Software stock sell-off looks overdone, ServiceNow CEO suggests

Yahoo Finance anchor and editor-at-large Brian Sozzi speaks with ServiceNow CEO Bill McDermott on software stocks selling off, the demand for software during the pandemic and how CEOs could keep employee morale up.

Video transcript

BRIAN SOZZI: All right, joining Yahoo Finance now is ServiceNow's CEO, Bill McDermott. Lots to get to in the quarter here. It's being well received by the markets. But before we go there, I do want to tap into your industry experience.

I've been following your career since you were at SAP. Now, of course, ServiceNow for, for a good bit. You have seen cycles of higher interest rates. What have you seen in the past? You know, I think we have to dispel this myth out there a bit that software companies and tech can't do well when interest rates go up.

BILL MCDERMOTT: An interest rate increasing environment, the only impact it could have is on companies that need to access the credit markets to fuel their growth ambitions. But for companies like ServiceNow who are organic growth stories with very large cash positions and that will continue to increase, that don't need to access the credit markets for their growth, are simply in a perfect position to create shareholder value. I actually think of it as a safe harbor.

I mean, if you're growing really fast, you're spinning off free cash flow, and you don't need to access debt, you're in just a great position. So that's where it's at. Only companies that really need that credit will, to some extent, be impacted. But it's totally overblown in the media right now as it relates to tech in general.

BRIAN SOZZI: I can't believe it, Bill. This was the first week where I actually had some folks remark to me, hmm, maybe because the Fed raises rates, we might see a recession. I see none of that, none of that in your numbers whatsoever. What are you hearing from customers to kick off the first quarter?

BILL MCDERMOTT: Customers are focused on digitizing their businesses. And you've got to really look at it from their point of view, right? They are in inflationary times, depending on their industry, it will impact different industries in different ways. To your point, they are in a, quote, unquote, "rising interest rate environment." That does impact some industries differently than others.

There are supply chain dislocations in the global economy, and all those things are true. But CEOs are sitting back saying, I got to create a great experience for my employees. I'm in the middle of a talent war. I have to keep my best people happy.

I have to be able to attract new people, on board them, train them, get them up to speed, and then manage their experience in my company in a truly flawless and digital way. And that's the unique attribute of what we bring, a consumer grade user experience for the employees.

The other thing they're saying is, look, my customer is not coming to me the way they used to. I got to go to my customer. So whether I'm serving my customer, and I'm looking at AI to help me, and I'm using things, like virtual agents, to remove the friction from the customer relationship, or I'm just selling my products now on a direct-to-consumer basis. The companies have to digitize to serve the customer, and meet the customer where the customer is at, and give them a great experience.

And then the big, big thing is, this 500 million new applications that have to be developed for business by business in the next two years. And that's more application development that will take place-- that took place in the prior 40 years. So what does that mean?

That means there's a citizen developer revolution taking place in the enterprise today. And leaders have to empower their people to build new innovation into their business model. And they're turning to platforms like ServiceNow to do that, to digitally transform and enable that.

And finally, it is clear that the technology strategy, Brian, has become the business strategy. And that's why ServiceNow, having been the market leader in IT services, now expanding into employee experience, customer experience, and creator workflow revolution on a low code platform. It's just really showing up as a total sensation. And that's why we're digitally performing because our customers need us now more than they ever did. That's why our purpose is to make the world work better for everyone.

BRIAN SOZZI: Did I get this right? On the call, you said, you actually-- or your CFO noted, billings are potentially poised to accelerate in terms of growth in the first quarter?

BILL MCDERMOTT: That's correct. We guide two ways. One is, we give a first quarter guidance and then we give a full year guidance. And we are accelerating growth in the guide in first quarter. And we gave, as you know, an extremely robust forecast for the full year 2022, essentially maintaining rates that are congruent with 2021 on what is now a much bigger company.

So it's kind of interesting if you think of it this way. Five years ago, our full year revenue equaled what we just did in one quarter in 2021 in the fourth quarter. So it's just such an exciting time here at ServiceNow. And I am just heartfelt in my thanks to our customers and our great employees and partners for being part of this movement.

BRIAN SOZZI: ServiceNow CEO, Bill McDermott. Always nice to see you. Thanks for taking some time on a very busy day. Look forward to checking back with you soon.

BILL MCDERMOTT: Thank you so much, Brian. All my best.