November 3rd, 2008
NetSuite Q3 earnings announced - SaaS still growing
NetSuite makes big Q3 year over year improvement in revenue
NetSuite today announced its Q3 financials. The big headline was the increase in Q3 revenues. Year over year comparison shows a 44% increase to over $40 million. That alone tells me that SaaS is still getting a foothold in the back office. While some pundits claim that SaaS only works in niche applications in SMB markets only. NetSuite’s results are encouraging to proponents of SaaS, cloud computing and on-demand applications.
I gave the detailed financial statements a quick glance while I looked for answers to some of my other questions. Questions like:
- How did the OpenAir acquisition impact revenues and cash on hand?
- Does the additional mass that OpenAir brings create operational synergies?
- As the company continues to grow, are costs as a percent of sales going down?
By my review, the OpenAir deal did reduce free cash and that’s not unexpected. The reduction in available cash is where I thought it would be and now sits at over $130 million.
There are a number of special accounting treatments to deal with preferred stock and other stock compensation issues related to the OpenAir deal. These make the financial analysis harder to complete. I believe we’ll see a clearer view of the post-OpenAir financial era in future quarters.
NetSuite did not break out sales figures between the traditional NetSuite and newly acquired OpenAir applications. I genuinely hope they provide that going forward.
Costs as a percent of sales don’t seem to be going down but I’m not overly concerned right now. When a firm is growing at a fast clip, it will incur a lot of sales costs today for revenues that won’t begin to hit the books for some time. This phenomena is exacerbated in a SaaS business as there is no upfront cash infusion as new licenses are acquired. Overall though, NetSuite will need to manage these costs as well as their available cash. Too rapid growth could exhaust cash and the capital markets today are not as free with money for secondary offerings. Cash is worth watching but there doesn’t appear to be any reason for concern today.
This blog explores the intersection set between services and technology. If it impacts either space, it will be covered here. Brian Sommer is a former Accenture partner. He did an 18-year tour of duty there and ran three small practice units (Finance Center of Excellence, HR Center of Excellence and Software Intelligence). He’s sold service projects in almost every continent and remains just as current on both services and technology today as ever before. Brian is currently CEO of TechVentive, a strategy consultancy servicing technology providers, and a research analyst with Vital Analysis. See his full profile and disclosure of his industry affiliations.
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