SERVICENOW reported strong third-quarter sales and bookings, but failed to clear the lofty expectations of investors looking for a bigger boost from artificial intelligence (AI).
Subscription sales, which account for the bulk of ServiceNow’s revenue, increased 23 per cent to US$2.7 billion in the period, the company said on Wednesday (Oct 23). Current remaining performance obligation, a measure of booked sales, increased 26 per cent in the period ending Sep 30. Both exceeded analysts’ estimates.
And yet, the shares slid in late trading before recovering somewhat. They were down about 0.6 per cent as of 5 pm in New York.
“Looks like a case of high expectations,” said Anurag Rana, an analyst at Bloomberg Intelligence. The stock had increased 28 per cent this year to Wednesday’s close. That’s more than twice the rally seen in the iShares Expanded Software ETF, which is often used as a sector benchmark.
The Santa Clara, California-based company makes applications that help companies organise and automate their personnel and information technology operations. Like its peers, ServiceNow is baking generative AI features into its products and offers a pricier tier with those tools.
The company’s main generative AI assist product, Now Assist, is the fastest-growing in company history, chief executive officer Bill McDermott said. The average contract premium for users of Now Assist is 30 per cent, he added.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
In recent weeks, ServiceNow and software peers such as Salesforce and Microsoft have begun emphasising AI “agents” that can complete tasks without user supervision. Some customers are already trying ServiceNow’s agents, which will be released more broadly next month, McDermott said. Once the agents are fully rolled out, they will be priced differently from other products, McDermott added.
For the current quarter ending in December, ServiceNow projected subscription revenue of about US$2.9 billion, just ahead of analyst estimates. The company expects near-term bookings to rise 21.5 per cent.
This bookings guidance was effective “good, but not great”, Kirk Materne, an analyst at Evercore ISI, said in a note. He added that the company tends to issue conservative forecasts for the fourth quarter.
ServiceNow also announced the hiring of a leader from Alphabet’s Google Cloud for a prominent role. Amit Zavery will fill titles vacated earlier this year by CJ Desai as president, chief product officer and chief operating officer. Zavery will focus on product and engineering, McDermott said. His first-year compensation is targeted at about US$2 million, with a US$3 million signing bonus, according to a filing.
Desai left the company in July after a complaint about a government contract and the hiring of a former US Army technology leader. He has since been hired for a high-level executive role at Cloudflare.
Profit, excluding some items, was US$3.72 per share, ahead of analyst estimates. The company saw a spike in large deals worth more than US$5 million in annual contract value, it said.
ServiceNow hired more than 1,200 workers in the quarter, the largest chunk of which are in sales and marketing. The company now has 25,743 employees. BLOOMBERG
