ServiceNow Is An Attractive Target

According to a recent survey conducted by enterprise cloud services provider ServiceNow (NYSE: NOW), more than half of the respondents now choose cloud for default IT projects. Of the 1,850 mid- to senior-level managers surveyed in a global study, it was found that 52% choose cloud for new business applications and nearly 77% of them would complete the shift of their organizations to the cloud within the next two years. Given the trend, ServiceNow’s recent quarterly results are not very surprising.

ServiceNow’s Financials

Revenues for the third quarter grew 37% over the year to $357.7 million, ahead of the market’s expectations of $352.2 million. Adjusted EPS of $0.23 compared with the Street’s forecast of $0.21 for the quarter. Billings for the quarter grew 41% to $404.3 million, significantly ahead of the Street’s estimate of $383.2 million.

By segment, revenues from subscriptions grew 43% over the year to $318.93 million and professional services revenues increased 2% to $38.72 million. ServiceNow is benefitting from the diversification into the non IT service segments. During the quarter, products other than the IT services amounted for 41% of the net new Average Contract Values, compared with 28% a year ago.

For the current quarter, ServiceNow projected revenues of $376 million-$381 million, compared with the market’s projections of $377 million.

ServiceNow’s Product Innovation

Recently, ServiceNow announced the launch of the industry’s first cloud solution that provides IT leaders with the visibility to financial, project, and application portfolios on a single platform through a new offering called IT Business Management Suite (ITBM). The ITBM integrates Project and Portfolio Management, IT Financial Management, and Application Portfolio Management on a single, cloud-based platform. ServiceNow realizes that enterprises have multiple applications and the new platform provides core information about thousands of IT applications, assets, services, projects, service levels, and risk profiles that are connected to the customer’s configuration management database. IT leaders can then use indicators and metrics for the true cost and performance of business applications and services to rationalize investments and focus on innovations to improve business outcomes.

Earlier last month, some leaked documents from a Salesforce.com board presentation suggested that ServiceNow was on a possible acquisition list for Salesforce. The list had fourteen potential acquisitions including big names like ServiceNow, LinkedIn, Tableau, and DemandWare. It ultimately ended up buying DemandWare and Microsoft picked up LinkedIn. Analysts believe that the list is an active list and some of these targets may still be getting evaluated for a purchase. ServiceNow has not commented on the news report, but it won’t be surprising if the company did end up getting sold.

Many believe that a consolidation in the enterprise cloud space will happen soon and when it does, players with bigger cash backing such as Oracle, Microsoft, and Salesforce could end up buying ServiceNow. With ServiceNow having entered into other segments besides IT services, its acquisition by either Oracle or Salesforce would make sense. Microsoft too could be a viable partner given its Cloud focus. I have said earlier that Microsoft’s potential to make some more acquisitions in the Cloud segment could make it a dark horse in the five-horse race in tech.

Its stock is currently trading at $85.09 with a market cap of $14 billion. It has recovered from the 52-week low of $46 it had fallen to in February this year and is slowly climbing to the 52-week high of $91.28 it had touched in December last year.

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Photo credit: Joseph/Flickr.com.