ServiceNow FY 17 Q4 Earnings – Key Takeaways


ServiceNow FY 17 Q4 Earnings

ServiceNow announced the results of its 2017 fiscal year earnings last night. Although they missed their revenue guidance by ~$3M, they had very strong financial results across the board and are set up for another year of success for FY 2018. Major growth and confidence in ServiceNow’s performance allows them to set a realistic goal of achieving $4B in 2020. ServiceNow demonstrated growth in their newer solutions as well (HR Service Delivery, Security Operations and Customer Service Management etc.), not only their keystone product, IT Service Management (ITSM).

Highlights

  • Deferred Revenue of $3.9 billion (+39% y-o-y)
  • Subscription Revenue of $497M (+44% y-o-y)
  • PS (Professional Services) and other Revenue of $49M (+20% y-o-y)
  • Subscription Billings of $684M (+41% y-o-y)
  • PS and other billings of $50M (-1% y-o-y)

Striving for Rapid Growth

The biggest takeaway coming from this earnings call is that ServiceNow is wholeheartedly focused on rapid growth. This is especially important for a current customer because ServiceNow’s revenue goals are based in planned revenue growth tied to your portfolio. Even a prospective customer considering a ServiceNow product or solution needs to be extremely careful about how they engage because your revenue will be pegged for growth and expansion after you sign.

In fact, when asked about areas of investment in the upcoming year, almost everything CEO John Donahoe noted has a direct tie to sales. He highlighted four major areas of focus; the product/platform, customer success, talent and ServiceNow’s brand. While development of the product and platform certainly can help to drive sales from a pure functionality standpoint, the remaining areas of investment are specifically growth-focused. Customer success was defined as “an extension of our sales motion” and developing the company brand will naturally drive sales for ServiceNow. The investment in talent (or human capital) allows ServiceNow to support the growth driven by sales.

Large Deals Accelerate Growth

ServiceNow boasted some impressive numbers tied to new contracts, which when taken in context, provides insight into what a typical customer looks like and how ServiceNow plans on molding the ensuing relationship. To give you an idea of how your deal might compare, ServiceNow inked 41 deals with over $1M in ACV (annual contract value) this past quarter. In fact, ServiceNow landed 23 additional G2K (Global 2000) companies, ending the year with 840 of them under contract.

In addition to the size of their deals, another key aspect of ServiceNow’s growth is the fact that it can be counted on from nearly every current customer. ServiceNow’s G2K customers saw an average increase of 10% to their AVC and over 97% of ServiceNow’s entire customer base renews. Of course, part of this is because of how difficult it is to remove a solution that your employee base utilizes. The other part is how “sticky” ServiceNow’s platform can be, their solutions become ingrained in your organization’s daily operations.

Customer Implications

As your next renewal approaches, expect ServiceNow to aggressively push new products and solutions. ServiceNow is counting on this lateral penetration. ITSM might be the gateway into your organization, ServiceNow will look to have your organization adopt solutions such as IT Operations Management (ITOM), Security Operations, Customer Service Management, HR Service Management, etc. For example, ServiceNow inked 4 deals with over $1M in annual value tied to CSM this past quarter and 18 out of ServiceNow’s top 20 deals in Q4 included at least 4 core products.

It is important that you maintain a unified approach within your organization when addressing these pushes; ServiceNow may reach out to business leads to get their interest and buy-in before the larger relationship with your organization is addressed. ServiceNow’s growth targets should not influence what your organization purchases, setting up the proper solutions to fit your needs are most important.

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