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ServiceNow Reported Strong ACV Growth in 4Q17

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Key elements

ServiceNow (NOW) maintained strong annualized contract value (or ACV) growth of more than $1.0 million in 4Q17, driven by record contract wins and a healthy global IT spending environment. At the end of 4Q17, its ACV grew 40% YoY (year-over-year) to 477 accounts.

The chart below illustrates the ACV account growth since fiscal 2013. During this period, it grew at a CAGR[1. compound annual growth rate] of 8.8%.

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In the last four quarters, ServiceNow (NOW) maintained an average addition of 34 ACV accounts each quarter. In the last four years, the company added nearly 99 accounts valued at more than $1.0 million each year. This robust growth in ACV accounts reflects strong top-line growth in 4Q17. The company also expect strong subscription revenue growth in 1Q18 and fiscal 2018.

ServiceNow expects its subscription revenues to grow 31.0%–32.0% year-over-year (or YoY) on a constant currency basis. For fiscal 2018, it is projected to expand 33.0%–34.0%. Its subscription billings on a constant currency basis in 1Q18 is expected to grow 25.0%–26.0% YoY. In fiscal 2018, its subscription billings are anticipated to grow 29.0%–30.0% YoY.

Focus areas

Despite strong market share reported by Amazon Web Services (AMZN) and Microsoft’s (MSFT) Azure cloud service, ServiceNow is slowly gaining traction in the cloud computing market. The company offers services to more than 40% of the Global 2000 (or G2K) companies.

In 2017, ServiceNow added more than 100 G2K accounts, suggesting the growing popularity of its products. The company’s focus on customer service management is demonstrated with products such as Agent Intelligence, which aids in issue categorization and issue routing.

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