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ServiceNow Shrugs Off BMC's Revitalization Efforts

Stocks in this article: NOWBMCMSFTCRMCA

NEW YORK ( TheStreet) -- ServiceNow (NOW) rose 1.74% to $37.36 after CFO Michael Scarpelli underscored the night before the tremendous growth opportunities the company continues to take advantage of, and shrugged off rival BMC Software's (BMC) efforts at revitalizing itself by agreeing to be taken private.

"I think customers are smart enough to know that private equity is usually not really innovative with inventing new technology and so I think it's going to be hard for them to reinvent themselves," Scarpelli said during a Raymond James conference Wednesday evening. "We continue to win in BMC accounts."

"There's been nobody really servicing IT service management," Scarpelli added. "There's been zero innovation really at the enterprise space until we came along ... that's one of the reasons why we've see the traction that we have."

Scarpelli noted that beyond its core IT management business, ServiceNow has also been gaining traction in platform thanks to user-friendly features. The CFO explained that in contrast to Salesforce.com's (CRM) Force.com platform and Microsoft's (MSFT) Windows Azure platform, ServiceNow's platform doesn't require programming skills.

He noted ServiceNow is "just scratching the service" in terms of the number of global 2000 organizations it has on its systems. GE (GE), its largest customer, has 25,000 users on ServiceNow, but still has up to 60,000 people in the IT department that ServiceNow has yet to reach. Meanwhile Citigroup (C), another big client, has 60,000 people in its IT organization, with only 35,000 using ServiceNow.

ServiceNow has soared more than 50% since its debut on June 29, 2012.

At the company's first investor day conference in mid-May in Las Vegas, ServiceNow said it can become a billion dollar-plus in revenue company in 2016. This, after the company announced in its first quarter release that it was expecting 2013 revenue outlook of $394 million to $398 million. The company reported $243 million in revenue last year, up from $128 million the year before.

Also at the investor day, ServiceNow said it has consistently been adding between 15 to 20 global 2000 company customers every quarter, amounting to 285 of the global 2000 organizations. Its customer renewal rate has been averaging over 95% each quarter for the last three years.

"Is ServiceNow management's view unreasonably optimistic?," said Morningstar analyst Norman Young via email. "Not necessarily. If they are able to continue adding functionality to their products and selling them to new and existing customers, then it's certainly possible that they can hit their targets."

"Against the competition, I think they've done a good job, especially with their IT service desk SaaS software-as-a-service product. They've caught the more established or traditional firms such as BMC and CA (CA) a little flat-footed with a SaaS product," said Young. "I think they've done a good job addressing a part of the ITOM IT operations management market that is relatively easier to pry away from an incumbent provider. "The real test will be if they're able to leverage that piece into adding more ITOM components or prying away the higher value, more mission-critical pieces of ITOM suites."

Written by Andrea Tse in New York

>To contact the writer of this article, click here: Andrea Tse.

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