The Six Five team discusses ServiceNow Q4 2023 Earnings.
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Transcript:
Daniel Newman: Let’s talk about ServiceNow. Enjoy the opportunity. Each and every quarter, I get to talk to CEO Bill McDermott on earnings day. This company is … it’s a lightning rod. It just continues to attract business, attract growth. It’s got some really exciting key metrics that it was able to hit this quarter. The company saw … I think it was 10 billion of annual RPO backlog … sorry, 8.6 billion, but almost 18 of total RPO. It’s at a pace to ACV, your annual contract value, of $10 billion. The company’s got these amazing new partnerships with Visa and Ernst & Young basically built on its generative AI platform.
What Bill was able to share with me was that effectively, the company’s gen AI has picked up and monetized at a rate that was much, much faster than what was expected. This has led the company to beating, beating and beating quarter over quarter and year over year. It’s going to be a $10 billion annual contract subscription business. It’s heading on that pace. He’s had really, really bold ambitions for the company’s growth, but they’re growing on margin. Oh, and by the way, something he said, and he really pointed this out: no layoffs, not ever, throughout the whole thing. He committed to it. Didn’t lay off a single person over the last couple of years. Hit all the metrics, won the customers. It’s one of these situations where it’s almost hard to not be cheering for it. It’s-
Patrick Moorhead: No layoffs ever?
Daniel Newman: … No layoffs since … he made a commitment in the beginning when the market turned and all the companies were turning to layoffs this last, what, two years ago, about two years ago, when the market in the end of ’21, when it started to slow, that he would not lay anybody off. The company did not … actually, he told me that they had a million applications for one position.
Patrick Moorhead: What? It must’ve been an AI programming role for a million bucks or something like that.
Daniel Newman: He said that there was a million applications for an open position. Just incredible numbers. At Futurum, we only get 100,000 per position that we open up, so he’s 10xing me. No, I’m kidding. Like I said, you’re seeing 25% growth. The company’s focusing on these vertical industry LLMs. What are they doing with Visa? A transformed payment service experience LLM. They’re working together. To offer… it launched a five-year strategic. Now, again, this is the biggest payment rails on the planet, Visa. They went with EY, one of the world’s largest consulting company, to build a governance and responsible AI LLM that they can be able to offer AI enhanced and it’s a built on ServiceNow assist. The platform approach has gone very vertical. They’re saying payments vertical, they’re saying governance vertical, they’re saying, of course, workflow, digital experience, employee experience, left to right. It’s an anomaly, Pat, but it’s like all they’re doing now is they just continually win and surprise, outgrow and outpace.
Also, probably one of the most prolific things or prophetic things that he said is that he believes there’s a whole new enterprise SaaS platform software that’s going to come to market in the coming years meaning, basically the enterprise software as we know it is about to completely be turned on its head. The companies that we know that tend to run the businesses end to end he believes could meaningfully change. It was a very, very positive quarter. Pat. It was all about gen AI, though. All about gen AI, new software workflows, great partnerships, strength in terms of beating the numbers. It was weird because I always try to find at least one thing that’s like, “Ooh, this is the thing I want to put my finger on and turn to poke at a company.” There really wasn’t anything in this particular quarter that I could poke at. That’s hard to do. I’m going to keep looking, I’m going to keep digging because I never like to give anyone a free ride, I always like to at least find …
My biggest concern is this: as they keep growing, they’re going to start butting up to bigger companies and they’re going to butt up to new competition that eventually, they’re going to have to say, “We’re not as aligned.” ServiceNow always aligned everything, ERPs and CRMs, but now, they’re doing more. That’s going to be the thing to look out for, but it would be hard to bet against them being able to grab market share if they can build the software and meet the customers where they are.
Patrick Moorhead: A little background on ServiceNow. Their stock’s up 68% in the past year. It’s on a rocket ship. I’ll tell you, before CEO Bill McDermott came in, it was a company that was just, I don’t know, buried, or at least that’s the way that I view it. It’s hit an all-time high, as well, which is very impressive, so they’re doing something right.
Daniel, one of the things that I always try to figure out, and I just need to do more research on the company … is there superpower technology or is there superpower sales and marketing? Now, it has to be a good product and it has to be delivering but if I do a cross section of how they sell and talking to people how they sell, they’re a sales and marketing machine. The other thing … if I think they want to go broader, and you talked about this, they don’t describe what they do very well and it seems like a hodgepodge of service management, HR, delivery, FSM… What is the binder that pulls it together? Getting to that next big shelf, I think they really need to do some work on packaging up the company to be able to describe it to folks but, man, hats off. Their stock’s at an all-time high.
Daniel Newman: Workflow it, dude. Let’s just workflow it.
Patrick Moorhead: Bill McDermott coming in … it was interesting. When he came in, I was thinking, “Gosh, you leave … ” It was SAP before this, right?
Daniel Newman: Yeah.
Patrick Moorhead: “Why leave that and get on a company that a lot of people don’t hear about?” Now, I get it. Dan, I’m going to give some more cycles to learning more about ServiceNow. For instance, which one of my analysts would I put against this? I’ve got HRM and HCM. I’ve got a lot of people tools. Who would I even put against this? Anyways, that’s more of a way to ask a question of, “What does this company do?” I guess I could put four or five of my analysts against this and who knows? Maybe you might know some people, Dan, who can make an introduction.
Daniel Newman: I might, we may and there may be something more and something big from ServiceNow coming to Six Five sometime soon. We’ll have to keep our heads down for now. We’ll come back to it.
