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ServiceNow CEO: Digital transformation is the only way out, the only way forward

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Yahoo Finance’s Brian Sozzi, Julie Hyman, and Myles Udland discuss the cloud computing industry and outlook with ServiceNow CEO, Bill McDermott.

Video Transcript

[MUSIC PLAYING]

BRIAN SOZZI: ServiceNow shares have been on a tear during the pandemic, up about 65% over the past year as more companies move to automate key office workflows. Let's welcome in ServiceNow President and CEO Bill McDermott for more here. Bill, good to-- good to see you this morning. So I was going through your latest earnings a couple of weeks ago. One thing that stood out to me is you seeing larger deal sizes, deals in excess of annual contract value of $1 million. Lot of good deals even, too, at $5 million annually as well. What projects are companies coming to you right now, given we are still in the middle of a pandemic?

BILL MCDERMOTT: Well, that's the whole idea. We have a situation on our hands where digital transformation, cloud computing, and business model innovation are all converging at once. And ServiceNow is the platform of all the enterprise platforms that really makes business work. And one of the big lessons that business has right now is trillions have been poured into digital transformation, yet only one in four projects actually deliver positive ROI. And the reason for that is lack of integration.

So our system integrates with all the existing systems, as well as all the collaborative tools in the enterprise. So from day one, the customer gets it up and running swiftly because it's in the cloud. They begin to derive value from it because you automate the way the work is done. And ultimately, you're now in a position to serve your customers the way they want to be served. So it's a speed game and ServiceNow is at the top of its game.

BRIAN SOZZI: Now when I see the quarters that ServiceNow has been putting up, I think, wow, a lot of companies are using more automation than ever before. What's your view of the economic recovery? Because I think more automation, maybe that's fewer less employees, whether they're working remotely or they come back to headquarters.

BILL MCDERMOTT: Well, we're an example, right? If you're going to grow your company you're going to take advantage of digital transformation. I mean, this is the only way out and it's the only way forward. In the 20th century, companies put in big, heavy on-premise systems. And the issue is now they can't, in a frictionless economy, immediately pivot those business models because they haven't digitally transformed their business. And about 25% of the opportunity of businesses out there today over the next three years will come from white space. Places they are not in today.

So they have to create new business models. They have to think about new partnerships, new routes to market. Without the baseline of a platform like ServiceNow, they're not going to get there. So I am very optimistic that the economies of the world are not only are going to recover but are actually going to do very well this year. Because people are going to be investing in digital transformation. We have seen that does not cost jobs. On the contrary, it frees people up to do the things like go after new markets, derive new ideas, and so forth.

Because the AI revolution is also on. We have built in machine learning and AI into our platform. So 80% of the soul-crushing work people don't want to do is done by the Now Platform. The 20% that involves a human immediately gets initiated through a work flow order from the Now platform, so business is really simple and people are more productive and they're doing things that can lead to growth and opportunity. That's the whole point of digital transformation. But right now, companies are hunkered down with systems that are absolutely wearing them out. It's time to make the bold move pivot to ServiceNow and let's get in there and fix the job.

JULIE HYMAN: Bill, it's Julie here. You guys just reported earnings at the end of January and you gave some guidance for 2021. There was a lot of talk among analysts that the guidance was conservative. Certainly you sound pretty darn upbeat right now. So, is your guidance conservative? What kind of year do you guys expect to have?

BILL MCDERMOTT: Well, if you look at our actual results. I mean, they was stunning and obviously achieved beyond expectations performance across the board. And we also followed that through in the guide. So we'll continue to be the fastest growing, pure place SaaS Silicon Valley company. We'll continue to have the best margin profile of all of them. And obviously, we're going to continue to gain market share in industries around the world, in geographies around the world, particularly in Europe and Asia-Pacific and Japan.

And also in personas. Because lots of people are getting the memo now that ServiceNow obviously dominated the IT automation market, but the same backbone platform has enabled us to change the employee experience, the customer experience. And obviously, in these tough times with COVID, we can write low code onto our platform in minutes and roll out new applications to hundreds of thousands of people so companies can move super fast. So we kept the guide consistent with the revenue that we generated in 2020. And if there's upside to that, that's fantastic. That's what good companies should do. They should go beyond expectations when they can. But we stand by the guide and we're looking forward to having a great year.

BRIAN SOZZI: Bill, your company's sitting on a ton of cash, over $3 billion. Really not much debt. Very clean balance sheet. I saw what you did at SAP. You bought a good number of companies and you built that company piece by piece. Market value followed accordingly. Are you going to do the same thing at ServiceNow?

BILL MCDERMOTT: Well, the whole idea of ServiceNow is so different than SAP. SAP was a company that needed to pivot to the cloud in 2010 and we did that. And that was very successful. ServiceNow was born in the cloud and it's a very young company with tremendous growth opportunity on the organic front. Having said that, you know, if you have a situation where there is a partner out there that has a substantial TAM, that can be highly complementary and synergistic with ServiceNow on the revenue side, and it does great things for the customer, because we have a precious platform and we jealously protect the integration power of that platform, so a lot of things would have to be right. But I can tell you, as responsible business people, we always look at it. We don't need it to make our goals, but you always have to look at it because we do want to be the defining enterprise software company of the 21st century. That's our plan.

BRIAN SOZZI: All right, let's leave it there. ServiceNow President and CEO Bill McDermott. Good to speak with you. Stay safe. We'll talk to you soon.

BILL MCDERMOTT: Thank you so much.