Credit: Shutterstock photoW orkflow management entails lots of little details, from setting up a new employee with a computer and password to handling questions about health benefits and vacation time.
And that's just a starter list.
ServiceNow ( NOW ) has become one of the fastest-growing companies in technology by automating key activities, tasks and processes that make up day-to-day work life.
The firm says that its cloud-based software service management model can replace emails, interoffice phone calls and spreadsheets to "change the way people work."
"In our personal lives, we have all of these apps that can help get and manage information and customize what we need and want. Think of this as an app for your work," said a ServiceNow spokeswoman.
A growing number of customers want in on ServiceNow's workflow cloud solutions. Since the company went public in 2012, revenue has grown at a compounded annual rate of 75%.
A Billion-Dollar Year?
In 2014, revenue jumped 61% to $682.6 million. Management expects revenue of $960 million to $1 billion this year, an increase of 41% to 47% over 2014.
"Very few companies are growing 40%-plus on a $1 billion revenue base," said Kirk Materne, an analyst with Evercore ISI.
Most of its revenue is subscription-based. ServiceNow doesn't record all revenue upfront but over the billing cycle of a contract, which is typically one or three years. But it recognizes expenses upfront. That and the revenue lag creates a "mismatch," says Rob Owens, analyst with Pacific Crest Securities.
Earnings, he said, are a "lagging indicator," while cash flow and billings are more "leading indicators."
Backlog and deferred revenue combined at year end totaled $1.4 billion, up 57% from the prior year.
The company has seen 50%-plus growth in billings for some time, says Owens. "But cash flow is just starting to move from negative to positive, as is earnings," he said.
Analysts polled by Thomson Reuters anticipate that ServiceNow will log its first annual profit in four years this year: 21 cents per share, up from a 7-cent loss in 2014. They expect earnings to more than double next year, to 50 cents.
"You're starting to see leverage as they get bigger," Materne said.
Since last spring, investors seem to have looked past the lack of profits to future gains, sending shares up 75% from a low of 44.17 on April 28.
ServiceNow, which was founded in 2004, targeted IT departments initially. But it's been expanding its reach to areas such as human resources, legal, facilities management and marketing.
"They're seeing end customers develop apps within the ServiceNow platform," Owens said. "It's a very compelling solution that is displacing a lot of traditional legacy capabilities," including help desks.
Customers Try Unique Apps
For example, one state's department of wildlife created a custom app on ServiceNow to keep track of endangered animals. A fashion retailer set up an app on ServiceNow to enable store managers to report security incidents such as shoplifting, broken windows and threats.
"ServiceNow is moving from just being an IT service to becoming a platform provider," Materne said, adding that it's also been building specific apps to run on its platform.
ServiceNow plans to open an online app store for customers, though no date as yet been set. Materne likens it toSalesforce.com 's ( CRM ) AppExchange.
"Some part of it will compete with Salesforce, but ServiceNow's core constituent is the IT market, and Salesforce.com's is marketing," Materne said. "They both have tremendous opportunities in front of them. I don't view them as mutually exclusive."
Salesforce.com was first set up as a customer relationship management database for salespeople but has moved "more broadly across the organization," Owens said. He says that ServiceNow is deploying a similar "land and expand" strategy.
ServiceNow also has "modest overlap" with cloud playerWorkday ( WDAY ), which is focused on human resources, or the so-called "human-capital market," Materne says. He adds that Workday competes more directly withOracle ( ORCL ) andSAP ( SAP ) .
"There are more opportunities to partner with Workday than to compete," he said. "They can help each other sell and grow their customer bases. They're both the disrupters in the broader enterprise software world."
Materne says that ServiceNow has "significant mind-share lead over legacy competitors" such asBMC Software (BMC),Hewlett-Packard (HPQ) andCA Technologies (CA), who are "trying to catch up but all have their own issues."
More than 25% of ServiceNow's new customers are part of the "Global 2000," the world's largest companies, according to management.
Its customers range from bagel eatery chain Einstein Noah Restaurant Group to global biopharmaceutical firmAstraZeneca (AZN). Others are Standard Life,Flextronics (FLEX) and Vitamix, among many others.
Customer Count Rises
In the fourth quarter, ServiceNow added 211 net new customers for a total of 2,725 worldwide. Newcomers included satellite broadcasterDish Network (DISH), financial services firmFiserv (FISV) and Cars.com.
The renewal rate among ServiceNow's existing customers in the quarter was 97%.
"It's the only IT provider that's delivering enterprise service management solutions on a global scale," said Materne. "It has a fairly nice defensible position."
The big question, he says, is whether new rivals will pose a threat.
He doesn't see "hot private companies" emerging anytime soon with the kind of capital needed to compete on a global scale.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
