Sun shines on ServiceNow amid pandemic storm after belated spree of $1m+ deals

Always be closing, especially when the economy's in a tailspin

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Workflow wizard ServiceNow seems to have dodged the market glitch at the end of Q1 and secured deals sufficient to beat guidance with its results.

The company boasted $995m in subscription revenue in its first 2020 quarter, 34 per cent growth year‑on‑year. Net income was $48m and total revenue was a little over $1bn, up 33 per cent on a year ago.

ServiceNow CEO Bill McDermott said the company had beaten its analyst guidance for the quarter as a result of deals continuing to close towards the end of the quarter.

"We had 37 deals greater than $1m this quarter. That is up 48 per cent year-over-year. In fact, most deals closed in the final weeks of March, consistent with normal linearity," he said in the earnings call.

In contrast, McDermott's former stable SAP said earlier this month that it has seen some deals postponed towards the end of the first quarter, and issued some early guidance on the point.

To read between the lines, ServiceNow sees opportunities to introduce remote and mobile apps as more people work from home and companies restructure in response to COVID-19 lockdowns and the resulting economic fallout. Or as McDermott put it in a criminal piece of verbiage: "Businesses are splitting apart old value chains and reassembling them in end‑to‑end, mobile‑first experiences on the Now Platform."

On a call to financial analysts, McDermott gave the example of Lowe's, an American home-improvement retailer. He said ServiceNow produced a workflow app to help meet the surging demand for emergency paid leave requests due to COVID-19.

"Within 96 hours, they built a mobile leave request app on the Now Platform and deployed it to 330,000 employees," he said.

Despite the collective spring in the step of senior ServiceNow execs, CFO Gina Mastantuono said its guidance for future performance had been muted slightly as a result of the pandemic's impact on the economy. "It does reflect some lower expectations from what we normally would see our growth on a net new activity," she said.

She added that the company was still hiring, albeit at a reduced rate.

The guidance for Q2 said subscriptions would grow by up to 30 per cent year-on-year to hit about $1bn. For the full year 2020, the company expects similar revenue growth of 28 to 29 per cent, reaching up to $4.1bn.

So far, so good for ServiceNow. It is repeating the mantra that an economy in tailspin is a good thing if the result is more "digital transformation" – or doing stuff with apps, as we like to call it.

McDermott boasted on the call that "digital transformation was a business imperative pre-COVID with $7.4 trillion of projected spend over the next three years. Post-COVID, digital transformation will accelerate..."

But the picture may not be so rosy if customers simply run out of cash and are unable to keep paying the bills. Mastantuono maintained that the company did not anticipate payment deferrals or adjusted payment terms. We will see if that optimism holds true in the coming economic storm. ®

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