ServiceNow: The Platform for Digital Workflow
ServiceNow is a leading cloud service provider of enterprise software solutions designed to automate digital workflows and complex processes in the cloud. ServiceNow leads the IT service management (ITSM) industry with 50% market share and rapidly expanding into other areas of the enterprise such as IT operations management (ITOM), human resources (HR), customer service management (CSM), and security [1]. ServiceNow enables firms to rethink and redefine the way they operate in a digital era.
ServiceNow saw organic revenue grow 30% in 2020 on rising demand for digital workflow solutions as enterprises adapt to the pandemic and the future of the workplace. Firms are accelerating their migration to the cloud, with digital workflow and low-code automation being part of their broader digital transformation strategy to drive operational and workforce efficiency, as well as driving cost savings. ServiceNow’s proprietary Now Platform can consolidate hundreds of systems and applications to free up time for teams to focus on innovation and other critical tasks.
For example: A U.K. bank has seen a 70% improvement in payment processing by integrating the Now Platform into its core banking systems. In addition, the bank implemented automated workflow processes with AI and machine learning capabilities to replace cut and paste tasks. Employees went from managing ten requests an hour to 1,000 requests in three minutes on the Now Platform [2]. Enterprise customers can design and build workflow applications tailored to their own operations using ServiceNow’s low-code app engine to accelerate digitization across the entire firm.
ServiceNow added 700 net new customers in 2020 and ended the year with 6,900 enterprise customers, of which 80% are Fortune 500 companies. About 1,100 customers are paying over $1 million in annual contracts. Moreover, the number of customers paying $5 million or more in annual contracts grew over 40% in 2020. ServiceNow is executing very well on its global go-to-market strategy to capture as much wallet share from CIO budgets for digital transformation. The average deal size grew 18% in the last quarter.
In 2021, ServiceNow estimates subscription revenues and subscription billings to grow by 28% and 25%, respectively, reflecting an acceleration in net new annual contract values. We believe revenue can grow in the mid-20% range over the next five years as enterprises adopt the Now Platform as their central workflow platform across IT, HR, and CSM. In our view, ServiceNow is on the path to reach its $10 billion revenue target (vs. revenues of $4.5 billion in 2020) given its unique products, competitive position, and large addressable end markets.
We continue to view ServiceNow as a core holding in client portfolios.
Risks include competition from legacy vendors in IT cloud and difficulty cross-selling products into the installed customer base.
Sources
ServiceNow. October 9, 2020. [LINK]
ServiceNow Q4 2020 Earnings Call Transcript [LINK]
Information in this article is from sources believed to be reliable; however, we cannot represent that it is accurate or complete. It is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell securities. The views are those of the author, Christopher De Sousa, and not necessarily those of Raymond James Ltd. Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor’s circumstances and risk tolerance before making any investment decision. Raymond James Ltd. is a Member Canadian Investor Protection Fund.
