ServiceNow (NYSE:NOW) will likely turn out to be one of this year’s top IPOs. The company pulled off its offering in late May at $18. Then there was a secondary offering, with the issuance of 16.1 million shares at $28 a piece. As of now, the stock is trading for $32.17.
Founded back in 2003, ServiceNow has turned into the leading cloud operator for IT operations automation. It’s a massive industry that includes rivals like BMC (NYSE:BMC), CA (NYSE:CA), Hewlett-Packard (NYSE:HPQ) and IBM (NYSE:IBM).
ServiceNow’s growth rate has been torrid. In the latest quarter, revenues spiked by 88% to $64.3 million. The customer count is now at 1,346 and the renewal rate is 96%.
So to get an update on things, I recently had a chance to talk to ServiceNow’s CEO, Frank Slootman. When it comes to tech, he has a rock-solid track record. His former company, Data Domain, was sold to EMC (NYSE:EMC) for $2.4 billion in 2009.
Here’s what Frank had to say:
Q: How was the secondary?
A: We went out a week after the Presidential election, which was a rocky time for the markets. The macro focus shifted to the “fiscal cliff” and the sovereign debt problems in Europe.
But our deal went well. We experienced strong demand for the offering both in quantity and quality of investors, and while other deals were being pulled that week, we upsized the deal considerably. A large portion of our top buyers in the IPO returned for the secondary, also a good sign.
Q: Over the past few months, a variety of cloud companies have seen substantial drops in their stock prices like Bazaarvoice (NASDAQ:BV), Proofpoint (NASDAQ:PFPT) and Brightcove (NASDAQ:BCOV). But companies like yours and Workday (NYSE:WDAY) have been able to keep well-above the initial offering prices. What might be going on here?
A: Investors want companies that represent true breakouts. They tend to invest thematically, and cloud computing is obviously one of those themes. Investors are looking for indications that you can sustain growth through fundamental competitive advantages and large addressable market opportunities. Without that, IPO honeymoons can end quickly.
Q: The third quarter has been difficult for tech companies, such as Google, Apple, Microsoft, and IBM. They have all seen big drops in their stock prices.
A: That’s right. They all indicated a tough macro situation. But as for ServiceNow, we don’t think we’re as much under the influence of the macro overhang. Our latest quarter is an indication of this. Our billings were up 96%, for example. Since coming public, our two reported quarters were both beat ‘n raise. While we’re not immune, our business seems more impacted by the secular trends unique to our market sector.
Q: So why can’t your competitors put up a fight?
A: They are of course trying to slowdown the rate of replacement of their legacy deployments with any means possible. Based on our growth trajectory, they have not been that successful for two reasons. These legacy companies don’t really know how to build products any more, preferring to acquire assets instead. Unfortunately for them, there has not been much to buy out there that could seriously promise to stall companies like ServiceNow. There is bit of scarcity factor here.
Q: What about mobile?
A: Mobile is huge for us. Our software is more and more used and accessed via mobile devices. The evolution of HTML 5 has been a good trend for software developers in that regard. Devices are proliferating at a breakneck pace, no signs of that slowing down any time soon.
It is also interesting to see the emphasis of the Windows stack players on convertibles. Apple may have a challenge on its hands there.