Credit: Shutterstock photoSize isn't the be-all and end-all of the business world, although it has its perks. The bigger you get, the more likely you are to score the kinds of deals that can help you get even bigger.
Executives atNetSuite ( N ) can attest to that. The company provides cloud-based customer relationship management ( CRM ) and enterprise resource planning (ERP) software and e-commerce services, mainly in the U.S. and Europe.
Its products include NetSuite, a platform for financials/ERP, CRM, professional services automation ( PSA ) and e-commerce capabilities that automates processes across departments; and NetSuite OneWorld, used to manage organizations with different currencies, tax rules and reporting requirements.
Clients come from a variety of industries, ranging from distribution and wholesale to computer software, manufacturing, telecom services, retail, financial services and health care.
Roughly three-quarters of its business comes from the U.S. Its competitors include tech heavyweightsOracle ( ORCL ),SAP ( SAP ) andMicrosoft (MSFT).
Technology Growth Story
While NetSuite doesn't have nearly the size of those companies, it has grown a lot bigger in recent years. Analysts polled by Thomson Reuters expect the company to post $553.8 million in revenue this year. That's up from about $415 million last year and $236 million as recently as 2011.
NetSuite has strung together nine straight quarters of 30% or better year-over-year revenue growth -- a tribute to its ability to land bigger deals with bigger clients, says NetSuite spokeswoman Jennifer Gianola.
While the company used to focus exclusively on small and midsize businesses, it now is signing large enterprise customers.
"During our most recent quarter, we had a record number of deals greater than $1 million, and our OneWorld product had a record ASP (average sales price)," Gianola told IBD. "These are indications that larger organizations are moving to the cloud on NetSuite."
Big-Company Deals
D.A. Davidson analyst Jack Andrews said much the same thing in a recent report, noting that NetSuite "continues to gain traction in larger companies domestically."
Andrews cites San Francisco-based home furnishings retailerWilliams-Sonoma (WSM), which last year selected NetSuite's SuiteCommerce product as the multichannel retail and business management platform for its global expansion into Australia.
Prior to signing on with NetSuite, Williams-Sonoma "had three different legacy systems for point-of-sale, e-commerce and call-center transactions," he noted. "By utilizing NetSuite as a next-generation platform, it was able to consolidate the activities of four separate brands into a single back-end solution."
Overseas markets hold particular promise for NetSuite, he said: "Internationally, we believe companies of all sizes can benefit from OneWorld's multicompany, multicurrency functionality immediately, given the more heterogeneous business, tax and regulatory environment."
Condensing In The Cloud
NetSuite's main selling point is its ability to help clients condense their operations over the cloud, Gianola says. "The value proposition is looking at companies that really want to run products and services in one system. A lot of product companies are becoming service companies, and we are a great solution for them."
More of those companies are choosing to go with NetSuite over other firms.
"(NetSuite) will continue to gain ERP market share in the midmarket from Oracle, SAP, Microsoft and Sage," said Jeff Houston, analyst at Barrington Research. "We also anticipate it will keep moving upstream (to enterprise customers) due to its OneWorld product."
One of NetSuite's advantages is that it already has a cloud-based ERP system, while other players in the field are still developing theirs.
"The fact that it takes so long to write/build this type of system speaks to the complex issues legacy software vendors face when competing with effective cloud products," Andrews noted.
He points out that it took NetSuite about 10 years to build its OneWorld product, and Oracle around eight years to completely rewrite its software for the cloud.
Because of this long lead time, Andrews said, investors should be able to find out about potential competitors "long before they might impact the growth trajectory of NetSuite."
That growth trajectory was on display during the third quarter, when NetSuite logged a 34% year-over-year sales increase to $143.7 million, edging past consensus analyst views. Earnings climbed 22% to 11 cents a share, topping views. It was the fifth straight quarter of double-digit EPS growth.
NetSuite reported its Q3 results after the close on Oct. 23. The next day, its shares popped 11% to 103.61. The stock has since pushed higher and now trades near 107.
The company signed 360 new customers during the third quarter, and its ASP rose more than 40% year over year. It also had two key product announcements.
One of the products, Services Resource Planning, joins ERP and PSA in enabling project-based businesses to run their entire business life cycle -- including project management, resource management and time-and-expense management -- in a unified solution, according to a note from FBN Securities analyst Shebly Seyrafi.
The other new product, SuiteGL, "adds a general ledger component to NetSuite," Seyrafi said. "And later this year, NetSuite will roll out its next-generation user interface."
Meanwhile, NetSuite's $50.5 million buyout in July of Venda, a London-based e-commerce company, gives it a chance to expand its footprint in Europe, Gianola says.
"We acquired a a great team of people, a great product and great customers," she said.
Analysts polled by Thomson Reuters expect NetSuite to post full-year EPS growth of 27% in 2014 and 42% in 2015.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
