACV (Net New Annual Contract Value), including a $10 million win with a very large global financial services firm, which is our largest new customer logo in history. Global iconic brands such as Chipotle, Air France, TIAA, NTT, Data Group Corporation, and Busch are digitally transforming with ServiceNow.
Following a record Q3, public sector continued its strong growth in Q4 with key wins including in the United States Army, US Postal Service, and Australian Department of Defense Digital Delivery Group.
Last year ServiceNow announced its partnership with AI chip giant NVIDIA, where the workflow vendor said it was looking to go beyond general purpose AI and use industry and company specific data to help its customers accelerate their competitive advantage. Since then ServiceNow has made a number of AI product announcements, including the launch of Now Assist, which uses generative AI to deliver “direct, relevant and conversational responses to questions”. Now Assist will be expanded across the ServiceNow platform, including in Virtual Agent and Field Service Management.
McDermott was keen to highlight that ServiceNow needs to capitalize on the investments that will be made in AI by end users and not miss the opportunity to be a leader in how this technology will change how we live and work. He said:
For the first time in a decade, IT services will become bigger than communication services in 2024. Gartner estimates that by 2027, nearly all of the growth in worldwide IT spending will come from software and IT services. And when you drill deeper into the Gartner forecast between 2023 and 2027, $3 trillion will be spent on AI.
What we have here is a strong, durable market being supercharged by a once-in-a-generation secular trend. ServiceNow has been investing, innovating and preparing for this wave for years, which is why we're catching it so early. We have a long track record of commercializing breakthrough technologies.
He also spoke to some of the examples already being used today and added:
Siemens AG is using Now Assist for HR service delivery to resolve HR cases faster for its entire global workforce. This is one example of many and as always, ServiceNow's strength and our capacity to deploy net new innovation, especially our ambitious Gen AI road map.
In Q4, we released significant new capabilities, Virtual Agent Update drives faster issue resolution through advanced conversational AI chat. Employees get the immediate answers they need. Businesses get higher self-solve rates, and it only takes 15 minutes to set it up.
Our text to workflow capability dramatically increases developer productivity. ServiceNow's developers have been using text to code for several months. They are generating high-quality code using text to describe the type of code they want. This has increased our developer innovation speed by 52%.
Now Assist for field service management reduces cost, while increasing revenue by helping technicians get the job done in the first visit; identifying the necessary equipment, providing repair recommendations, and automating follow-up at speed.
McDermott said that he views AI as a “360-degree strategic imperative”. And the vendor announced a number of new AI-related partnerships this week, including:
A partnership with DXC—to integrate ServiceNow analytics and AI capabilities into DXC Platform X, an IT operations platform.
ServiceNow also announced a five‑year Strategic Collaboration Agreement with Amazon Web Services (AWS) to offer the ServiceNow Platform and full suite of solutions in the AWS Marketplace. The two companies will also co‑develop and launch industry‑specific, AI-powered applications.
The vendor also announced a broader strategic alliance with EY with the aim of enabling responsible AI use for enterprise customers, delivering solutions for AI compliance and governance, and bringing AI‑enhanced experiences to EY employees and clients with ServiceNow Now Assist.
Additionally, ServiceNow and Visa today announced a five‑year strategic alliance to improve payment services experiences. The initial phase includes the launch of ServiceNow Disputes Management, built with Visa, which is a single, connected solution for disputes resolution.
On the opportunity ahead, McDermott added:
We have so much runway ahead for the long-term growth of this company. There are two key elements of our strategy, execution and scale. Execution, we know, is an art form. Scale is all about capitalizing on new opportunities as a truly global platform company.
Although ServiceNow’s share price didn’t bounce on the numbers, it’s clear that it has an aggressive outlook for the year ahead. It’s been a stellar couple of years for ServiceNow, but its focus now needs to be on providing new value to clients through its AI products - given the emphasis here - and amplifying those use cases. We are in the early stages of AI adoption and the vendors that do well will be the ones that can showcase real-life examples, regularly, for how it can change the way we work.