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ServiceNow Stock Slides After CEO’s Economic Mood Comments

Joseph F. Kovar

Investors drove ServiceNow’s share prices down 14 percent Tuesday after CEO Bill McDermott told CNBC’s Jim Cramer there are some major macroeconomic headwinds despite his comments said that tech firms are in position to grow as enterprises use technology to fight those headwinds.

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ServiceNow’s stock price Tuesday fell about 14 percent before recovering a bit in after-hours trading after cautious comments CEO Bill McDermott made on CNBC about the economy.

This was despite the optimistic comments McDermott made about the tech industry where, he said, the mood is much better than business as a whole.

McDermott, speaking with CNBC’s Jim Cramer on Cramer’s “Mad Money” program, said it is important to realize that macroeconomic crosswinds are blowing strong.

[Related: SERVICENOW CEO BILL MCDERMOTT: WE’RE ‘EXECUTING ON ALL CYLINDERS,’ SETTING SIGHTS ON $15B BY 2026]

“You’re at 41-year high inflation,” he said. “The dollar right now is the highest it’s been in over two decades. We have interest rates rising. People are worried about security. You’ve got a war in Europe. So the mood is not great. But there’s no way out except to innovate and drive technology in your company. So you digitize your processes. You move faster, and you ultimately win.”

Despite those macroeconomic winds, Cramer called the conditions McDermott described as a counter-cyclical situation, and said that rather than canceling contracts with companies such as ServiceNow, Salesforce, SAP, or Oracle, companies instead should be investing more in their technologies.

That is totally true, and as a result a lot of companies including the hyperscalers are doing very well, McDermott said. However, he said, enterprises are changing their technology investment priorities.

“Companies are first saying, which platforms do we want to bet on, and then how do we stack rank the priorities because they’re capacity-constrained,” he said. “So they choose the projects that they want to go after. But there’s one filter on all of this now, and that is fast return on investment. And if you can’t put an architecture in there that gives the customer fast ROI, chance are you’re going to get postponed or moved to the left side of the list as opposed to the right side you want to be on.”

Cramer said the idea that technology is somehow superfluous is wrong, and that analysts and stock traders are more bearish towards the market than are tech company executives, and McDermott

The mood among investors is in reality worse than the headlines, he said.

“If you look at tech, automation is front and center,” he said. “If you have a business and you want to grow it or you want to run it more efficiently, or you want to differentiate your brand, you’re going to have to compete with tech. So automation is alive and well, and I think the prospects for technology companies, especially ones with very strong brands and architectures will do very well.”

Cramer asked why young portfolio managers have seem to have forgotten that companies which are not doing as well as before actually invest more in technology.

McDermott said he sees some of the more seasoned portfolio managers telling investors to move away from energy and commodities towards tech since tech multiples are now in a very attractive range.

“But the bottom line is this: If you look at the world through the CEOs out there, they have to deliver great experiences for their customers,” he said. “They have to make their employees happy in all the relational issues, not just bonuses. People care a lot about cultures now. And you can’t build a great culture without serving your employees in moments that matter. And ultimately, you have to innovate, and you have to do it on the fly. So tech is going to be front and center through all of this.”

In the B2B world, enterprise businesses are very strong, McDermott said.

“Of course, you’re going to see the headwind of the dollar right now against well-known technology brands,” he said. “You’ve seen that, Jim. No one’s going to outrun the currency right now. And probably, when you think about energy and the dislocation caused by the war in Europe and this re-prioritization that I’m talking about, you’re going to see longer cycles in Europe. We saw that. But this doesn’t fundamentally change the narrative that tech is the only way to cut through the crosswinds and ultimately get to the other side.”

ServiceNow declined to discuss McDermott’s comments.

However, in response to a CRN request for more information, the company replied via email that no company is in a better position to help customers innovate through the current macroenvironment than ServiceNow.

“Overall, demand for digital technology remains robust. Our customers recognize economic challenges but continue to indicate sizable growth in IT spend. Industry analysts rightly believe enterprise software will remain a deflationary force because the industry benefits from secular tailwinds driven by digital transformation, migration to the cloud, and enhanced AI capabilities.

“We also hear from our customers that the macro complexity is real, particularly with inflation and foreign exchange currency. That’s why CEOs have zero tolerance for multi-year projects with blurry ROI. They are redirecting resources into technologies like ServiceNow that deliver outcomes faster,” the company said.

Joseph F. Kovar

Joseph F. Kovar is a senior editor and reporter for the storage and the non-tech-focused channel beats for CRN. He keeps readers abreast of the latest issues related to such areas as data life-cycle, business continuity and disaster recovery, and data centers, along with related services and software, while highlighting some of the key trends that impact the IT channel overall. He can be reached at jkovar@thechannelcompany.com.

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