(Bloomberg) — ServiceNow Inc. reported strong third-quarter sales and bookings as the company expanded its suite of AI tools.
Most Read Articles on Bloomberg
Subscription revenue, which makes up the bulk of ServiceNow’s revenue, rose 23% to $2.7 billion over the same period, the company said in a statement Wednesday. Current remaining performance obligations, a measure of recorded sales, rose 26% in the period ended Sept. 30, both above analyst expectations.
The Santa Clara, California-based company creates applications that help companies organize and automate human resources and information technology operations. Like its competitors, ServiceNow is building generative AI capabilities into its products and offering more expensive tiers in those tools.
The company’s main generative AI assistant product, Now Assist, is the fastest growing in the company’s history, CEO Bill McDermott said in an interview. The average subscription fee for Now Assist users is 30%, he added.
Shares rose about 6% in New York on Thursday, hitting a record high. Investors weren’t initially impressed with the results, and the stock fell Wednesday night. The stock is up 28% this year through Wednesday’s close. That’s more than double the rise seen in the iShares Expanded Software ETF, which is often used as a benchmark for the sector.
Citigroup analyst Tyler Radke wrote that the results “validate the company’s unique position in enterprise software.” He cited strong execution in a challenging environment for technology spending and early monetization of generated AI.
In recent weeks, ServiceNow and software companies such as Salesforce Inc. and Microsoft Corp. have begun to focus on AI “agents” that can complete tasks without user supervision. McDermott said some customers are already trying out ServiceNow agents, which will be widely available next month. McDermott added that once the agent is fully rolled out, it will be priced differently than other products.
ServiceNow expects subscription revenue of about $2.88 billion for the current quarter, which ends in December, slightly above analyst expectations. The company expects short-term bookings to increase by 21.5%.
Evercore ISI analyst Kirk Mattern said in a note that the booking guidance is effectively “good, but not great.” He added that the company tends to issue conservative forecasts for the fourth quarter.
story continues
ServiceNow also announced that it has hired a leader from Alphabet Inc.’s Google Cloud for a key role. Amit Zaveri will take over the roles of president, chief product officer and chief operating officer, which were vacated by CJ Desai earlier this year. McDermott said Zaveri will focus on product and engineering. His first-year compensation is expected to be approximately $2 million, with a signing bonus of $3 million, according to the filing.
Desai left the company in July following complaints about government contracts and the hiring of a former U.S. Army technical leader. Since then, he has been selected for a senior leadership role at Cloudflare Inc.
Last month, Bloomberg reported that Carahsoft Technology Corp., a government-focused technology reseller, was under investigation along with SAP SE for allegedly conspiring to overcharge federal agencies.
Carahsoft is also a key partner of ServiceNow. Asked about the issue on a conference call with analysts Wednesday, McDermott said, “We are not currently involved in any matters related to Carahsoft’s business with the U.S. federal government.”
Earnings, excluding certain items, came to $3.72 per share, exceeding analyst expectations. According to the company, there has been a rapid increase in large-scale transactions with annual contract values exceeding $5 million.
ServiceNow hired more than 1,200 employees during the quarter. The company currently has 25,743 employees. Chief Financial Officer Gina Mastantuono said on a conference call that many of the hires are quota-based salespeople, which shows “our confidence in the opportunities in front of us.” said.
(Updates shared reaction in 5th paragraph.)
Most Read Articles on Bloomberg Businessweek
©2024 Bloomberg LP
