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ServiceNow: "Tools are for fools"
Quote taken from Amp It Up, by former CEO Frank Slootman
“Tools are for fools”
This is how Frank Slootman describes point solution rivals to ServiceNow (Ticker: NOW) and Snowflake in his book, Amp It Up. It is an interesting read that will either amp you up, or make you feel terribly inadequate for not being the CEO of two of the largest tech companies.
Each quarter, ServiceNow is looking more like a platform comparable with the best of tech giants – think Microsoft, AWS, Salesforce – out there. The company has been a consistent 30% subscription revenue grower, with a 30%+ FCF margin and 25%+ operating margin, making it a rarity amongst tech stocks.
And the growth is largely organic - no flashy M&A deals. Current subscription revenue run rate is already at $6 billion; on the Q1 2022 earnings call, the CEO reiterated its target milestones of reaching $10+ billion by 2024, and $15+ billion by 2026. In Q1 2022, the company signed 52 deals over $1 million, up from the 37 signed in Q1 2021. Its newer portfolio of offerings – outside of its original core ITSM – is also finding more traction with customers: 9 out of our top 10 new customer deals were led by non-ITSM products.
While ServiceNow does not report the number of customers every quarter, this metric may not be as relevant. It is more of an expansion story, than a land one. Sure, adding new customers is still important, but the runway offered by taking more wallet-share from existing ones is still enormous, not to mention at much lower CAC. And ServiceNow appears to be the platform that customers are standardizing on; its $1mn+ ACV customer cohort grew by 24% in Q1 2021, consistent with recent quarters. Today, ServiceNow offerings include the following:
Technology Workflows (formerly IT Workflows) include IT Service Mgmt, IT Operations Mgmt, IT Business Mgmt, IT Asset Mgmt, Security Operations, Governance, Risk and Compliance, Telecom Network Performance Mgmt, and others
Customer and Employee Workflows include Customer Service Mgmt, Field Service Mgmt, Financial Services Operations, Telecom Service Mgmt, HR Service Delivery, Workplace Service Delivery, Legal Service Delivery, Procurement Service Mgmt, Safe Workplace Suite, and others
Creator Workflows & Others include App Engine, Integration Hub, and others.
The above list has come a long way since its ITSM days. Individual offerings may not be best of breed, but as a platform, it is formidable as a one-stop shop. Renewals at ServiceNow are between 98% and 99%, with DBNR estimated to be 120-125%. In FY 2021, customer base grew by 7.2%.
All signs point to a sustained (and highly profitable) run of 30% growth rate for a long time.
(Author is a shareholder of ServiceNow)
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