ServiceNow CEO ‘Embracing Partners’ As Q4 Earnings Soar

Fresh off their best earnings quarter, ServiceNow CEO John Donahoe told investors the red-hot IT automation provider is “embracing partners” to influence big deals, as well as to make sure the company follows through on the day-after sales with customers.

“Our line organization is now embracing partners, recognizing you can’t get to digital transformation with just software, just a platform,” Donahoe told investors during the company’s after-the-bell earnings call Wednesday. “You need a really strong partner to help re-engineer the processes, and ensure the implementation is done in a high-quality, out-of-the box manner. Partners are very important to our success, and we’re going to continue to get better and better at making sure we operate strategically and effectively with them.”

Chief Financial Officer Michael Scarpelli told investors that nearly all of ServiceNow’s large deals involve partners.

“There’s more joint planning on accounts,” Donahoe said. “There’s more joint sales campaigns. … It’s getting increased attention.”

One reason for that, Donahoe said, is David Parsons, senior vice president, global alliances and channel ecosystem, who started in October. His background includes stops at HP, where he was vice president of industry solutions, and prior to that Compaq, where he was vice president of Americas enterprise solution alliance, dealing directly with ISVs, VARs and systems integrator partners. Prior to joining ServiceNow, Parsons was global vice president, strategic systems integrators and outsourcers at VMware.

Don’t expect big changes to the sales apparatus, Scarpelli said.

“We’re going to continue to invest in enterprise, that’s where our focus is,” he said. “We’re still investing in commercial so that will involve splitting territories, but not moving reps from one class to another. We continue to look at verticalization. No major changes to our sales organization because it’s been working, and we don’t want to mess that up.”

The company wowed investors with fourth-quarter revenue that grew 30 percent year over year to finish at $715.4 million. Net income came in at $7 million for earnings per share of $0.04, on a GAAP basis. Subscription revenue for the quarter grew 33 percent to $666.1 million. For the year, ServiceNow earned revenue of $2.60 billion for 36 percent growth year over year. On a GAAP basis, the company showed a loss of $26.7 million for a loss of 15 cents per share in 2018.

Donahoe said ServiceNow is being used by 75 percent of the Fortune 500 companies. He said in some cases there is room to grow within organizations that are already ServiceNow customers.

“The reality is we frequently land in a division or in a geography or in a part of a company,” Donahoe said. “Even with ITSM we may only land in one part of the company so there’s the opportunity to expand across the enterprise, and increasingly as companies see the power of the ITSM product and see the power of automating and providing self help for IT service management, that you’re seeing more enterprisewide initiatives.”

For ServiceNow, there is no slowdown in sight, Donahoe said. The company is projecting first-quarter revenue to land between $715 million and $720 million, which equates to year-over-year growth of 32 percent or 33 percent. For the year, ServiceNow is estimating 2019 revenue to come in between $3.21 billion and $3.23 billion, for annual growth of between 33 percent and 34 percent.

“Even in an environment if spend gets tougher over time, we want to be at the top of the list as the productivity enhancer that we believe we are,” Donahoe said. “We’re going full steam ahead.”