Retail omni-channel focus pays off for NetSuite CEO Zach Nelson

SUMMARY:

NetSuite beat Wall Street expectations yesterday. CEO Zach Nelson is upbeat about progress in the retail and omni-channel worlds.

Zach Nelson CEO NetSuite speaks on stage
Zach Nelson, CEO NetSuite

NetSuite beat analyst expectations with its Q2 numbers yesterday, reporting revenue of $177.3 million, higher than the consensus analyst expectation of $171.6 million.

While losses deepened to $32.3 million, CEO Zach Nelson was able to point to some upbeat stats to cheer Wall Street, which sent the NetSuite share price up after the results were released. These included:

  • 30th consecutive quarter of year-on-year revenue growth.
  • 12th consecutive quarter of 30% plus year-on-year revenue growth.
  • 9th consecutive quarter of 30% or more year-on-year recurring revenue growth.
  • Addition of 400 new customers during the quarter.
  • Average selling price up more than 40% year-on-year.

There’s been some particular success logged in the retail sector, where NetSuite’s e-commerce and omni-channel focus appears to be paying off, with bookings up 200% year-on-year. Nelson says:

The investment we have made in SuiteCommerce has not only put us ahead on paper in the market for Omni-channel solutions but has also done so in reality, as we become the market leader enabling omni-channel, omni-business model, and omni-currency commerce around the globe.

With the new capabilities announced during the quarter such as SuiteCommerce in-store, a point of sales solution that literally unifies the in-store and the online customers journey together, we are putting even more difference between ourselves and the PowerPoint slides of would be competition.

With a single platform driving online and in-store experiences we have delivered the Holy Grail of commerce for retailers. Of course all enabled by the world’s most powerful backend business management platform that includes order management, inventory management, multi-currency, multi-language, multi-tax and in-store financial.

The acquisition of Bronto Software late in the quarter is intended to bring systems of engagement together with systems of commerce. Nelson predicts:

I can confidently say it’s the best acquisition we have done both strategically and executionally. The Bronto and NetSuite teams have already found much common ground in terms of both market operations and we have just in the short time we have been together found a number of joint customers.

He adds:

We’re going to keep it very focused on what we are doing in omni-channel commerce. There are so many new challenges to solve in that world versus the B2B marketing world, for example. We also think it’s a much bigger market. B2B companies, in some ways, ultimately they become B2C companies and so certainly Bronto will be important there. So we’re going to keep it very focused on what we’re doing in commerce. It’s the market platform in omni-channel commerce today and we’re going to continue to put all the wood behind that arrowhead and keep driving it in that particular segment.

We think it’s a spectacular match in terms of where we both believe the marketplace is going, we both believe heavily in omni-channel commerce. They have solved a big piece of the problem that we had not solved, they have incredible domain expertise around the CMO and the marketing aspects of driving omni-channel commerce. We have incredible expertise in transacting that business and bringing those two together is going to be a massive win for us and more importantly for our customers.

Retail e-commerce focus
Retail e-commerce focus

In terms of other market sectors, Nelson cites two others of interest:

The two large industries that we are focused on are people to make and sell things – manufacturers and distributors – and those who make and sell non-things – time, virtual items.

As I’ve said many times, those worlds are coming together. So the fact that we built a system for manufacturers and we build a system for non-manufacturers, for service companies if want to call them that broadly, is the most exciting part because those two worlds are colliding. I have got my Fitbit on right now. What is that, a product or a service, with all the data they are collecting on me and what not.

So the fact that we’ve actually built a system that envisions both of those use cases is incredible and for me it’s really the ‘game over’ application. You hear people talk about what they are doing in ERP. They are talking about doing one or the other typically. I’m going to run a services company, I’m going to run manufacturing companies. It’s a non-starter because manufacturing companies are becoming services companies and services companies are becoming manufacturing companies and we are the only company on the planet who solved that problem.

Expansion

Almost a quarter of revenue is now coming from outside the US as NetSuite pushes more aggressively internationally, most notably in Europe. Nelson says:

Europe had a great quarter, particularly in the UK. So good things are happening there. The bigger challenge I think is not so much product as it is distribution and services. I mean to sell in Germany you have to speak German, you have to have German services people and so you have a fairly large initial cost of investment to make the operational side of it happen. As we look out certainly in the future years that’s something that we think about layering in more aggressively and then slap in all these data centers. We are well on our path on the data center front in Europe and we’ll certainly have more to announce about the opening of those data centers shortly.

Mention of Germany of course reminds us that no NetSuite event is complete without a scathing shot or two across the SAP bows. Nelson obliges with:

Traditional vendors that lack cloud native ERP, such as SAP saw their license revenue crater once again. SAP’s 7% constant currency decline in license revenue was their largest license decline since the great recession of 2009.

It appears as the shift to the cloud accelerates, SAP is now enjoying its own individual great recession with very little light at the end of the tunnel as both revenue and profitability shrink and they have no modern native cloud ERP offering to sell.

On a broader canvas, Nelson states:

The competitive world for us sort of remains the same out there. I mean there hasn’t been really any innovation in the space that we’re in for 20 years. So it’s us versus a large group of dinosaurs. Then it becomes sort of an industry-by-industry set, that you are replacing Microsoft Great Plains here, you’re replacing Infor there, Epicor in retail, those kinds of things. It gets vertical very quickly in terms of the competitive set.

My take

Steady as she goes – and Wall Street’s happy even with no sign of a profit in sight. NetSuite’s sweet spot of omni-channel focus is paying off and the emphasis on European expansion is a sound strategy.

The firm promoted Chief Operating Officer and NetSuite veteran Jim McGeever to the office of President this week. This is a well-deserved move for the safest of safe pair of hands. With the earlier addition of Fred Studer as Chief Marketing Officer adding some fizz to NetSuite’s marketing, the senior management line-up is looking pretty impressive and bodes well for 2015 and beyond.

Disclosure – at time of writing, NetSuite and SAP are premier partners of diginomica.