When Bloomberg reported earlier this month that ServiceNow was considering an acquisition of the cybersecurity startup Armis for more than $7 billion, shares of the enterprise software firm fell 11%, erasing $20 billion in market capitalization. But ServiceNow gritted its teeth and signed the deal anyway, as it announced Tuesday.
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When Bloomberg reported earlier this month that ServiceNow was considering an acquisition of the cybersecurity startup Armis for more than $7 billion, shares of the enterprise software firm fell 11%, erasing $20 billion in market capitalization.
But ServiceNow gritted its teeth and signed the deal anyway, as it announced Tuesday.
The stock market is borderline irrational right now in how it reacts to headlines, as we’ve noticed with other software stocks. So CEO Bill McDermott is wise not to base major decisions on the apparent whims of short-term traders.
The market’s jitters about the Armis deal didn’t seem to stem from concerns about whether it would boost ServiceNow’s existing security products, which include tools for IT executives to track potential vulnerabilities.
Rather, it’s because ServiceNow has done three large acquisitions this year (Veza for $1 billion, Moveworks for $2.85 billion), and investors didn’t like the “implicit assumption” that ServiceNow needs acquisitions to keep its revenue growing steadily, RBC Capital Markets analyst Matt Hedberg said earlier this week.
ServiceNow’s revenue is on track to grow 20% this year, roughly the same rate as last year but lower than its 26% growth in 2023. It hasn’t yet said what revenue growth it expects in 2026.
Perhaps these skittish investors are drawing parallels between ServiceNow and Salesforce, another enterprise software firm that has periodically come under pressure because of its tendency to make large acquisitions—to the point where a few years ago the company had to assure shareholders it wouldn’t do them for a while. (It’s now doing large deals again.)
For his part, McDermott said in an interview that the deal was a show of strength.
“Our free cash flow and margin are strong, we're growing [subscription] seats….” he said. “The question is where do we go next for the customer, and that’s what this deal is about,” he said.
Armis’s product, which is generating $340 million in annualized revenue, scans a company’s network for connected devices—including smart TVs, printers, and security cameras—and tries to prevent cyberattacks targeting them. That complements ServiceNow’s security software, which the company says will generate roughly $1 billion in revenue this year—around 10% of its overall revenue.
So the deal seemingly won’t do much for ServiceNow’s revenue growth for a while.
“We don’t need M&A to drive our near-term revenue. That’s the most important thing to acknowledge,” McDermott said.
In Other News
• The U.S. Department of Defense will add xAI’s Grok to its artificial intelligence service for military and civilian employees early next year, the department said, alongside models from other AI firms.
• Brett Harrison, the former president of FTX US, has raised $35 million for his startup Architect Financial Technologies, which offers a global perpetual futures exchange.
• Motive Technologies, which makes software for companies to manage their physical operations, grew its revenue by 22% to $327 million in the nine months ended September 30th, the company revealed Tuesday in a filing ahead of its planned initial public offering.
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