NetSuite hits record earnings

Having had a dreadful start to 2009, NetSuite announced record earning for the fourth quarter and year ended 31st December, 2009. From the release:

"Total revenue for the year was $166.5 million, a year-over-year increase of 9%. Total revenue for the fourth quarter was $43.0 million. Revenue from the Americas for the fourth quarter of 2009 was $35.0 million, while revenue from international regions was $8.0 million. NetSuite added approximately 295 new customers in the fourth quarter.

On a GAAP basis, net loss for the fourth quarter of 2009 was $6.5 million, or $(0.10) per share, compared to a net loss of $4.5 million, or $(0.07) per share in the fourth quarter of 2008. On a GAAP basis, net loss for the year ended December 31, 2009 was $23.3 million, or $(0.38) per share, compared to a net loss of $15.9 million, or $(0.26) per share in 2008. GAAP operating loss for the year ended December 31, 2009 was $23.5 million, compared to a GAAP operating loss of $18.4 million in 2008."

Using the more flattering non-GAAP measure, NetSuite recorded net income of $1.3 million for the fourth quarter (loss $534,000 in 2008) and $3.4 million for the year (loss $2.5 million.)

NetSuite forecasts 2010 revenues of $180-185 million or growth of 8% over 2009, accompanied by further sales into the mid-market. On the flip side, there is a planned shifting of resources to the higher end of the market which will likely leave income relatively flat. "We are putting a lot more resource on the installed base...to help them understand the value they can get from parts of the suite they may not be using," said Zach Nelson, NetSuite's CEO.

While NetSuite acknowledged wasn't immune to the economic environment, the company was able to replace low end value business with higher value OneWorld sales. That was accompanied by increases in support and services revenue.

Nelson believes the mid-market on-demand ERP market will be dominated by NetSuite, SAP and Microsoft. As night follows day, Nelson took the now customary swipe at SAP, referring to the shoot out with SAP. He also took a pop at Microsoft. On the channel, Nelson added "The channel will bite the (cloud) bullet or go out of business." Today, the channel is doing very little cloud related business but Nelson believes there will be significant growth in the coming year. However, he acknowledged that as yet, it is not clear which emerging channel business model or models will be dominant.

Coincidentally, NetSuite announced its largest SAP replacement, RedBuilt, an engineering wood products business. From the release: "NetSuite allows RedBuilt to avoid $275,000 in annual salary costs for SAP and database administration, as well as costly ongoing server maintenance charges." While this sounds spectacular, RedBuilt was under the gun to do something about its ERP environment following it becoming independent from another group. This is not unusual.

There are many companies that, in the past, have had SAP foisted upon them as a result of central IT policies. Often, as in this case, the fit was not so good and whenever there is an opportunity to replace, it happens. In the past, replacements often went to a Microsoft or Infor solution. On this occasion, NetSuite not only replaced back office ERP, it also replaced PeopleSoft  payroll and expense reporting. That puts something of a stake in the ground and gives NetSuite a solid reference point for multiple vendor replacement in the short term.

As and when SAP gets Business ByDesign into volume production, that effective 100% replacement will become a much more competitive space. That may sound strange given the pain which leads to such replacements. However, SAP's brand power cannot be under-estimated in any market in which it plays.