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ServiceNow Focuses on Growth Instead of Profitability

Posted on Wednesday, May 7th 2014

TechNavio’s Global IT Service Management (ITSM) forecasts the ITSM market to grow annually at 7.3% over the four year period 2012-2016. The growth is driven by the increasing adoption of the services by SMEs and due to implementation of policies like bring-your-own-device in most organizations.

ServiceNow’s Financials
Cloud-based IT services provider ServiceNow (NYSE: NOW) recently announced first quarter results that surpassed market expectations. Revenues grew 62% over the year to $139.1 million compared with the Street’s projections of $134.6 million. Loss per share of $0.08 was in line with the market’s expectations.

By segment, subscription revenues grew 64% over the year to $117.38 million and professional services revenues grew 51% to $21.72 million.

For the current quarter, ServiceNow projected revenues of $ $160 million-$162 million, significantly ahead of the Street’s models of $156.6 million. They also increased the year’s revenue outlook to $652 million-$657 million, compared with earlier provided estimates of $640 million-$645 million. The Street had projected revenues of $644.2 million for the year.

ServiceNow’s International Expansion
Over the last year, ServiceNow has focused on expanding their markets internationally. During the quarter, North America accounted for 68% of the quarter’s revenue share compared with 70% a year ago. The contribution of EMEA revenues increased to 26% from 24% a year ago and the rest of the world continued to bring in 6% of the quarter’s share. During the previous year, ServiceNow has set up operations in 10 new countries.

ServiceNow’s New Offerings
ServiceNow continues to expand their product offerings to make a bigger impact on cloud-based services for an organization. They recently introduced a service called ServiceNow Share which is an online marketplace that lets their customers and partners exchange applications and development content. Through the exchange, ServiceNow’s customers will be able to use apps, content, and ideas from other members of ServiceNow’s community and thus avoid building on their requirement from scratch. The portal includes apps that help solving problems like facilities workspace management and asset management to name a few. This feature is available to subscribers of ServiceNow App Creator, the tool that helps simplify creation of apps for PCs and mobile devices.

Last year, ServiceNow also expanded their offerings beyond IT support. They released a HR-focused offering HR Service Automation that simplifies and automates HR case management for organizations. The application features an online storefront that is used to manage relationships between HR and the employees. It helps eliminate the need for phone calls and email exchanges by providing a self-service capability for employees to make requests to HR. Additionally, the application automates fulfillment and workflow management of requests for the HR team and also publishes dashboards and reports to show the nature of tasks performed by HR teams for better resource management.

ServiceNow’s Continuing Losses
ServiceNow continues to invest heavily in research and development and sales and marketing efforts, thus continuing to suffer losses. During the previous quarter, sales and marketing expenses grew to 43% of revenues, compared with 40% of revenues a year ago. Research and development expenses also grew to 17% of revenues from 15% of revenues a year ago. The company is confident of their business model and believes that they can become profitable when they choose not to invest in growth.

Their stock is trading at $52.22 with a market capitalization of $7.42 billion. It touched a 52-week high of $71.80 in March.


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