Value Line has recently initiated coverage of NetSuite Inc. (N) in its flagship product, The Value Line Investment Survey. Founded in 1998, the company is headquartered in Silicon Valley with more than 1,200 employees across nine offices throughout the United States, Canada, Europe, Asia, and Australia.
NetSuite mainly offers cloud-based financials/Enterprise Resource Planning (ERP) software suites, and also provides a broad set of applications, including accounting, Customer Relationship Management (CRM), Professional Services Automation (PSA) and e-commerce that enable companies to manage most of their core business operations in a single integrated product. Additionally, it offers customers support and professional services related to implementing and supporting its products. The company’s solutions are delivered over the Internet as a subscription service using the software-as-a-service (SaaS) model.
NetSuite’s comprehensive business management application suite provides an integrated solution for running the core functions of a business, with all elements of the software sharing the same data, which allows for seamless, cross-departmental business process automation and real-time monitoring of operating metrics. Firms can deploy NetSuite’s solution as a comprehensive product or as a specific application such as financials/ERP, CRM, PSA or e-commerce that can be integrated with any existing software.
To drive growth, NetSuite intends to expand its cloud-based, integrated business suites; further penetrate global enterprises; tailor products to customers’ specific needs; grow its customer base and expand the use of services within existing accounts; foster the continued development of its partner network; and address the multinational business requirements of clients.
The firm’s customers are diversified in size and across a wide variety of industries, with a focus on medium-sized businesses and divisions of large companies. Moreover, customers span 80 countries, with no single user accounting for more than 3% of revenues over the past three years. Sales in 2011 were over $236 million, with 27% of that figure generated overseas.
The markets in which NetSuite operates are highly competitive, fragmented, and subject to rapid changes in technology. Although it believes none of its larger competitors currently offers a similar cloud-based product, the company faces significant competition within each of its markets from companies with broad product suites and greater name recognition. In addition, some of its larger competitors have announced plans to launch new products that could compete more closely with NetSuite’s cloud-based application suite. Principal competitors include Epicor Software Corporation, Intuit Inc. (INTU), Microsoft Corporation (MSFT - Free Microsoft Stock Report), SAP AG (SAP), The Sage Group plc and salesforce.com, inc. (CRM).
While the top line has grown at an impressive rate over the past five years, the company has not been profitable based on generally accepted accounting principles (GAAP) during any quarterly or annual period since formation. Indeed, the company experienced a net loss of $32.0 million for the year ended December 31, 2011 and, as of that date, its accumulated deficit was $343.5 million. Furthermore, it expects to make significant future expenditures related to the development and expansion of its business. Thus, NetSuite will have to generate and sustain increased revenues to achieve and maintain future profitability.
Potential shareholders should also take note of the the company’s majority shareholders. Found in NetSuite’s proxy statement (SEC form DEF14A filed April, 2012), entities beneficially owned by Lawrence J. Ellison, CEO of Oracle, and his family held an aggregate 55% of the company’s common stock. As a result, Mr. Ellison is able to exercise control over significant corporate transactions, including a change of control or liquidation. Currently, certain voting restrictions apply to the vast majority of these shares; however, if particular situations arise, Mr. Ellison would be able to exercise control over additional corporate matters, including the election of directors.
Subscribers interested in learning more about this cloud-based software provider are advised to consult Value Line’s full-page quarterly reports, as well as any supplemental reports and relevant articles that may arise as important news comes to light.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.