ServiceNow (NOW - Free Report) recently announced that the Now platform has been adopted by Zoom (ZM - Free Report) to support its new Hardware as a Service (HaaS) business model. The platform’s advanced AIOps capabilities will be leveraged by Zoom to launch the new service, which seeks to replace traditional phone systems with the new Zoom Phone.
Moreover, ServiceNow’s customer service management (“CSM”) offering will be utilized by Zoom to deliver enhanced services to customers. Due to the COVID-19 induced surge in remote work trends, Zoom’s video conferencing solution witnessed significant growth in usage. Thus, ServiceNow’s CSM will help Zoom manage explosive growth in user base and huge inflow of customer requests.
Further, the CSM service will be used by Zoom to provide customer support for its latest HaaS offerings.
On the flipside, ServiceNow, which has been using Zoom’s services since 2018, will replace its existing hardware phone system with the new Zoom Phones to deliver unified communications experience for employees.
The Zoom deal is a major win for ServiceNow and it highlights the strength of Now platform. Moreover, higher adoption of ServiceNow’s offerings is likely to drive the top line in the upcoming days and instill investors’ optimism in the stock.
Notably, shares of the company have returned 45.8% on a year-to-date basis outperforming the industry’s rise of 10.9%.
ServiceNow, Inc. Price
Efforts to Strengthen Now Platform Holds Promise
ServiceNow’s offerings are witnessing a growing momentum due to the company’s focus on continuously bolstering the capabilities of its platform.
Recently, the company opened two new data centers in Newport, United Kingdom and Dublin, Ireland. These data center pairing will help SeriviceNow ensure the scalability of its services in the region.
Additionally, ServiceNow had acquired Passage AI and Loom Systems in January to enhance its platform with robust AI capabilities. Passage AI’s offerings will help support all major languages across the Now platform, while Loom system’s abilities will help customers prevent IT issues by delivering deep insight into their operations.
These endeavors are expected to boost the capabilities of the Now platform and likely to aid ServiceNow acquire more customers. In first-quarter 2020, the company completed 37 transactions that generated net new annualized contract value (ACV) exceeding $1 million. Further, total number of customers, contributing more than $1 million to business, reached 933 in the first quarter. The figure increased 30% on a year-over-year basis.
Also, these initiatives are likely to help ServiceNow expand its footprint in the AIOps space. Per Mordor Intelligence data, the AIOps space is anticipated to witness a CAGR of 27% between 2020 and 2025. The company is expected to benefit from the coronavirus-induced digital transformations taking place across all industries, which will drive adoption of the company’s robust AIOps offerings.
Meanwhile, the CSM or CXM (customer experience management) space holds solid growth prospects for ServiceNow as well. Per Grand View Research data, the market is expected to reach $23.6 billion at a CAGR of 17.7% between 2020 and 2027.
We believe that higher demand for advanced AI-based platforms to provide efficient customer service, as well as the growing need to address changing customer behaviors amid the pandemic is likely boost traction for ServiceNow’s CSM offering.
Nevertheless, anticipated decline in IT spending stemming from coronavirus-related disruptions and uncertainty is likely to dampen ServiceNow’s growth prospects at least in the near term.
Further, increasing expenses on product development and as well as growing investments in international expansion are also expected to put pressure on the company’s profitability.
Zacks Rank & Key Picks
Currently, ServiceNow carries a Zacks Rank #3 (Hold).
Fortinet, Inc. (FTNT - Free Report) and Nice Ltd. (NICE - Free Report) are some better-ranked stocks worth considering in the broader computer and technology sector, both flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Long-term earnings growth rate for Fortinet and Nice is pegged at 14% and 10%, respectively.
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