NetSuite upbeat on Q1 numbers as SAP snaps back at cloud claims

With its annual SuiteWorld jamboree just around the corner, NetSuite handed in a set of first quarter results that kept Wall Street happy and had SAP reacting badly to its claims.

The firm posted first quarter revenue of $123 million, up 34% from a year ago.

But losses for the period were $22.2 million, up from $13.0 million year on year.

Some other numbers of note:

• Recurring revenues from subscription and support grew 34% year on year to $99.4 million.
• Full-year revenue guidance was raised to $540 million to $545 million.
• Sales/marketing spend rose 36% year on year to $63.7 million
• Average selling price that was more than 50% higher than the prior year once a couple of large deals are factored out. (90% if left in).
• Sales of NetSuite OneWorld accounted for more than 40% of new business.
• In Q1 310 new customers added to installed base, including the largest deal to date.

There wasn't much detail offered on that largest deal, but CEO Zach Nelson did say:

"It’s not one of our traditional verticals actually and it’s really with a deal driven about around our rich order management capabilities.

"We’ve often talked about how order management is a key differentiator in the NetSuite offering, very rich, easy to use, highly functional and so that was a big piece of this win.

"What it replaced was really the customer was facing an upgrade of a traditional ERP product and so as that upgrade came, they said well let’s see what the cloud looks like and they like what they saw."

Elsewhere Nelson was on bullish form:

"While the notion of what constitutes a cloud application continues to be co-opted and twisted by non-cloud companies, these metrics bear out that the customer knows the difference.

"Bottom line, NetSuite is executing and enabling companies to operate their business in the cloud while other traditional ERP software companies produce power point decks.

"For example in Q1, while we grew our revenue year-over-year by more than 30% for the seventh consecutive quarter, non-cloud ERP providers like SAP saw their core license revenue shrink for the fourth consecutive quarter.”

Interestingly. SAP wasn't having that and fired back via Barrons Blog:

For contrast, N revenue growth of +34% is not as strong as SAP Cloud +38% in Q1.
N billings growth of +33% was also less than SAP Cloud Billings growth +36% despite their lower base. They upped guidance to $540-$545 million vs. SAP’s ~$1.5Bn cloud outlook (SAP expects full year 2014 non-IFRS cloud subscriptions and support revenue to be in a range of €950 – €1,000 million at constant currencies (2013: €757 million).

On the SuiteCommerce front, Nelson says NetSuite didn't lose a deal to competition such as Demandware or Magento:

"That’s primarily because we are omnichannel, they’re single channel. That’s nothing critical of those solutions but it’s just a very different customer that’s buying NetSuite. It’s those customers that have point-of-sale or have a physical bricks-and-mortar environment and an online environment as a part of their solution. And so they need that multichannel offering.

"The other piece that we have of course is we’re not just B2C but B 2B and in fact government to government. So that’s another place where you won’t see - what people consider to be the ecommerce vendors, they don’t play in those spaces, they’re just B2C."

See also: Workday vs NetSuite - really?
May 31 2013diginomica.com

There was also more of the focus onWorkday and its financials ambitions that emerged from last year's SuiteWorld:

"Workday is like the Tasmanian Tiger. We’re still waiting for a sighting of their financial product. Like the Tasmanian Tiger, it’s not showing up very often.

"Workday isn’t even our top 20 competitor lists. So someday they may have it. Financials in the case of Workday is considered to be expense reporting and payroll and that’s a strange financial product. But we’ll wait and see what happens over the next several years."

Verdict

A confident performance from Nelson on numbers that kept the analysts happy on the eve of the firm's biggest public event of the year.

Some interesting competitive positioning that we're likely to hear more about at SuiteWorld.

Given SAP's reaction to Nelson's claims yesterday, will we see more 'under the skin' comments to come or will the firm maintain the dignified silence espoused by Workday (to date)?

See Siebel v Benioff for what happens when large vendors find themselves dancing to the tune played by a smaller challenger.

Disclosure: at time of writing, Salesforce.com, SAP and Workday are premium partners of diginomica.