NetSuite Exposed -
Background & History

NetSuite’s original company name was NetLedger and its initial product was an online accounting software solution. Founded in the State of California in 1998, Netsuite was reincorporated in the State of Delaware in 2007. The company was seeded with start-up capital from Oracle CEO Larry Ellison in additional to a host of key staff previously employed at Oracle. The company’s Chairman and CTO, Evan Goldberg, President and CEO, Zach Nelson and many other key management left their posts Oracle to join NetSuite. The as a time when the NetSuite solution was licensed by Oracle under the moniker of the Oracle Small Business Suite, however, that arrangement was short lived.

Over a 10 year history the company has evolved from a single simple hosted accounting system to a fully integrated on-demand solution that includes accounting, ERP, CRM, and e-commerce capabilities. The robust Netsuite system fully supports end-to-end business process management across the organization. NetSuite has climbed aboard the SaaS trend and aligned itself with the fast growing SMB market thereby providing significant upside potential. The SaaS movement is clearly the highest growth sector in the enterprise software industry and shows strong signs of continued acceleration over the next five years.

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The SMB market is also regarded as a fast growing market segment. According to analyst firm Gartner, Inc., North American companies spent about $12.7 billion on ERP, CRM and supply chain management applications in 2006, of which SMBs accounted for 31%. Gartner forecasts that SMB spending on these types of business applications will continue to grow 11.3% annually from 2005 to 2010, compared to 5.8%for large enterprises, thereby providing a healthy target market for NetSuite and other on-demand ERP solutions in the years to come.

NetSuite does not to disclose the specifics about average customer size and customer churn. While NetSuite does claim a very small number of middle market and enterprise companies as clients, there is little doubt that the vast majority of NetSuite customers are small businesses. NetSuite’s customer turnover has been a hot topic of many analyst and online conversations. These sources provide ample evidence to suggest that customer churn is extremely high.

As a publicly traded company on the New York Stock Exchange, NetSuite (NYSE: N) has earned a dubious reputation among analysts and the investment community. The company achieved an impressive initial public offering (IPO) in December 2007 and has shown continued revenue growth since then. However, according to a Datamonitor report published in August 2008: “The company's steady growth has, however, failed to impress shareholders and financial analysts. NetSuite's stock has dropped to about 60%of its initial public offering price, mainly due to continuing net losses, negative cash flow from operations, and lower-than-expected deferred revenue figures.”

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While NetSuite earns about 82%of its revenue from the Americas, it is less clear how NetSuite’s financial and economic performance will be affected by the slowing global economy, the liquidity squeeze of the financial markets and the potential for shrinking IT budgets. In fact, many industry experts and economists suggest that the squeeze for market liquidity combined with the growing cautionary approach to IT spending will cause IT managers to avoid procurements with big upfront capital expenditures and implementation risk in favor of subscription-based software solutions which can be implemented more quickly at a lower total cost of ownership (TCO). Despite the optimistic SaaS projections defying the down economy, the US national and global economies have never before struggled since the introduction of the current SaaS movement so it is uncertain whether a faulting economy will further spur the growth of SaaS.

Key customers for NetSuite include CartridgeWorld, Call Command,, Saffron Rouge, Linden Lab and Spring Mountain Capital.

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