NetSuite numbers benefit from accelerating back office demand

Profile picture for user slauchlan By Stuart Lauchlan January 30, 2014
Summary:
Losses may have doubled at NetSuite, but the revenue growth is impressive as the firm builds an increasing stake in the larger enterprise market.

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Zach Nelson

Losses may have doubled at NetSuite, but the revenue growth is impressive as the firm builds an increasing stake in the larger enterprise market.

CEO Zach Nelson cited what he termed the strongest demand environment since NetSuite went public and praised the firm's sales organization for making the transition to a new leader.

Some stats from last night’s full year earnings results:

  • Total revenue for the fourth quarter of 2013 was $115.0 million, a 35% increase over the prior year.
  • Total revenue for the year was $414.5 million, a year-over-year increase of 34%.
  • Net loss doubled - $20 million vs. $9.6 million in Q4 and $70.4 million vs. $35 million for the year.
  • Cash flow was up 29% to $17.3 million for the quarter and $62.2 million (15%) for the year.
  • NetSuite OneWorld sales in Q4 accounted for more than 40% of new business growth.
  • Average new business deal size was up more than 20% for the full year in 2013.
  • 26% of revenue comes from outside the US
  • Q4 saw 430 new customers, the highest quarterly total since the firm went public in 2007.

Some highlights from Nelson’s subsequent con call with analysts:

On the size of customers dealing with NetSuite

“We try not to limit ourselves. A lot of times it is the customer choice. We've had some very large customers come in that were skeptical of NetSuite's ability to scale into the larger enterprise.

“They deployed us in smaller enterprises. And then by the end of that year, I sat down and had meetings with them again, and they said, ‘Well, we'd love to be able to take you everywhere’.

“So I think we have a very powerful solution that can be deployed in very large companies today. Clearly, you'll see billion-dollar enterprises running on NetSuite, and we're approaching that now. But I don't see $1 billion as the limit, certainly.

“We aren't limiting ourselves by setting a goal of saying, ‘We're going to run $5 billion companies' because who knows? There's probably some $10 billion companies someday that could use NetSuite, too.”

On international expansion and a European data center

“Asia Pac is usually the star we talk about, but it was really overshadowed by Europe. They had a great year as well and so continue to invest there as well. The other thing we're doing in Europe, too, that I've mentioned recently in some -- in the press is putting a data center in Europe.

“We’re pretty excited about putting the data closer to our European companies, and we think that will probably be a driver for further acceleration in Europe. So that's going to happen over this year and probably go live in early '15.”

On retail and the omnichannel

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"If you talk about omnichannel, which everybody talks about, and you ask about our competitive position, I think we are the only omnichannel cloud platform on the planet.

“People who talk about omnichannel really are just talking about e-commerce and maybe mobile commerce. They tend to forget about this 90% commerce called retail, point-of-sale.

“Nobody else, from a cloud perspective, has point-of-sale. Now other on-premise guys have point-of-sale, but it's just -- it's this whole separate stack of technology. It's a separate database sitting behind it, so you have to tie your point-of-sale hairball to your e-commerce hairball, to your back-office hairball. Good luck, right? It's incredibly complex.

“In the case of NetSuite, it's a single system that basically feeds all of these channels. So I'm incredibly excited about where we are from a market position standpoint. I think in terms of some of the core functionality that we're continuing to develop, we're certainly not done developing this.

“I think marketing automation or merchandising as it might be more properly called in this particular market segment, is an area we're going to continue to invest. Some other folks might have more merchandising capabilities than we do, but we have lots of partners in that space that are filling those gaps for us today.

“If you look what SAP is doing with Hybris, they basically did that to try to compete with NetSuite, right? But they're 2 separate product stacks. So how are they going to migrate that to a single code base to compete with something like NetSuite? I think from a product standpoint and now from a go-to-market standpoint, there is no company that's positioned in omnichannel commerce like NetSuite.”

On loving the two-tier approach

"In the true enterprise organization, the vast majority is two-tier of some way, shape or form. It might be, as in the case of Williams Sonoma, 2-tier e-commerce, right? So it can be a functional two-tier, as well as, okay, a financial multi-company consolidation sort of play.

"I think if you look at all SaaS software, by and large, the way it's entered the enterprise is they didn't call it 2-tier but departmental is probably what they called it, right? You put this around the core systems and then you begin to subsume them.

"We love the two-tier approach. We think it's the right sales strategy, and it's definitely the way the enterprise consumes these products."

On the TribeHr roadmap

“We've really owned them, if you will, for a little more than 2 months. So we're in that process now, obviously, developing a longer-term product plan around Tribe.

“It was already integrated. We're doing deeper integration right now from a product standpoint. From a sales standpoint, we have a sales team dedicated to selling the Tribe product. Part of that sales team is dedicated to working with the NetSuite installed base. The way they do that, is working through some of our NetSuite internal sales reps.

“So, there are agreements between those folks in terms of how to pass leads over. But we will set up those stand-alone for those folks that maybe aren't ready to move their ERP systems, as well as, obviously, there's a great opportunity within the NetSuite installed base to begin for them to move not just to NetSuite for their business operations but also move to Tribe for their people operations.”

Larry Ellison laughing
On relations with Oracle

“The Oracle relationship has been really the same over the history of our company. We've been a big customer of Oracle, certainly, and we've built a great application on top of their great database and application servers. So that's going to, obviously, continue.

“More recently, we have done some interesting partnerships on the HR front, and I think there are some other opportunities, certainly, in Oracle's portfolio, for NetSuite to partner there. Oracle is doing some very powerful things in marketing automation, so that might be a nice place to look at partnerships.

“Obviously, where we compete with them in the marketplace, we're going to do everything we can to win those deals, but that's not unusual in the technology space to be a customer and a competitor at certain times. So that's really how we think of the Oracle relationship, not really much different than what it's been today.”

Verdict

Despite the losses, plenty of numbers to keep the market happy.

Signicantly NetSuite growth is still accelerating indicating perhaps that back office SaaS adoption is picking up.