NetSuite stock crashes despite reduced losses

Software as a service (SaaS) firm NetSuite gets a bloody nose from Wall Street. Is this a sign of wider problems in the SaaS market?

By Stuart Lauchlan, news and analysis editor

Mixed fortunes for one of the software as a service (SaaS) poster children as NetSuite's stock went into freefall on the back of concern about second quarter prospects.

NetSuite turned in record revenues of $34.1 million for its first quarter, a 47% increase over the first quarter of 2007, and an 8% increase over the fourth quarter of 2007. But on a GAAP basis, net loss for the first quarter of 2008 was $2.0 million, compared to $9.3 million in the first quarter of 2007, a 78% improvement.

"With the recent introduction of NetSuite OneWorld and our alliance with BT, we continue to extend our leadership in cloud computing and set the stage for continued success."


Zach Nelson, CEO, NetSuite

Revenue from the Americas for the first quarter of 2008 was $27.8 million, while revenue from international regions outside of the Americas was $6.3 million. International revenue grew faster than domestic sales with a 64% growth rate and international revenue now represents 19% of total revenue. Subscription revenue renewal rate was 90% of revenue.

"Our first quarter 2008 results and record financial performance are the result of continued execution against our product, distribution and partnership strategies," said Zach Nelson, NetSuite CEO. "With the recent introduction of NetSuite OneWorld and our alliance with BT, we continue to extend our leadership in cloud computing and set the stage for continued success."

Rattled cages

So what rattled the Wall Street cages? It seems to have been the firm's prognosis on its second quarter that alarmed analysts. For the second quarter of 2008, NetSuite expects total revenue in the range of $36.0 million to $36.7 million and a net loss of between $1 million to $250,000. ThinkPanmure analyst Michael Huang said that the company's outlook was not impressive enough to dispel scepticism.

The results came before SAP announced it was slowing down its entry to the SaaS market. Nelson had said that SAP’s marketing of Business ByDesign ahead of delivering an actual product helped NetSuite’s demand. “SAP talking about this market is a good thing. They are creating demand for software that only one company can fulfill and that’s NetSuite,” said Nelson.

Meanwhile, RightNow Technologies reported a first-quarter net loss of $3.4 million versus a year-ago net loss of $6 million. Excluding items, the company posted a loss of $1.3 million. Total revenue in the first quarter ended March 31 was $32.9 million, up 28%. International business contributed more than 30% of revenue in the first quarter of 2008. "With first quarter revenue and earnings ahead of guidance we are off to a great start to the year," said Greg Gianforte, RightNow Technologies founder and CEO.

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