NetSuite (N) Bounces Back into the Black
At the beginning of November, cloud-based business management software firm NetSuite (N: Charts, News) reported solid third quarter earnings along with an optimistic fourth quarter revenue outlook. The turnaround has revived the company's lagging stock price, which plunged from $42 to $26 between July and October on micro and macro concerns.
For the third quarter, NetSuite narrowed its loss to 10 cents per share - when adjusted to exclude one-time items, it actually earned 5 cents per share, beating analysts' estimates by a penny - marking a return to profitability for the battered company. Revenue rose 23% over the previous year to $61 million, also topping analyst expectations for $60 million. NetSuite forecast adjusted earnings of 4 cents per share on revenue between $63 to $63.5 million. Analysts had expected the company to forecast adjusted earnings of 5 cents per share on revenue of $62.9 million. Daily Chart
Despite missing on earnings guidance, the increased revenue guidance was enough to convince the Street that the company's turnaround would accelerate into 2012. In 2012, NetSuite forecasts revenue between $290 to $300 million, far higher than the $279 million analysts had expected. Analysts are also bullish on the company's relative strength during an economic downturn. Kaufman Bros. analyst Sachin Jain commented, "NetSuite has still not seen the impact of economic slowdown, and achieved its highest customer retention rates in 3Q11." Many investors are excited by NetSuite's perceived shift towards bigger customers, expanding beyond their traditional market of small and mid-sized businesses. The company's higher average sales prices suggest that the large companies, such as SAP (SAP
) and Microsoft (MSFT
), are far less competitive in cloud-based services as previously thought, due to their weight and age. "As we've moved upmarket." stated CEO Zach Nelson, "we've discovered how horrible they (SAP and Microsoft) are." In regards to the "upmarket move", Nelson assured investors that this was a long term trend. "In 2002, our ASP (active server pages) was $142 per year. That's per company, not per user. This quarter it was in the mid $40,000s....That number grew 14% just quarter over quarter. It's 53% higher than it was a year ago." This means that companies are expanding out of the traditional hard-wired server industry at a rapid rate, due to high upkeep costs, forced upgrades and inferior software. Companies, with rapidly growing databases, now prefer storing their information on reliable cloud-based solutions - which companies such as NetSuite, Salesforce (CRM
) and Oracle (ORCL
) specialize in. NetSuite, with a market cap of $2.98 billion, is a relative lightweight underdog in the field of IT. The company was able to gain footing in Europe and Asia by allowing them to sample its technologies through smaller subsidiaries. Many businesses, Nelson claims, find NetSuite's technology to be "much better than what (they) have in corporate", and end up switching out their entire system to become a dedicated customer. NetSuite has also expanded beyond ERP (enterprise resource planning) - which is mainly for accounting and inventory - and into CRM (customer relationship management) and e-commerce - which can be used by other departments as well. However, this expansion comes at a short-term price. NetSuite's sales and marketing costs are still higher than its pure software peers, accounting over 50% of its revenue and being the primary weight on the company's bottom line. Nelson, however, isn't concerned with short-term losses for long-term gains. He has stated that the company will still invest heavily in sales and marketing throughout 2012 in order to maintain its current momentum. Shares of NetSuite currently trade without an accurate P/E due to its operating loss, but long-term investors should keep an eye on this company, since its comparatively small market cap means that it packs some serious growth potential. Other News About N NetSuite: The new SAP as ERP goes cloud?
Is NetSuite the new SAP? NetSuite Reports 23 Percent Q3 Growth, Cites Expanding Channel Sales
NetSuite finally returns to profitability by moving upmarket. Other Stocks in the News How Big The Haircut At Apple?
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Published on Nov 28, 2011
By Leo Sun