ServiceNow CEO Bill McDermott has witnessed a few interest rate cycles — and subsequent tech stock reactions — in his long-time leading software giant SAP and now ServiceNow.
He told Yahoo Finance Live the sell-off in software stocks this year on fears of rising interest rates is overdone, at least based on the demand his company is experiencing.
Moreover, he contends investors shouldn’t be worried about higher interest rates hurting software companies — especially amidst a pandemic that has CEOs investing major money to transform workflows.
“The only impact that 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 that will continue to increase and don’t need to access the credit markets for their growth, they are simply in a perfect position to create shareholder value,” McDermott said. “I actually think of it as a safe harbor. I mean, if you’re growing really fast, and spinning on free cash flow, and you don’t need to access debt, you’re in just a great position.”
McDermott said he has seen no slowdown in customer demand or nervousness on demand from other CEOs he chats with ahead of an interest rate hiking cycle.
ServiceNow had a blowout fourth quarter as companies continued to aggressively invest in workplace software during the pandemic. The company’s sales and operating profits rose 30% and 23%, respectively, in the fourth quarter.
Free cash flow spiked 46% to $740 million, leaving the company with $5 billion or so in total cash, pointed out McDermott.
Here is how ServiceNow performed compared to Wall Street estimates
Net Sales: $1.61 billion vs. $1.6 billion
Billings Growth: +33% vs. +24%
Diluted EPS: $1.46 vs. $1.43
Shares of ServiceNow surged 11% to $534.50 in pre-market trading.
The company struck an upbeat tone with its outlook.
Full-year subscription sales are seeing rising 28% to a range of $7.02 billion to $7.04 billion. The company outlined an acceleration in billings growth in the first quarter from the fourth quarter.
“We are accelerating growth in the guidance in first quarter,” confirmed McDermott.
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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