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Microsoft, ServiceNow Partner to Boost Digital Transformation

Zacks Equity Research

Microsoft MSFT recently expanded partnership with ServiceNow NOW with an aim to accelerate digital transformation. However, the financial terms of the deal have been kept under wraps.

With the partnership, Microsoft and ServiceNow are focusing on enhancing their portfolio with more intelligence and cognitive capabilities. This in turn will lead to incremental adoption of Now Platform, Microsoft 365 and Azure, benefiting the top line of both the companies.

Notably, ServiceNow, for the first time, will host its SaaS workloads on Azure, apart from its own private cloud platform. We believe that, this is a massive win for Azure.

Markedly, Microsoft has been partnering fellow enterprise software peers, including Oracle ORCL, SAP and Adobe, to name a few, lately, to expand business opportunities.

Moreover, growing clout of Azure Infrastructure services is anticipated to challenge Amazon Web Services, currently dominating cloud market with similar deal wins which include the likes of Okta and Splunk.

Microsoft’s strategic initiatives to broaden its market reach in Software-as-a-Service (SaaS) and cloud market are instilling confidence in the stock. Notably, shares of Microsoft have returned 35.9% in the past year, outperforming the industry’s rally of 29.9%.

Exploring the Facets of the Partnership

ServiceNow also selected Azure Cloud integrated with data security and compliance capabilities as “preferred cloud platform.” This is expected to enable ServiceNow to further penetrate highly regulated industries, and government and public sector markets.

ServiceNow will be made available in Azure Government in the United States and Azure Regions in Australia, with further roll out in the days ahead. Particularly, deployment of ServiceNow in Azure Government is anticipated to upscale the availability of Now Platform, leading to growth in U.S. government and federal agencies.

Moreover, this integration is expected to strengthen Azure Government service with ServiceNow’ digital workflows, consequently bolstering its adoption.

As part of the new agreement, Microsoft aims to deploy “IT & Employee Experience workflow” offerings from ServiceNow, which will be a separate transaction. This will enable the tech giant to improve automated operations, employee experience, and devise effective business decisions.

New Deal Revs Up Software Enterprise & Cloud Market

Higher integration of Microsoft’s enterprise software capabilities and Azure infrastructure services with ServiceNow’s digital workflow offerings is expected to bolster customer base of both the companies. This is expected to strengthen Microsoft and ServiceNow’s competitive position in the rapidly growing SaaS market, against common rival, salesforce.com CRM.

Markedly, per Gartner, the global SaaS market is expected to hit $143.7 billion by 2022 compared with $80 billion valuation in 2018.

Moreover, per IDC data, global spending on public cloud services and related infrastructure is envisioned to hit $210 billion in 2019, up 23.8% over 2018. Microsoft’s initiative to strengthen Azure Government service with ServiceNow’s digital workflows reinforces its growth prospects in this domain.

With the transformed IT environment, increasing spending on cloud based applications and growing clout of digital transformation favor the growth prospects of the latest partnership.

Zacks Rank

Microsoft currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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