When I met with NetSuite in London the other week, I heard Zach Nelson, the company’s CEO, imply revenue approaching $200 million in the current fiscal year. At the time, the company could not comment officially as it was in the ‘quiet period.’ Yesterday’s earnings call (replay available) and results announcement suggest the company is on that trajectory. Previous revenue estimates suggested a top end figure of $185 million. That has now been increased to $188-190 million. Not quite the round sum number Zach would prefer but still a solid indication of where their market is heading.
Q2 2010 was a blow out quarter and as the natural showman, Zach milked it for all it’s worth. By the numbers (from colleague Larry Dignan’s post):
- NetSuite had second quarter subscription and support revenue of $39.8 million, up 19 percent from a year ago. Services revenue was $7.31 million, up from $6.81 million a year ago.
- Bookings were $48.2 million, the company’s best tally ever.
- The company had cash and equivalents of $98.2 million.
There are a few more numbers and comment that are relevant:
- The channel improved 27%. Pundits reckon this represents 20% of sales so it’s a modest number but NetSuite believes 2010 is the year when the channel starts to come off its on-premise addiction.
- The company achieved its highest retention rate – but didn’t disclose the number or the churn. This was in part attributed to a healthier customer environment.
- Added 280 customers in Q2, a 10% quarter over quarter increase.
- The target for annual fees from OneWorld remains $100,000 but the overall average sale is still in the $30,000 range. It does seem that NetSuite is continuing with its emphasis on driving larger deals. He showcased deals that were represented on the stage in London and also cited a CA e-commerce deal covering 13,000 partners as evidence of the ability to scale.
- Profitability grew 40%
Zach made an odd statement I’d like to revisit at some point. To the question about what people are buying, he suggested he’d expect to see 100% using ERP and then 70% moving beyond – presumably to CRM and other modules like e-commerce. The impression is that over time, NetSuite expects to see customers using 100% NetSuite for the whole of their operations. This conflicts with some of the discussions I had with executives who said it was remarkably difficult to persuade finance types to move off their on-premise accounting application. That’s a sizable component of ERP.
I’d really like to see a breakdown of what people are buying. Although Zach sidestepped the question, it sounds like it is all over the map. Much was made of OpenAir, the PSA offering, something I observed while in London. This was reinforced by reference to services industries as one of two of its largest markets. These represent big deals. The CA deal is a different flavour. But when the overall revenue number is $47.1 million I’d like to know the impact of larger deals.
As usual, Zach took pokes at SAP, describing Business ByDesign 2.5 as more of a 0.75 release and Microsoft as ‘cloud free.’ All part of the fun.
From readers’ perspective, NetSuite’s announcement and in particular his observations about growth at a time when most other software vendors were either static or saw falling revenues is worth noting. As I have repeatedly said, SaaS providers are consistently showing fast and sustained growth. As the Big Kahuna in the broader applications space, NetSuite is providing us with further evidence that SaaS is here to stay and that it is capable of reaching any business.
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