NetSuite IPO Gathers Momentum

Tuesday when we wrote about the increase in the price range for the NetSuite Inc. IPO to between $16 and $19, we still expected a solid first-day performance as long as the offer price didn't go much higher than the new range. Now comes word of yet another bump in the range, indicating strong demand for the offering, which should provide good momentum when shares begin trading today.

The new pricing range is $19 to $22, and we wouldn't be surprised to see it price at the high end of that range. Further gains are likely in store tomorrow as well. The company has a lot of buzz behind it, particularly because Oracle Corp. (ORCL) CEO Larry Ellison controls a majority stake and it is in the sexy business of providing on-demand software for small and midsized businesses.

Projecting how high investors choose to push the stock tomorrow is a crapshoot, and making predictions seems foolhardy. It's a little easier to mull where the stock will be trading in a few weeks after the initial enthusiasm wanes.

If NetSuite prices at $20.50, the midway point of the new range, it will carry a market cap of around $1.2 billion, or roughly 12 times trailing 12-month revenues of $97 million. For comparison purposes, we'll look at two other companies that provide software as a service, Salesforce.com Inc. (CRM) and SuccessFactors Inc. (SFSF).

Salesforce, the leader in the on-demand software arena, trades at roughly 10 times its revenues, while SuccessFactors is around 11 times revenues. So at $20.50, NetSuite would be priced similarly to its peers.

SuccessFactors also can provide a good comparison since it just went public in November. Shares rose 32% in their first day of trading, closing at $13.25. They peaked at $15.27 earlier this month, but were recently trading at $11.96, below the opening-day close. Nevertheless, that's still a 20% premium to the $10 IPO price.

NetSuite's offering should allow the IPO market to end 2007 on a good note. Whether its shares maintain their pre-IPO glow in early 2008 is another question altogether.

See Dec. 18 post from Tech Confidential
See Dec. 19 story from AP
See Nov. 20 story from Tech Confidential
See Dec. 19 post from Research 2.0