ServiceNow under Bill McDermott: What you can expect

ServiceNow's new CEO Bill McDermott is likely to port much of his playbook from SAP to fuel growth. Expect a sales overhaul, international expansion and a good dose of mergers and acquisitions.
Written by Larry Dignan, Contributor

ServiceNow has a new CEO in former SAP chief Bill McDermott and it'll be interesting to see where the master salesman will take the fast-growing software as a service provider with more than $3.2 billion expected in 2019 revenue.

To say there has been a bit of executive turmoil at ServiceNow would be an understatement. John Donahoe became ServiceNow CEO in March 2017 and said Tuesday he was leaving to become chief of Nike. McDermott took over. Former ServiceNow CEO Frank Slootman is now chief of Snowflake and recruiting ServiceNow executives and sales talent. For instance, Mike Scarpelli, CFO of ServiceNow, left the company in August to be CFO of Snowflake. McDermott announced his departure from SAP days ago.

Fortunately for ServiceNow, its standing and wallet share in the enterprise is strong. The company began as an IT service cloud platform, but has expanded into human resources, finance and customer service. ServiceNow aims to simplify and automate workflows across multiple functions.

The company reported third quarter revenue of $885.8 million, up 32% from a year ago. The company projected 2019 subscription revenue of $3.24 billion and $3.245 billion.

In IT service management, Gartner puts ServiceNow in the lead. In CRM customer engagement, ServiceNow is seen as a visionary in a competitive space.


Certainly, ServiceNow shares had a good run under Donahoe, but the vibe of the company is likely to change under McDermott. Here's what you can expect.

A more steady product roadmap. McDermott is likely to hone in on what customers want and aim to give it to them. JMP Securities analyst Patrick Walravens noted:

While the core products at ServiceNow are "rock solid", some industry sources have suggested to us that the rush to "consumerize" the platform has led to customer confusion, dismayed some key partners, and thrown the growth engine off its rhythm.

A sales overhaul. McDermott is known for his sales-driven approach and he's likely to recruit new talent from SAP as well as other software vendors. Cowen analyst J. Derrick Wood said McDermott is likely a good fit for ServiceNow as it guns for $10 billion in annual sales. McDermott will have to stop attrition to Snowflake as well as scale sales for large enterprise accounts.

Mergers and acquisitions. For ServiceNow to grow significantly acquisitions are likely. ServiceNow's category expansions are notable, but purchases could accelerate those moves. McDermott led a series of SAP acquisitions as it transitioned to the cloud. Wood said:

McDermott has the experience, background and network to 1) heavily recruit sales talent to backfill any attrition and put together sales leadership that can run enterprise sales operations at scale (maybe second only to Keith Block in this last regard); and 2) effectively on-board new acquisitions in order to help ServiceNow enter new markets and scale in size (much like SAP, Oracle and Salesforce have done).

Sarah Hindlian, an analyst at Macquarie Capital, noted that SAP is a large ServiceNow customer and the companies have grown closer. What if ServiceNow and McDermott wound up back at SAP? Stranger things have happened. 

International expansion. Hindlian also argued that McDermott is also likely to expand ServiceNow's global profile. ServiceNow doesn't have the global experience yet and McDermott has a global contact list and is used to chasing big multinational companies. 

On Wednesday, the company delivered better-than-expected third quarter financial results. ServiceNow reported a net income of $40.5 million, or 21 cents a share, on revenue of $885.8 million, up 32% from a year ago. Non-GAAP earnings for the third quarter were 99 cents a share. 

Wall Street was looking for non-GAAP earnings of 88 cents a share on revenue of $884.96 million.

The company said subscription billings were $864 million and grew 28% year-over-year. Subscription revenue was $834.9 million, up 33% from a year ago. During the quarter, ServiceNow said it closed 46 transactions with more than $1 million in net new annual contract value. The company has 809 total customers with more than $1 million in ACV, representing 32% year-over-year growth in customers.

Shares of ServiceNow were up around 3% after hours. 

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