ServiceNow CEO turns down M&A suggestions with strong earnings

CEO Bill McDermott says the company is continuing to focus on organic growth and will not look at acquisitions

American software and digital workflow firm ServiceNow has posted strong sales in Q4'21 thanks to high customer growth and "sustained demand". The company's quarterly and annual results exceeded even the high end of its previous quarter's guidance, across all metrics.

CEO Bill McDermott took the encouraging results as an opportunity to rubbish any suggestions that ServiceNow should look at mergers and acquisitions for growth. He suggested that M&A is bad for technology integration and unpopular with the engineers who have to work on them - a tack sure to endear him to his former colleagues at SAP, where McDermott oversaw more than 30 acquisitions.

Subscription revenues, which account for about 95 per cent of overall revenue, rose to $1.5 billion in Q4'21, up 29 per cent YoY. Full-year subscription revenues reached $5.6 billion, up 30 per cent YoY. Professional services and other revenues rose 38 per cent in Q4 and 39 per cent for the full year, to $91 million and $323 million, respectively.

ServiceNow's net income was $26 million on $1.6 billion total revenues (up 29 per cent) for the quarter, and$230 million on $5.9 billion (up 30 per cent) revenues for the year.

The Santa Clara, California-based firm closed 135 transactions during Q4, with more than $1 million in net new annual contract value, representing 52 per cent YoY growth. The company now has 1,359 total customers, representing 25 per cent annual growth.

"We are in a sustained demand environment here," CEO Bill McDermott said on the company's earnings call. McDermott added that ServiceNow expects sales to rise about 25 per cent YoY to $1.6 billion in the quarter ending March 2022.

"The reality on our numbers is we did not see any evidence of unusual demand pull-forward into our business for 2021. It happened in an extremely linear and coherent fashion, which was really a thing of beauty to watch from an execution perspective.

"And as I look at the pipelines, they're ever increasing, and they're doing that across the platform, the employee experience, the customer experience, the creator experience."

The ServiceNow CEO said the firm is "on a clear growth trajectory to $15 billion-plus by 2026."

McDermott said growth has been buoyed by customers adopting multiple ServiceNow technologies in recent months.

ServiceNow IT Service Management was in 16 of the company's top 20 deals in the fourth fiscal quarter. Creator Workflows was in 19 of them, IT Operations Management in 18, Customer Service Management in 13, and Employee Workflows human resources service delivery in 11.

"The party is just getting started," McDermott said in an interview with Bloomberg.

Despite strong sales, the competitive landscape is becoming more harsh, especially as ServiceNow attempts to extend its commercial base.

SAP, Salesforce, Atlassian and Workday are among the companies that are quickly becoming significant rivals to ServiceNow.

Analysts are increasingly debating the need for a major acquisition, to help ServiceNow increase its market share in areas where it lags behind.

McDermott used the earnings call to rule out anything beyond small-scale strategic acquisitions, such as the purchase of Lightstep in May for an undisclosed amount.

ServiceNow will continue to focus on organic growth and "does not need to acquire anyone's technology or any other companies to fulfil our dreams," he said.