ServiceNow pledges ‘absolutely no’ job cuts in 2023 as inventory drops due to sales

(Bloomberg) — ServiceNow Inc. fell in extended trading after subscription sales fell below analysts’ estimates. The software maker has also pledged not to cut jobs in 2023 despite downsizing at many tech companies.

Bloomberg’s Most Read

ServiceNow will have “absolutely no layoffs in 2023,” chief executive Bill McDermott said in an interview. Last July, McDermott was one of the first software executives to say customers were reluctant to commit to purchases. Since then, however, the company has continued to hire and now has better sales coverage across all sectors, he said.

Fourth-quarter subscription revenue rose 22% to $1.86 billion, slightly below estimates of $1.89 billion. Total revenue jumped 20% to $1.94 billion in the period ended Dec. 31, ServiceNow said in a statement Wednesday. Earnings, excluding certain items, were $2.28 per share, beating analysts’ average estimate of $2.02.

The company released better-than-expected subscription sales guidance for 2023, signaling that demand for its enterprise workflow software remains strong amid an uncertain economic environment.

Annual subscription revenue will increase approximately 23% to $8.44 billion to $8.5 billion. Analysts, on average, had estimated growth of 21%, according to data compiled by Bloomberg. ServiceNow’s projected subscription revenue, which accounts for the overwhelming majority of the company’s sales, will grow 22% in the current period ending March, slightly above analysts’ average projection.

ServiceNow sells apps that help businesses organize and automate their staff, customer service, and IT operations. Today, the customer anxiety that ServiceNow warned of last year is gone, McDermott said. “We’re really optimistic,” McDermott said, adding that customers are reducing their engagements with other vendors to consolidate their needs on ServiceNow.

The shares fell as much as 9.5% in extended trading, before narrowing the loss to 2.7% at 5:58 p.m. in New York. The stock fell 40% last year, but has risen 16% so far in 2023 and closed Wednesday at $448.77. Several analysts had issued reports over the past few days predicting that revenue would beat estimates due to improving exchange rates.

Currency fluctuations will moderate throughout the year and are unlikely to weigh on overall annual earnings, according to forecasts. The currency rose 4.5 percentage points of growth in 2022, the company said.

Current remaining performance obligations, which are contractual sales that will be recognized as revenue over the next 12 months, increased 22% to $6.94 billion in the quarter. Analysts estimated $6.82 billion, according to data compiled by Bloomberg.

ServiceNow said it had 1,637 customers with more than $1 million in annual contract value at the end of the quarter, 107 more than at the end of the prior period.

The company’s workforce grew 21% to 20,433 in 2022, according to its earnings presentation.

(Updates with total headcount in last paragraph.)

Bloomberg Businessweek’s Most Read

©2023 Bloomberg LP

Leave a Reply