Software & Services Safari

Brian Sommer

NetSuite Q3 earnings announced - SaaS still growing

By Brian Sommer | November 3, 2008, 6:16pm PST

NetSuite makes big Q3 year over year improvement in revenue

NetSuite today announced its Q3 financials. The big headline was the increase in Q3 revenues. Year over year comparison shows a 44% increase to over $40 million. That alone tells me that SaaS is still getting a foothold in the back office. While some pundits claim that SaaS only works in niche applications in SMB markets only. NetSuite’s results are encouraging to proponents of SaaS, cloud computing and on-demand applications.

I gave the detailed financial statements a quick glance while I looked for answers to some of my other questions. Questions like:
- How did the OpenAir acquisition impact revenues and cash on hand?
- Does the additional mass that OpenAir brings create operational synergies?
- As the company continues to grow, are costs as a percent of sales going down?

By my review, the OpenAir deal did reduce free cash and that’s not unexpected. The reduction in available cash is where I thought it would be and now sits at over $130 million.

There are a number of special accounting treatments to deal with preferred stock and other stock compensation issues related to the OpenAir deal. These make the financial analysis harder to complete. I believe we’ll see a clearer view of the post-OpenAir financial era in future quarters.

NetSuite did not break out sales figures between the traditional NetSuite and newly acquired OpenAir applications. I genuinely hope they provide that going forward.

Costs as a percent of sales don’t seem to be going down but I’m not overly concerned right now. When a firm is growing at a fast clip, it will incur a lot of sales costs today for revenues that won’t begin to hit the books for some time. This phenomena is exacerbated in a SaaS business as there is no upfront cash infusion as new licenses are acquired. Overall though, NetSuite will need to manage these costs as well as their available cash. Too rapid growth could exhaust cash and the capital markets today are not as free with money for secondary offerings. Cash is worth watching but there doesn’t appear to be any reason for concern today.

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Topics

Software-as-a-service, NetSuite Inc., OpenAir Inc., Earnings, Software As A Service (SaaS), Cloud Computing, Sales Strategy, Operational Accounting, Emerging Technologies, Sales, Finance, Brian Sommer

Brian is currently CEO of TechVentive, a strategy consultancy serving technology providers and other firms. He is also a research analyst with Vital Analysis.

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Brian Sommer

I am co-owner of TechVentive, Inc. The company has been engaged on numerous consulting engagements, often for technology firms, service firms and litigators. As a general rule, I do not write about current clients of TechVentive. Should that occur, I will note this in blogs. Readers should assume that I have had client relationships with many ERP and other technology providers. Some of these relationships may be quite small and short-lived while others more significant. One of TechVentive's business units publishes research reports about technology providers. As a result, this business receives small amounts of revenues from a wide variety of software firms, software buyers and others when they purchase copies of reports. Some firms do secure reprint rights to these reports. None of these purchases, individually, represents a significant amount of total revenue for me and the nature of it is hard to predict where it will come from. I also provide some marketing strategy and/or market segmentation work for software firms as I have developed a unique database that segments the largest 4000+ technology buyers in the world. Many technology firms periodically engage me for unique views into this database for future marketing campaigns. I do not blog about these efforts and do not blog about client firms while they are active clients unless some pressing news story erupts. If that event occurs, I will indicate any perceived or real conflict of interest. Occasionally, I will develop unique intellectual property pieces for technology or service providers. If I should blog about a vendor with whom I have recently developed a special information product, I will note this in a blog to avoid any appearance, real or unintended, of bias. For the most part, I have no investments in technology firms. While I've been offered friends and family stock and other inducements in the past, I have steadfastly refused these. I used to be a partner with Andersen Consulting and had no ownership stake in the firm for many years. I frequently refer to this in my blogs and do not hide my prior association with the company. I did purchase a few shares of Accenture and Cognizant stock in late - 2008. I have sold some of those positions in late 2009. Readers should assume that most software conferences that I write about involved some measure of fees waived and/or travel reimbursement. I do not charge vendors to attend these events nor will I accept payment for same. I do get reimbursed for many speaking engagements. I generally note at the end of blogs whether the vendor reimbursed me for travel expenses. Generally, this includes airfare and hotel. I do not request, receive nor accept travel perks such as first class airfare.