ServiceNow Gives Rosy Revenue Forecast; Shares Rise

(Bloomberg) -- ServiceNow Inc. projected rising sales in a sign that demand for business workflow software will withstand the economic downtown spurred by the Covid-19 pandemic. Shares gained about 7% in extended trading.

Subscription revenue will be as much as $1.01 billion in the second quarter, the Santa Clara, California-based company said Wednesday in a statement. The company trimmed its guidance on that revenue for the year to as much as $4.19 billion, from an earlier high-end expectation of $4.23 billion.

Chief Executive Officer Bill McDermott pledged to build ServiceNow into a “software juggernaut” after he took over the top post in November. The cloud application company's recurring revenue model means that a large share of sales are predictable, but investors are keen to see whether it can sustain its torrid pace of sales expansion, usually more than 30% a year. In the crowded landscape of cloud-computing providers, ServiceNow has emphasized the more tedious parts of office life, like setting up a help desk for IT operations and bringing on board new employees.

“While we believe we are in a strong financial position to weather impacts caused to our business by Covid-19, many of our customers are now operating under very challenging circumstances, especially those in industries highly affected by Covid-19, and may re-evaluate their spend,” ServiceNow said in the statement. “Our guidance is also based on the assumption that generally the most significant headwinds will occur in the second and third quarters of 2020 and there will be increased uncertainty around new business, renewal timing or billings terms, particularly with customers in these highly affected industries.”

First-quarter revenue increased 33% to $1.05 billion. Net income was $48.2 million, or 24 cents a share, from a loss of $1.55 million, or 1 cent, in the period a year earlier.

Shares rose to a high of $352 in extended trading after closing at $321.99 in New York. The stock has climbed 14% this year.

McDermott, formerly CEO of German software giant SAP SE, said earlier this month that ServiceNow would retain its workforce during the pandemic, and plans to hire more than 1,000 additional employees by the end of the year.

“We're humbled by the way our platform is resonating with customers especially in challenging times,” McDermott said in an interview. “There are times when a company is very vital to what customers need to perform.”

About 80% of ServiceNow's clients haven't experienced significant business harm from the pandemic, McDermott said. The other 20%, including airlines and hospitality companies that have been dealt major financial blows, have continued to invest in the ServiceNow platform “to thrive after the crisis,” he said.