Netsuite reported earnings yesterday (read the entire Netsuite earnings call transcript here).
San Mateo, California-based NetSuite reported a quarterly net loss of $6.5 million, or 10 cents per share, compared with a year-earlier loss of $4.5 million, or 7 cents.
Revenue at NetSuite rose 4 percent to $43 million which largely met analyst expectations.
Some interesting items from the call.
- Average revenue per customer is $38,000 – this is up 10%. Lots of talk on the call about moving upstream to bigger customers and away from those smaller ($10,000 and under) deals that tend to churn.
- Net licenses flat – they lost as many as they gained. The claim is that those who were lost were replaced by better (higher revenue) customers. Lots of talk about how cloud computing is going to slay on-premise computing. And maybe it will. But these earnings don’t show it. Their customer license growth (flat) is nearly the same as Sage’s recent NA report. Flat customer license growth.
- Netsuite’s vertical specialization is wholesale distribution with services coming up fast bolstered by their Open Air acquisition. Lots and lots of talk about verticalization on the call with very little discussion of which verticals they’d be targeting. Open Air claimed 5,600 customers when they were acquired by NetSuite for $28 million in June 2008.
- OneWorld SRP customers estimated at 50. I’m unsure if this is the same OneWorld roll-out where they’d claimed 38 customers in April 2008 representing a growth of only 12 net new licenses in 1.5 years. OneWorld is NetSuite’s real-time management and consolidation option for larger companies with multi-national operations. (UPDATE: Re-reading the transcript of the earnings call I think Netsuite is saying that their 50 users represent joint users of OneWorld and Open Air and is not the total OneWorld install).
- According to the call Netsuite is paying 30% commission to VARS who sell their solution. The amount is paid on first year and renewal sales. Only 20% of their billing is generated from the VAR channel – a number which appeared to be flat year over year. Channel conflict (Netsuite by their own admission is 80% direct) and lack of meaningful services revenue has probably held back most VARS from jumping into a Netsuite partnership.
Comments (Full Disclosure: I am a Sage Business Partner and therefore not independent)
Except for the use of Cloud Computing this seemed like a similar call that Sage or Microsoft could have held.
NetSuite is targeting verticals though they didn’t spend much time saying which ones (I believe it’s wholesale distribution, software companies (same vertical as Intacct) and professional services).
The company is definitely moving away from servicing the low end (seemingly those paying $10,000 or under annually) due to churn. They claim that the users they lost were replaced by better (aka higher paying) licenses.
Recurring commissions are 30% (initial sale and renewal) to the channel. Only 20% of billings are through a channel ( a number which I think is unchanged from prior years).
Interestingly if I read the call right – the flagship (aka high end multi-company consolidation in real time) OneWorld offering ended the year with 50 users. Back in April 2008 when it was unveiled ( http://bit.ly/9Ev49E ) they claimed 38. So that’s a growth of 12 in about a 1.5 year time period. I am not 100% certain this is the same OneWorld flavor since on the call they refer to it was OneWorld SRP (services something or other).
UPDATE: I re-read the call and it looks like NetSuite has a product called OneWorld SRP and the 50 users represents those accounts using both OneWorld and Open World. Personally I find these product names too confusing and similar… but then again isn’t that what ERP has evolved to – using smoke and mirrors to sell…
Going forward Netsuite is changing their internal customer account managers so they each manage less customers. Previously it was a 100:1 ratio and Netsuite sees it moving closer to a 40:1. I think this is probably due to increasing complexity of their deals.
Of those buying the suite – 70% implement CRM.
Nothing I read made me think Netsuite was an opportunity for any but the largest VARS with a heavy vertical tilt who would use Netsuite to complement but not be their complete service offering. This is the same thing that has been on display the last two years at the IT Alliance. The NetSuite partners on stage who tell of their experiences are all using NetSuite as a complement to other service offerings (financing, accounting, mergers, venture capital) and not as a traditional VAR model where they sold software/service plus implementation.
I think cloud computing is still coming and as VARS we’ll have to adapt – though adapting probably means developing a model where the services we offer are not the same ones that the publisher will offer (namely support, training, implementation). Unless we can add some “special sauce” there’s little reason to get back on the treadmill of selling a highly commissioned SaaS offering only to see the commission rug be yanked 10 years down the road when growth in the industry slows (as it will).
Earnings call via Seeking Alpha image via: sfgate