With customer demand booming for its digital-business workflows and new generative artificial intelligence (GenAI) solutions, high-flying ServiceNow is perfectly positioned to blow past $10 billion in calendar-2024 revenue and will very likely top $11 billion.
Just one month ago, ServiceNow vaulted to the top of the Cloud Wars Top 10 Growth Chart—you can read all about that in “ServiceNow Leapfrogs Oracle to Become Fastest-Growing Cloud Vendor” — and recently raised its subscription-revenue guidance range for 2023 to a high of $8.64 billion.
And with the ambitious AI investments and acquisitions CEO Bill McDermott has been making since his arrival at ServiceNow four years ago, the company’s fully committed to being a leader in the GenAI Revolution as well.
“Looking beyond the quarterly results, while the world’s challenges are sobering, the digitization imperative is stronger than ever,” McDermott said on ServiceNow’s Q3 earnings call in late October.
Noting that $3 trillion will be spent on AI and GenAI over the next few years, McDermott added that “Gen AI represents 36% of AI spending overall, and we believe every dollar of global GDP will be impacted by AI over the next several years.
“This isn’t a hype cycle; it is a generational movement.”
And that generational movement, McDermott said, is meshing elegantly with ServiceNow’s unique position in the marketplace.
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“This investment is accelerating our already robust pipeline with customers lining up to be first movers in this next wave of business transformation. The question we’ve been asked repeatedly is, does AI drive growth? The definitive answer is yes, it does,” McDermott said, noting that ServiceNow’s “GenAI SKU drove the highest number of customer requests for a prerelease product” in the company’s history.
“Gen AI represents a tailwind of growth for ServiceNow. We have over 300 customers in our pipeline from every industry, every buying center, in every stage of testing.”
One set of numbers that strongly supports McDermott’s contention is subscription revenue, which in Q3 jumped 27% to $2.2 billion. (ServiceNow will release its Q4 numbers on Jan. 24.)
If we go back five quarters to Q3 of 2022 (details in bullet points below), we can see a steady acceleration in ServiceNow’s subscription-revenue growth that is not only very impressive in its own right but also stands out even more significantly when we consider that growth rates for most of the other Cloud Wars Top 10 companies were falling over that time.
- 2022 Q3: 22% growth in subscription revenue
- 2022 Q4: 22%
- 2023 Q1: 24%
- 2023 Q2: 25%
- 2023 Q3: 27%
And for Q4, ServiceNow predicted subscription revenue would grow between 24.5% and 25%, indicating strong ongoing momentum across all parts of its business.
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One of those key areas is ServiceNow’s deep commitment to its ecosystem and its wide-ranging global network of partners. Here’s McDermott from the Q3 earnings call describing how the tighter and more-expansive partnership he has created with Microsoft is helping customers of both companies.
“Our partnership with Microsoft is really geared to open additional addressable markets for ServiceNow, and we’re doing that by creating and expanding co-sell motion with Microsoft’s enterprise sales team,” McDermott said.
“And ServiceNow is really helping customers streamline their migrations to Azure, while Azure exposes us to a much wider spectrum of customers….
“We really are confident that the partnership and the synergy with Microsoft enables us to bring value to more customers and do so at an unprecedented speed.”
That commitment to customers is revealed in a few numbers that McDermott shared about the fast-growing number of large contracts customers have been signing:
- the number of $5-million-plus deals more than quadrupled from Q3 a year ago;
- the number of $10-million-plus deals doubled over that same time; and
- in EMEA, the number of $1-million-plus deals jumped 70%.
Final Thought
It was just a few years ago that McDermott first publicly raised the prospect of ServiceNow reaching $10 billion in revenue, and more recently the company has said $15 billion is its next target.
But as ServiceNow continues to expand its value proposition in AI, GenAI, intelligent workflows, and as the intelligent platform for end-to-end digital business, I think it won’t be long before McDermott says the new goal is $20 billion.
