ServiceNow CEO: Facebook’s IPO Mess Was GREAT For My Company

Frank Slootman ServiceNow
Frank Slootman, CEO ServiceNow

[credit provider=”ServiceNow”]

In a season of great enterprise IPOs, ServiceNow stood out with a valuation of $3.5 billion.Yesterday was the company’s first public earnings report. We caught up with CEO Frank Slootman to talk about the ServiceNow phenomenon.

The company offers cloud apps that automate the help desk function in IT departments. It’s been insanely popular, landing over 1,200 enterprise customers. Last quarter, it added 127 new ones.

It was the first company to go public after Facebook, opening on June 29—and with Facebook’s underwriter, Morgan Stanley, too.

Instead of being scared off, investors loved it. Priced at $18, the shares ended the day at $26, valuing the company at more than $2 billion. The company’s revenue last year: $128 million.

One month later, investors are still wild for the company.  It beat on revenue. Analysts expected the company to report $53.25 million in revenues and an adjusted loss of $0.07 per share. It reported $56.8 million, a 93% year-over-year growth with an adjusted loss $0.12 per share. The company says it will end 2012 with revenues between $233 million to $237 million.

The stock is trading well above its IPO price at  around $29.

ServiceNow pulled Slootman away from Greylock Partners in January to take it public.  He made his name as the founder and CEO of Data Domain, which sold to EMC for $2.4 billion in 2009 after a bidding war with NetApp. (ServiceNow’s founder and former CEO Fred Luddy, became CTO.)

BI: After Facebook’s IPO tanked, did you guys consider delaying your own?

We were not oblivious to the effect Facebook had. We did not think that Facebook was going to really derail our IPO. We were concerned about was what the affect would be on pricing. When people get through an atmosphere like that, they become even more price-sensitive than they normally are.

We thought it was going to a massive PR angle if we were able to go out as the first company after Facebook. I was on CNBC, Bloomberg and Fox Business News—that doesn’t happen to your regular IPO.  That happened because of Facebook, because we chose the New York Stock Exchange Instead of Facebook and because we were using Morgan Stanley as the underwriter.

BI: People have been talking about ServiceNow’s massive market cap. Why so high?

This is a [software-as-a-service] model. When we sign a three-year contract for $9 million we will only recognise that over a three-year period. When you have a SaaS model that reports $60 million in revenue, that is closer to 2.5 or 3 times that much [over the life of the contract].

The company has been doubling every year for the last eight years in a row. When you grow at that rate, you grow into your valuation. Within a year it will look cheap to you.

This is the second company you took public. How does being public change your job?

Obviously, now I have another constituency that I have to care for. But I do NOT let it affect strategy objectives. We’re currently very profitable but I am choosing to run the company at a loss to invest at the rate to let the company achieve its growth potential.

Those are choices that I make. Because in the public market everybody wants everything. They want high growth, they want high profit. I understand. But I say, this is the way its going to be. If you don’t like it, go by BMC or HP or IBM. That’s not what we are. We are a super high growth company and we’re investing at a blistering pace. If you like that, that’s great, if you don’t you can go somewhere else. We don’t let the markets dictate how we are going to run the company.

And the reality is that investors will tell you—hey, don’t take my advice. I don’t know. I say, great. That’s a good conversation to have.

Why did you leave a VC firm to become a CEO again?

This is a very addictive job. It’s a combination of warfare and sports, leading young companies. There’s an incredible adrenaline rush in doing this kind of work and it’s very hard to sit on the sidelines. You want to be on the field playing the game.

This company was so compelling to me. Trust me. I wasn’t looking for a job.

Want a job at a company that’s headed for a hot IPO? Don’t miss: The Next 25 Big Enterprise Startups