The IPO machine is back in ServiceNow

Contact: Brenon Daly

The Wall Street machine is primed to churn out its next new technology public company, as ServiceNow gets set to debut next week. Sure, the gears of the machine got jammed up a bit in the last offering (Facebook shares are still under water), but it should be humming again with the IPO of the on-demand helpdesk vendor.

Eight-year-old ServiceNow will almost assuredly create more than $2bn in market value overnight and, we suspect, restore the way an IPO is ‘supposed’ to work. (Well, let us qualify that last point: Wall Street speculators – which is how we characterize people who play IPOs, rather than invest in a company for the long term – simply expect new offerings to be priced to pop. And when the shares don’t, well, they dump and run, as Zuckerberg & Co. learned firsthand.)

But we don’t expect any ‘Facebook hangover’ for the ServiceNow IPO. The reason? The company is not only growing solidly (nearly doubling revenue), but is also generating relatively predictable growth, with long-term annual contracts (averaging 2.5 years) and renewal rates that run at almost 100%.

Unlike Facebook, ServiceNow also has the advantage that it is selling into a well-established market, although it is approaching it in a disruptive way. (Meanwhile, the existing IT systems management giants are suffering through tough times: Mercury Interactive has all but disappeared inside a reeling Hewlett-Packard, while BMC has attracted the unwelcome attention of a hedge fund for the company’s ‘underperformance.’)

And finally, there’s the matter of who’s running the two companies and their respective relationship with the would-be buyers of their stock. At Facebook, CEO Mark Zuckerberg couldn’t be bothered to meet with Wall Street investors during much of the roadshow. On the other hand, ServiceNow CEO Frank Slootman made investors a boatload of money on the last company he took public. He steered Data Domain through its IPO in 2007 and then sold the data de-duplication vendor two years later for roughly three times the value it came public at.

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