There were plenty of positive metrics in cloud ERP NetSuite’s Q3 results, from revenue that exceeded expectations to a rise in the average selling price, but losses mounted too. Ongoing and rising losses should never be made light of even for a SaaS pure-play but the company is growing and the billings figure (quarterly revenue plus the change in deferred revenue) was up a confidence-boosting 43% yoy.
As for the main numbers for the period ending September 30 2012, the company made an $8m loss (vs a year ago loss of $6.9m) on revenue that climbed 31% to $79.8m. Revenue was also up 6.8% sequentially, which is quite an achievement as the period covered the holiday season. It has made clear progress over the course of the year (see here). CEO Zach Nelson said the last month in the quarter was particularly busy. While some of that can be attributed to post holiday period deals, it contrasted with several of the traditional vendors who saw sales degrade as the quarter progressed. The prime factor boosting NetSuite’s performance is its active targeting – and securing – of larger customers and subsidiaries of large enterprises. It is positioning itself as the tier two ERP system in a two-tier deployment scenario (e.g. SAP or Oracle at HQ and NetSuite at subsidiaries or local level), enabled through its OneWorld offering, which provides multinational functionality. The evidence that its strategy is working is seen in a rise in the average OneWorld selling price of 11%, taking it to $100,000.
NetSuite is expanding and there are no signs of costs being trimmed to reduce losses but is that just a matter of time? Salesforce.com has been growing dramatically (organic and acquisition-driven) but may be starting to pull back on costs, given the news that it is cutting c100 jobs from the Radian6 business that it acquired in early 2011 (see Salesforce buys Radian6). NetSuite does not have the cost burden of serial acquisitions but carries the tradition of SaaS provider losses.