NetSuite preps long awaited IPO

NetSuite is going public. In a regulatory filing Monday, NetSuite, an on-demand ERP vendor, outlined its financials and intention to become a public company.

NetSuite is going public. In a regulatory filing Monday, NetSuite, an on-demand ERP vendor, outlined its financials and intention to become a public company.

NetSuite (all blog posts and news), which counts Oracle CEO Larry Ellison as its largest shareholder, provides enterprise resource planning, e-commerce and customer relationship management software as a service.

The company has been long-mentioned as a strong IPO candidate, but executives have taken their time going public. It helps that Ellison is in no rush to cash out.

NetSuite didn't outline a price range for its shares (see SEC filing). Credit Suisse and WR Hambrecht will serve as underwriters. The IPO will be conducted via Dutch auction.

Among the highlights in the NetSuite filing:

NetSuite is losing money. In 2006, NetSuite lost $23.4 million. For the quarter ended March 31, NetSuite lost $3.7 million. Its accumulated deficit is $193 million.

Revenue growth is strong. NetSuite had 2006 revenue of $67 million, up from $36 million in 2005 and $17.7 million in 2004. For the three months ended March 31, NetSuite's revenue was $23.2 million. NetSuite relies on one data center to deliver its services. Here's what NetSuite says in its IPO filing:

We host our services and serve all of our customers from a single third-party data center facility located in California. We do not control the operation of this facility. This facility is vulnerable to damage or interruption from earthquakes, hurricanes, floods, fires, terrorist attacks, power losses, telecommunications failures and similar events. Our data facility is located in an area known for seismic activity, increasing our susceptibility to the risk that an earthquake could significantly harm the operations of this facility. It also could be subject to break-ins, computer viruses, sabotage, intentional acts of vandalism and other misconduct. The occurrence of a natural disaster or an act of terrorism, a decision to close the facilities without adequate notice or other unanticipated problems could result in lengthy interruptions in our services. We do not currently operate or maintain a backup data center for any of our services or for any of our customers’ data, which increases our vulnerability to interruptions or delays in our service.

NetSuite adds that it will add a second data center facility in 2008 to add capacity. All data runs on Oracle database software.

SMBs--defined as businesses with up to 1,000 employees--comprise NetSuite's target market, but it's a marketing challenge reaching these firms.

NetSuite had 495 employees as of March 31.

Primary competitors listed by NetSuite include: Epicor Software, Intuit, Microsoft, SAP, The Sage Group and

Ellison's stake after the IPO is left blank. NetSuite did note that Tako Ventures, a firm controlled by Ellison, is the company's dominant shareholder. NetSuite uses Oracle software and has a line of credit with Tako. As of March 31, NetSuite owed Tako $7.5 million of a $20 million credit line. Ellison, his family and Tako currently own 74 percent of NetSuite. Since NetSuite is a "controlled company" it doesn't have to comply with corporate governance requirements of the New York Stock Exchange and Nasdaq.

NetSuite CEO Zachary Nelson had total compensation of $455,591 in 2006. CTO Evan Goldberg made $414,366.


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