Last evening I listened in on NetSuite’s third quarter earnings call. The company beat out analysts estimates on every major metric but still ended up with un-nerving stockholders with a flaky explanation about the difference between ‘calculated billings’ and revenue for accounting purposes. I provide a comprehensive analysis of the results and my take on the billings issue over at ZD Net. The key reporting figure to understand is revenue which was up 19% year over year to $49.7 million (£31.0 mill.)
In enterprise terms NetSuite remains a small company but is growing rapidly as it fleshes out its ERP + CRM suite, its vertical offerings in e-commerce, professional services, discreet manufacture and wholesale distribution plus aggressively adds names to its channel partner roster. During the analyst discussion there were a few tidbits that caught my attention and warrant discussion on these pages.
First up, Zach Nelson, NetSuite’s CEO said the company is starting to get the attention of some big name accounting firms although he didn’t elaborate on who those names might be. I am assuming that’s in the US though I would not be surprised to hear that firms like Baker Tilly are starting to take notice. I know they’re in the hunt for a clutch of SaaS/cloud providers. And in another press release that has echoes to Intacct’s relationship with AICPA, the company announced a partnership with the US:
I like what I see happening there, especially since this seemed to be something at the back of mind last time I met with NetSuite’s marketing people. The fact is if they are going to get into the bigger deals., they have to get professionals onside. Winning on one piece of functionality when you’re selling as suite doesn’t cut it. Elsewhere I regularly see the roster of accounting partners at Xero, KashFlow and FreeAgent growing steadily so it is not as though this is a new trend but it needs to accelerate in the mid-market.
If your firm has coding capability then NetSuite might well be a company worthy of your attention but only as part of a portfolio of vendors you are prepared to support. If your firm doesn’t have coding capability then team up with those that do. It is perfectly reasonable for you to consider partnering where you act as the lead in consulting and implementing the deal but contract for any custom work. That’s not without some challenges but they’re challenges that can be overcome.
The other thing that matters in the earnings context are his remarks about Sage and Microsoft. Long story short, NetSuite isn’t seeing them in deals but is replacing anyway. When I mention this to incumbents it confounds them precisely because they don’t see these deals. This is the hidden SaaS cancer that will continue to eat away at incumbent accounts unless they do something about it. Right now they may not be feeling the pain, especially given that NetSuite is the Big Dog on the global SaaS ERP stage yet only has about £120 million in annual sales, most of which are made in the US. That will change as NetSuite creeps upmarket with OneWorld where the average deal size they’re looking for is $100,000.