The growing cloud-based IT services company, ServiceNow Inc. (NOW) is making headlines this week following its acquisition of a new artificial intelligence (AI) start-up, Element AI, which it expects to boost its AI capabilities. Element AI is an AI-based IT services company that was founded to help non-tech companies build AI services. They also use AI to analyze text, language and images.
ServiceNow has cloud-based corporate applications to manage a variety of internal departments—from IT to Security to Human Resources to Customer Service. These apps can be tailored to each company’s specific needs and organizational structure. They are designed to reduce the amount of time and money spend to have employees hunt around for answers.
So, Element AI’s role here will be to help ServiceNow create an AI program to help smooth the decision-making process and productivity even further.
The buyout is estimated to be around $500 million, which also marks NOW’s biggest acquisition yet. The company is also acquiring most of Element AI’s talent, including AI scientists and practitioners.
According to ServiceNow’s CEO Bill McDermott, the company is the “missing link that can integrate systems, silos, departments and processes, all in simple, easy-to-use cross-enterprise workflows.”
And I agree.
It’s why I recommended NOW to my Growth Investor subscribers back in July 2018. Since my initial recommendation, the stock has risen an impressive 176%, with some of these gains coming on the heels of the company’s better-than-expected third-quarter earnings report in late October.
The company increased its full-year 2020 outlook after it revealed “fantastic” results for its third quarter. During the quarter, ServiceNow completed 41 transactions of more than $1 million in new annual contract value. The company now has 1,012 customers worth more than $1 million in contract value, which represents a 25% year-over-year increase.
For the third quarter, subscription revenue rose 31% year-over-year to $1.09 billion. Total third-quarter revenue increased 30% year-over-year to $1.15 billion, topping analysts’ expectations for $1.11 billion. ServiceNow also reported third-quarter earnings of $241 million, or $1.21 per share, which also beat estimates for $1.03 per share by 17.5%.
Companies like ServiceNow excel in both their earnings and business development thanks to a type of wealth creation magic called “scalability.” In order for a business to grow a large amount quickly, it must have scalability.
Scalability is the ability of a business to massively grow revenues while minimally growing the costs associated with producing those revenues.
If your goal as an investor is to own businesses that can make you a lot of money quickly, then you must focus your attention and dollars on scalable technology businesses.
This is why I named ServiceNow as one of my Kings of Scalability, one of three technology stocks that could easily double, triple, or even quadruple in value over the coming years…
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The gap between the rich and the poor is the widest it’s been in decades. Although wealth inequality is one of the most important social and economic issues of our time, few people understand what is really causing it.
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In it, I’ll lay out exactly what is happening, including several key steps every American should take right now.
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