What pandemic?

ServiceNow Inc. today reported revenues and profits for the second quarter that easily beat Wall Street estimates and raised its guidance for subscription revenue and billings for the full year, saying the COVID-19 crisis is actually helping the business.

Subscription revenue rose 32%, to $1.016 million on a currency-adjusted basis. Earnings per share of $1.23 were 21 cents better than analysts’ expectations. The company said it closed 40 transactions worth more than $1 million annually in the quarter, including two over $10 million. That brings to 964 the number of customers spending more than $1 million a year, up 26% from a year ago.

“I feel much better than I did three months ago and I didn’t feel bad then,” said Chief Executive Bill McDermott (pictured), addressing investor skittishness over the impact of the pandemic on business. “I think people have come to know that the COVID environment is not going away anytime soon and businesses still have to run and governments have to serve their citizens. People need us now more than ever before.”

ServiceNow’s ongoing transition from a ticketing system to a full workflow platform is striking a chord with customers, McDermott said. “Platform companies win in a digital transformation environment, especially if they’re born in the cloud,” he said. “The ecosystems looks at this as a cross-platform integration engine.”

The company is well-positioned to provide vital services needed to support remote workers right now, said Charles Betz, a principal analyst at Forrester Research Inc. “I’ve talked to a number of ServiceNow competitors who are also doing well and I think this is indicative of some of the new dynamics of business,” he said. “The last place people are going to cut is in supporting the remote worker.”

The transition from ticketing to workflow is a seamless one that providers of information technology service management software such as ServiceNow are now pursuing, Betz said. “Companies buy what they think is a ticketing solution and realize it has broader applicability,” he said. “That has been an opportunity for ITSM vendors that they have grown into fairly effectively.”

Four weeks, 30 deals

The eagerness with which customers are snapping up new ServiceNow products was evidenced by the performance of recently introduced Safe Workplace apps and dashboard, which are intended to make returning to the workplace easier, said Chief Financial Officer Gina Mastantuono. “The workplace app was designed and launched in just four weeks and 30 deals closed for it in the quarter,” she said.

Safe Workplace is an example of how ServiceNow is evolving its platform in line with user feedback, said Thomas Murphy, an analyst at Gartner Inc. “Their suite for safe return to the workplace, along with their vertical market components, gives them good stories to tell to a broader audience about moving from being a solution for the IT organization into solutions for the organization as a whole,” he said. “The more they can tell stories about business efficiency and sustainability, the stronger their value and footprint in organizations.”

Investors apparently didn’t share executives’ enthusiasm. After bidding up ServiceNow shares by 2.5% during the trading day, they knocked the stock down 4% after hours, though it’s not clear why unless they expected a better outlook.

However, the company raised full-year subscription revenue guidance to between $4.21 billion and $4.225 billion, representing a 29% growth rate in constant currency. It said subscription billings would be in the range of $4.7 billion to $4.74 billion, representing 24% growth and up from earlier guidance of $4.63 billion.

“Companies need to automate as they are pressured by acceleration demands,” said Constellation Research Inc. analyst Holger Mueller. “That forces them to become more agile and to move faster. Workflows across people and application silos are a proven tool to achieve that.”

Customer loyalty continues to be strong. Renewal rates are holding steady at 97% and 80% of the company’s business comes from existing customers, Mastantuono said.

McDermott said the company is girding for the post-pandemic rebound by, among other things, growing its workforce 20% since the beginning of the year. And lockdowns don’t seem to be affecting productivity, he noted.

“Our engineering team has written more code, and the use rates for all of our platforms are sky high,” he said. “This is just telling me that people have adjusted, the shock of March has now become the norm and business is going on.”

Mueller said that barring management missteps, ServiceNow should have clear sailing. “They have plenty of room to grow and they actually benefit from COVID,” he said. “More automation means ServiceNow wins.”

Photo: ServiceNow/Facebook