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ServiceNow: Q3 2022 Results Review
$NOW reported earnings that reinforced my thesis: combination of growth, profitability, and resilience. $NOW also proves that SaaS companies with strong enterprise customers (and high retention) can still thrive on renewal deals with consistent upselling. There is less pressure to replenish logos, which can be very challenging and expensive in this environment.

I did a deeper dive of Service now on my blog earlier this year (see article below) and added to my position before earnings. By the way, kindly subscribe to my weekly blog Consume Your Own Tech Investing. It is fairly new (and free) and I need help finding traction on subscription cadence. Cheers!

Below are some highlights from the Q3 2022 earnings call last evening:

  • Current RPO for Q4 is projected to grow at 26% CC, or 20% on a reported basis. This is one of the most important metrics as it gauges where revenue growth may be headed in2023, which is a big question mark for many SaaS companies as deal flow slows
  • The company has a large swath of customers (more than 7k) that cuts across multiple industries. Diversification is important in this recessionary environment: “Net new ACV growth was led by retail and hospitality, up nearly 50%, followed by strength in education. Manufacturing had a good quarter as well, led by a large 8-digit deal, and technology, media and telecom continue to show durability. Federal had its best quarter ever, including an over $20mn net new ACV win”
  • Enterprise customers are getting larger, evidenced by the number of customers paying >$10mn in ACV growing 60% year-over-year. Q3 finished with 1,530 customers paying >$1mn in ACV, up 22% year-over-year
  • Signed 69 transactions with $1mn+ in Net New ACV versus 54 in Q2 and 52 in Q1
  • ServiceNow reminds investors of its platform depth: “…breadth of our product portfolio and increasing customer awareness of ServiceNow's capabilities as a platform, which includes 11 organic businesses with over $200 million in ACV”
  • DBNR, which is never disclosed by ServiceNow, was 125% in 2021 and “similar” for 2022. Existing customers are sticking around (98% retention rate) and still expanding with ServiceNow
  • No slowdown in hiring, unlike many other tech companies. Balance sheet, cashflows and profitability allow ServiceNow to double down and continue grabbing market share
  • Note that ServiceNow, however, is not immune to deal cycles slowing. Large deals taking longer to get approved, which is impacting RPO and billing numbers in Q3 (as well as Q2). Seasonally, the fourth quarter is most crucial for signing enterprise deals, so worth paying attention to these metrics when ServiceNow reports early next year

www.consumeyourowntechinvesting.com
ServiceNow: "Tools are for fools"
Quote taken from Amp It Up, by former CEO Frank Slootman

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