In the last year, NetSuite has gone from the company that was beset with issues to one where executing well and attention to resolving channel issues has paid off.
"For the first time in our history, we were...profitable," [on a non-GAAP basis] said Zach Nelson, NetSuite's CEO on today's earnings call. Nelson attributed the better than expected result to: "Continued selling price increases, reaching an average of $34,000 per customer...increased 20% in the year. We saw the average number of users per customer increase. OneWorld has reached 200 customers and accounts for 35% of new business bookings. When you look only at OneWorld business, the value goes up to $100,000 per customer."
International markets grew 51% the last year, indicating that the early saas adopters in the US are now being strongly followed overseas. The company plans to devote most of its forward R&D to flshing out the OneWorld and international product lines. Like many other companies, NetSuite is taking a cautious view on future hires, believing it can expand at a pace that outstrips competition while keeping headcount under control. In the immediate short term, NetSuite believes it will be close to profit break even in 2009 and will be cash flow neutral.
The impact of the recession on NetSuite's business was apparent as customers are now looking to negotiate terms. Customers are requesting quarterly and monthly booking terms which is having an adverse affect on overall deferred revenue and cash flow. Even so, NetSuite is not letting customer pressure dominate the business model and cash flow management is becoming part of executive compensation in 2009. That has to be welcomed.
Interestingly, Nelson talked about both on-premise and saas application ISVs embedding pieces of NetSuite into industry specific application landscapes. I've long felt that the real opportunity for saas is in underserved vertical markets and it is good to see NetSuite taking a non-combative position where it can win business without insisting on having the whole feast. This contrasts sharply with the strategy followed by Microsoft, SAP and Oracle, which would prefer customers to take everything from them.
One disappointment was that the company chose not to give overall 2009 guidance. The company says that conditions are changing very rapidly. Understandably, that makes it difficult for companies to be comfortable about predicting the future.
Unusually, Nelson didn't take his customery pop at SAP, instead preferring to talk up the company's strategy of providing software to divisions or subsidiaries that find larger solutions too cumbersome or costly. Question: why is SAP allowing this to happen when it has ByDesign languishing? I wish I knew.
Larry Dignan has the detailed numbers.