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Software IPO: NetSuite Competes With Microsoft, salesforce.com

by: SA Editor Abbi Adest posted on: December 16, 2007 | about stocks: CRM / MSFT / N

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NetSuite (N) is expected to float a public offering this week. This is a much anticipated IPO of a company that provides on-demand business management application suites for small and medium-sized businesses.

All quotations are from the company's most recent S-1 filing with a link provided.

NetSuite (N)
Business Overview (from prospectus)

NetSuite is a leading vendor of on-demand, integrated business management application suites for small and medium-sized businesses. We provide a comprehensive suite of enterprise resource planning, or ERP, customer relationship management, or CRM, and e-commerce capabilities that enables customers to manage their critical back-office, front-office and web operations in a single application. Our suite serves as a single system for running business operations and is targeted at small and medium-sized businesses, or SMBs, as well as divisions of large companies. Our suite is designed to be affordable and easy to use, while delivering functionality and levels of reliability, scalability and security that have typically only been available to large enterprises with substantial information technology resources. We deliver our suite over the Internet as a subscription service using the software-as-a-service or on-demand model. Our revenue has grown from $17.7 million in 2004 to $67.2 million in 2006. For the nine months ended September 30, 2007, we had revenue of $76.8 million. As of September 30, 2007, we had over 5,400 active customers.

Offering: 6.2 million shares at $13.00 - $16.00 per share. Net proceeds of approximately $80.9 million will be used to repay remaining outstanding debt, for capital expenditures, for working capital and other general purposes.

Lead Underwriters: Credit Suisse, WR Hambrecht

Financial Highlights:

Revenue was $76.8 million for the nine months ended September 30, 2007, compared to $47.0 million for the same period a year ago, an increase of $29.8 million or 63%...Cost of revenue was $24.2 million, or 31% of revenue, for the nine months ended September 30, 2007, compared to $16.5 million, or 35% of revenue, for the same period a year ago, an increase of $7.7 million or 47%...Our gross margin was 69% for the nine months ended September 30, 2007 and was impacted by revenue increasing faster than cost of revenue, offset by approximately 2% for expenses associated with stock-based compensation... Our operating loss was $20.3 million for the nine months ended September 30, 2007 compared to $26.9 million for the same period a year ago, a decrease of $6.6 million or 25%.

Competition:

We compete with a broad array of ERP, CRM and e-commerce companies. Our markets are highly competitive, fragmented and subject to rapid changes in technology. Many of our potential customers are seeking their first packaged ERP, CRM or e-commerce application and, as such, evaluate a wide range of alternatives during their purchase process. Although we believe that none of our larger competitors currently offer an on-demand comprehensive business management suite, we face significant competition within each of our markets from companies with broad product suites and greater name recognition and resources than we have, as well as smaller companies focused on specialized solutions. Internationally, we face competition from local companies as well as larger competitors, each of which have products tailored for those local markets. To a lesser extent, we compete with internally developed and maintained solutions. Our current principal competitors include Epicor Software Corporation (EPIC), Intuit Inc. (INTU), Microsoft Corporation (MSFT), SAP (SAP), The Sage Group plc and salesforce.com, inc (CRM).

Additional Resources: