Results ServiceNow, Image credit Pixabay/GeraltServiceNow has delivered its fourth quarter and full-year 2022 financial results. The results were above analyst expectations in Q4, and the company also increased its outlook for 2023, when some tech firms are being more cautious. Bill McDermott, ServiceNow Chairman and CEO, also announced the promotion of CJ Desai to President and Chief Operating Officer. He has held the role of COO for the last year, having joined the company as Chief Product Officer in 2016.

Key figures are:

Total revenues of $1,940 million in Q4 2022, representing 20% year‑over‑year growth, 25.5% adjusted for constant currency

  • Subscription revenues of $1,860 million in Q4 2022, representing 22% year‑over‑year growth, 27.5% adjusted for constant currency
  • Current remaining performance obligations (“cRPO”) of $6.94 billion as of Q4 2022, representing 22% year‑over‑year growth, 25.5% adjusted for constant currency
  • Total revenues of $7,245 million in FY 2022, representing 22% year‑over‑year growth
  • Subscription revenues of $6,891 million in FY 2022, representing 24% year‑over‑year growth

ServiceNow also saw growth in Enterprise Customers, with 1,637 customers with over $1 million in ACV, a 22% growth over the year. Gross profits were at 7%, and the company is building up cash. Its net cash provided by operating activities was $2,723 million. A substantial amount for reinvestment

Gina Mastantuono, ServiceNow CFO
Gina Mastantuono, ServiceNow CFO

ServiceNow CFO Gina Mastantuono commented, “Q4 was another great quarter of execution as we exceeded our subscription revenue and profitability guidance. We outperformed our NNACV expectations, driven by robust net expansion and over 30% NNACV growth year‑over‑year from new logos.

“What’s more, our results were generated with a lower mix of early renewals from 2023, providing us more opportunities to drive further expansion throughout the year. With our strong results it’s clear that ServiceNow remains a strategic priority, generating durable demand that is positioning us well for 2023 and beyond.”

Fourth Quarter highlights

During the fourth quarter, ServiceNow continued to improve its platform; despite the major release Tokyo released in the third quarter, it added Service Request Playbook and Workplace Scenario Planning.

The company also enhanced its observability capabilities by launching Lightstep UQL (Unified Query Language) to help companies extend visibility across highly complex and dynamic Kubernetes applications and ensure they’re fully instrumented and observable by default. ServiceNow also enhanced its partnership with Zoom with new integration between the two solutions.

On the customer front, the US Army has expanded its use of ServiceNow beyond IT into its service management teams. The Swarze Group has selected the Now platform to digitise its 11,000 stores. During Q4, it closed 126 deals over $1 million in ACV.

The company also added a new fourth region. It appointed Masatoshi Suzuki as president of ServiceNow Japan. Splitting out Japan from APAC indicates its traction and opportunity in that country.

While ITSM is still at the heart of the ServiceNow offering, it now has so much more to offer and is gaining traction across ITOM, Security and Risk, as well as customer and employee workflows.

Desai commented, “We are seeing that despite the technology foundation where IT is the business, digital services other business which is what driving our ITSM and ITOM product lines and what we call service operations, picking the best of service management and operations management, but HR and our customer service management are also driving growth in very specific industries from telco to public sector and health care.” (Source Seeking Alpha)

A bullish outlook

The company also increased its outlook for Q1 and the full year 2023. It expects subscription revenues in Q1 in the range of $1,990 ‑ $2,000 (22% growth). For the full year, it expects subscription revenues of $8,440 ‑ $8,500 ( up 22.5% ‑ 23.5%).

Mastantuono added, “We expect a subscription gross margin of 84%, reflecting the expected diminishing impact of the change in useful life of our data center equipment as well as investments to accelerate customer time to value as part of our impact offering and higher inflation.” (Source Seeking Alpha)

With so many tech companies announcing layoffs, ServiceNow is still cautiously growing. Mcdermott commented, “We’re going to be very intentional about how we manage the headcount in the corporation. We are protecting this house as a primary objective. And we have invested very heavily now for the last 3.5 years, for sure, on headcount. And we have what we need.

“Where we are investing, and we’ll continue to invest, primarily will be coders, people that actually write the code and also people that are actually responsible for the customer relationship and carry a coder.” (Source Seeking Alpha)

Enterprise Times

The results were well received by the market, and the shares have risen consistently over the last month, up 21.66% to $463.07. This was another solid set of results and saw the company expand geographically under Mcdermott’s leadership. Its last major acquisition, Lightstep, added observability to the Now platform in 2021, and that technology is now assimilated and launched.

Will ServiceNow look to acquire again in 2023? There was no mention or question about the next acquisition in the analyst call. Will ServiceNow look to expand inorganically and make another significant acquisition? 2023 looks to be another year of growth for the company. It will be interesting to see the story unfold.

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