ServiceNow raises sales forecast, bets on boost from AI

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ServiceNow raised its annual subscription sales forecast, signalling a strong pipeline for automation software and betting the interest in artificial intelligence will continue to boost demand.

Subscription revenue will jump as much as 25 per cent to $8.6bn this year, the company said Wednesday in a statement. That forecast, which is 1.5 percentage points higher than the previous outlook in April, is due in part to more favourable currency fluctuations. It’s the second consecutive quarter that ServiceNow has raised its full-year guidance for subscription sales, a key metric for the software maker.

ServiceNow is seeing a strong pipeline of sales and high customer retention rate, chief executive officer Bill McDermott said in an interview. For the current period ending in September, subscription revenue will be about $2.19bn, also exceeding analyst estimates.

ServiceNow sells applications that help companies organise and automate their information technology operations. The company has focused on developing new artificial intelligence tools this year and in May announced a partnership for generative AI features with Microsoft.

Separately, ServiceNow on Wednesday announced the release of AI tools for code generation and case summarisation using proprietary large language models built in collaboration with chipmaker Nvidia.

In September, the company will release a new version of its platform with these new AI tools, which could drive a 60-100 per cent price increase among some customers, McDermott said. This potential new revenue isn’t reflected in the current outlook, he said.

The shares were little changed in extended trading after closing at $577.27 in New York. The stock has gained 49% this year.

The Santa Clara, California-based company said second-quarter subscription revenue increased 25 per cent to $2.07bn. Analysts, on average, projected $2.05bn, according to data compiled by Bloomberg. Profit, excluding some items, was $2.37 a share, compared with an average estimate of $2.05.

ServiceNow said it had 1,724 customers with more than $1m in annual contract value at the end of the quarter — an 18 per cent gain from a year earlier. While the customer total reflected a jump of 42 from the previous period, it was the slowest year-over-year increase the company has reported in at least four years.

The company said it had 45 customers with more than $20m in annual contract value, a previously undisclosed metric.

Watch: GB Talks: In conversation with Cathy Mauzaize, VP and general manager, EMEA South, ServiceNow