NetSuite (N) has been a terrific performer this year as it has risen around 50%. This can be expected of a company that is one of the leading vendors in the world for cloud computing solutions as SaaS (software as a service).
For its exceptional products, NetSuite has received accolades from Forbes, and it claims to be one of the 100 most trustworthy companies in America, while Gartner rates it as the fastest growing financial management software company.
The company's financial credentials are strong with phenomenal growth. Its recently released second-quarter results were strong and surpassed analyst estimates. Let's take a look at them and see how NetSuite is positioned for the future.
The top line increased 31% from last year to $101 million in the second quarter, which exceeded the consensus estimate of $100.62 million. The growth in revenue was driven by 330 new customers and also an increase of 20% in selling prices as compared to last year. EPS came in at $0.05, surpassing the analyst estimate of $0.02.
NetSuite is looking to continue its good run and the company is targeting much higher revenue in the next quarter, in a range of $105 million to $106 million. The company is confident about achieving this target with its marketing strategies and revenue from global channel partners. NetSuite also noted a growth of 70% in global channel partners as compared to the same term in the previous year.
It is expecting an acceleration in revenue from the EMEA region as cloud implementation gains strength and in-house hosting solutions, which are costly, go out of vogue.
Smart business moves
NetSuite took over Retail Anywhere earlier this year, which provides point of sale (POS) retail software and software solutions to multi-channel retail stores. This acquisition enabled NetSuite to grow its presence in stores. The cloud capabilities of Retail Anywhere will compile transactions from across stores, and integrate them with back-end support systems of businesses and offer customers a complete solution.
In addition, the Oracle-NetSuite partnership for providing ERP solutions as SaaS on cloud to the mid-sized industry segment should also bring in more customers in the future.
The company is also in partnership with Capgemini, and benefited from growth in sales courtesy the existence of the marketing network of Capgemini in 44 countries. These partnerships have helped NetSuite expand its customer base rapidly and its revenue along with. In the future, the growth of cloud computing and SaaS should lead to more growth. The SaaS market is expected to be worth $22.1 billion by 2015, according to Gartner, and the firm believes that this growth will also be driven by cloud computing.
Competitors' strategies -- Salesforce and Intuit
Salesforce.com (CRM) is another major player in the industry for providing business solutions. The company mainly provides solutions in Customer Resource Management software .
In June 2013, it struck a deal worth $2.5 billion to acquire ExactTarget, which has a client base of 6,000 customers for its cloud marketing platform with some iconic names like Coca-Cola, Nike, Gap etc. Salesforce.com expects to have a stronger marketing platform with the expertise and skills of ExactTarget. This deal has certainly raised eyebrows because Salesforce had to take a loan of $300 million to acquire ExactTarget.
Investors have been losing confidence in Salesforce.com since it has a history of posting losses and overpaying for acquisitions. The acquisition of ExactTarget can further add to the injury and result in a cash crunch and an increased debt load. But Salesforce recently hit an all-time high after stellar second-quarter results which were accompanied by a terrific outlook.
Its revenue in the second quarter jumped 31% from last year to $957 million and earnings came in at $0.09 per share. These figures beat consensus estimates and the company also increased its guidance for the year. It now expects revenue between $4 billion and $4.03 billion, slightly ahead of the $4 billion analyst estimate.
Intuit (INTU) is known for its financial software and supplies its software services to mid-sized businesses. Some of its financial and accounting products like "QuickBooks" are one of the most popular business accounting software in the U.S. among midsized businesses.
In its recently reported fourth quarter results last month, Intuit's revenue jumped 12% from the year-ago period to $634 million. The growth was driven by an increase in QuickBooks Online subscribers, which grew 28% and higher revenue from the Small Business Group. Software as a service accounted for 37% of its overall revenue, which is impressive, while mobile usage jumped 300% in the tax season. These results are a reflection of Intuit's business strategy.
Intuit is following a different approach to grow, as it recently announced that it will be divesting its Intuit Financial Services business and announced plans to sell Intuit Health Group. The company will now focus on small businesses and consumer tax to grow in the future as it looks to capture these two segments.
Valuation is an issue
However, a look at NetSuite's valuation tells us that investors would be a paying a huge premium if shares are bought now. The forward P/E multiple sits at a huge 230 times earnings and the PEG ratio is also 12.6 times, according to Yahoo! Finance. So, investors with a big appetite for risk might consider NetSuite for their portfolio at current levels. The company is expected to grow at a faster rate than the industry in the next five years according to analysts, with annual earnings expected to grow at 29% while the industry average is 18.7%.
NetSuite has shown exceptional growth in its top line and bottom lines. It has a lot of room to grow as the era of cloud-based applications is here. The company has some strong partnerships and it has a wide customer base. As a result, it is still good enough for your portfolio.