Nice for some: ServiceNow margins swell 83% as post-COVID market wolfs down subscriptions

Makes several consumer-industry appointments

It must be a Sliding Doors moment for ServiceNow CEO Bill McDermott - the former SAP boss is now plying his trade at a born-in-the-cloud biz that isn't facing the same troubles as his previous legacy tech employer.

For the three months ended 30 September, ServiceNow's sales jumped 30 per cent year-on-year; it picked up $1.1bn in subscription revenue; and gross profit on subscription hit $902m at a staggering 83 per cent margin.

All this while the enterprise software world was still reeling after SAP's warning about the impact of the coronavirus on its business earlier this week.

The characteristically bullish McDermott - appointed this time last year after leaving SAP - offered a clue to the source of the eye-watering margins when he told financial analysts on a conference call that Fortune 500 customers were "saying now I can retire legacy [applications] because I can go to ServiceNow, get a consumer-grade experience" to "automate workflows across domains, systems [and] silos."

"That's so important to them, they don't even ask about price as much as they ask about how quickly can you get it done," McDermott said.

Further elucidating after taking a question from an investment banker about how exactly ServiceNow was grabbing "wallet share", McDermott added: "[B]ig companies have a direct-to-consumer headset, right now. It's kind of like, hey, the middle people I used to work through – wholesalers, retailers, etc – aren't open. So I've got to go direct to my consumer with my brand and my product and create a great experience. All of this is workflow. So the changes in the future work are going to be there."

The company has forecast continuing growth, with Q4 expected to hit around $1.160bn, achieving 27 per cent year-on-year growth in constant currencies. Subscription billing is estimated to grow at a slightly lower rate, the firm said.

ServiceNow took its Q3 results as an opportunity to reveal two recent appointments, both with consumer industry background.

It has hired Apple executive Larry Jackson to its board of directors. As global creative director of Apple Music, Jackson was said to be instrumental in launching Apple's music streaming service. Before that, he was head of content for Beats Music, the streaming service from the omnipresent headphone company launched by hip-hop producer Dr Dre and producer/music mogul Jimmy Iovine. Jackson also signed Lana Del Rey to Iovine's Interscope label and produced Whitney Houston.

The second appointment is marginally less glitzy in that Gabrielle Toledano is set to join ServiceNow as chief talent officer. Due to start in January and reporting directly to McDermott, Toledano comes with nearly 30 years of experience in HR and operations. She has served as chief people officer at electric vehicle startup Tesla and served 10 years as chief talent officer at Electronic Arts, the computer games company behind the Fifa franchise. She's also worked in enterprise software as chief human resources officer for Siebel Systems, the CRM company gobbled by Oracle in 2006.

With McDermott and his ServiceNow top team all singing from the consumer experience hymn sheet and two recent appointments with consumer industry backgrounds, IT departments can perhaps look forward to ServiceNow selling direct to execs and users, bypassing any technical questions they may have. ®

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