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NetSuite bullish on EMEA following record Q2 results

Den Howlett Profile picture for user gonzodaddy July 25, 2013
Summary:
NetSuite continues to go from strength to strength as it records its first $100 million revenue quarter. As a result, it is upping guidance for the full year and remains bullish about its channel performance.

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NetSuite had a blow out second quarter (PDF download) at the revenue level, recording $101 million in total sales. That is up 35 percent year over year and ten percent up on a quarter by quarter basis. As a result, the company is raising the full year revenue outcome to the range $406-410 million. However on a GAAP basis, the net loss for the second quarter of 2013 was $20.4 million, as compared to a net loss of $9.9 million in the second quarter of 2012.

The company saw a significant uplift in the channel driven demand of 70 percent. Zach Nelson, CEO said that the performance shown is a direct result of past investments in the channel over the last year. Firms like McGladreys and Baker Tilly were mentioned as strong contributors.

On competition, "We see less of SAP Business ByDesign...we are now competing with (SAP) their enterprise business. We don't see them in Hybris competition, more like Magento, " said Nelson.

Deferred revenue - a firm indicator of deal strength grew 39 percent while average selling price grew by more than 2o percent. "We're pretty bullish on the selling price...we have a long way to expand in that dimension...we did raise prices in the first quarter but we didn't see discounts go up by much. We're massively underpriced in some markets. What's the business vaslue of going from years to achieve value and going to months?" said Nelson.

It's interesting that according to NetSuite, larger customers are trying to lock in contracts for as long as three years. Commenting on the partnership with Oracle Nelson said that as the company moves up market, it sees more businesses asking for HR. "In smaller customers, HR is really payroll and they've already got that one done but in larger deals there is this demand and we're pleased to refer them to Oracle," he said.

European observers will be interested to know that NetSuite sees a 'widen open opportunity' in Europe where the company believes that Sage is particularly vulnerable. Nelson described the recent cloud version of Sage 200 as 'same as the old only with less functionality.'

However, like Saleforce.com, NetSuite relies heavily on non-GAAP measures as a way of communicating progress to the markets. This cannot mask the fact the company continues to accumulate losses, much of which is attributable to it awarding stock based compensation and then eliminating that line item from GAAP earnings. In the current quarter the GAAP based net loss was $20.4 million while stock based compensation was $24.4 million. Exclude those costs and you turn a loss into a profit.

Over the last year, NetSuite has used $68.1 million in stock based compensation to reward employees and discounted those in its calculation of losses. The stock price has advanced from $49 to $94 in the same period, currently valuing NetSuite at a shade under $7 billion.

Regardless, Sage continues to show strength in providing a global solution to multi-country customers. The same day as it released its results, the company reported that Hailo, a UK, US and Spanish cab hailing service that works on smartphones has switched out Sage and QuickBooks for NetSuite OneWorld. The money shot:

"Pulling business information together from multiple systems including Sage and QuickBooks from our offices around the world was a painstaking task. It took the team ten or so days of manual spreadsheet entry to generate a month-end report which was far too slow, not to mention the worry of manual errors," explains Nick Lally, Financial Director at Hailo. "We quickly realised that the Sage and QuickBooks solutions weren't going to scale with our growth plans, but NetSuite could. NetSuite OneWorld is run entirely in the cloud, just like the rest of our business, making us much more agile and saving us the money and time that would be spent on maintaining hardware and IT specialists. I can rest easy knowing we have a single global system that can rapidly scale up to meet our ambitious growth plans, enabling us to set up and run new subsidiaries in just a few clicks, while also supporting local currencies and complying with financial legislation."

"We were also really impressed with the speed of the NetSuite implementation. We were live within three months of signing on the dotted line, which is at least three times faster than what we would have expected for an equivalent on-premise solution. This meant we could grow even faster than we originally anticipated. For a fast-moving international business like us, NetSuite is perfect," continued Lally.

The more examples of this kind that NetSuite can show in the public domain, the more likely it is to draw support from both growing businesses and the Tier-2 types it targets with OneWorld.

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