NetSuite Inc. (NYSE: N), which develops web-based enterprise resource planning (ERP) software, is making its first acquisition as a public company. That is, the firm is shelling out $26 million for OpenAir.
Founded in 1999, the company develops software that helps services companies to manage projects. Of course, the company uses an on-demand model and has some top-notch partners, such as IBM (NYSE: IBM).
Let's face it, there's much room for efficiency in the services sector. What's more, it's a large market opportunity.
Interestingly enough, NetSuite will invest in the OpenAir software offering for at least the next ten years. No doubt, this will alleviate some of the potential fears of customers.
Although, the acquisition will weigh on future results. NetSuite has increased its 2008 loss estimate from $0.04 per share to $0.04-0.06 per share.
So far in today's trading, NetSuite's shares are down 3% to $22.05.
According to its conference call, things look good for NetSuite (Nasdaq: N), which offers an on-demand enterprise resource planning (ERP) platform for small and medium size businesses. Yet, it wasn't enough for investors. So far in today's trading, the stock price is down 16% to $18.72.
But, on its face, the Q1 report was strong. Revenues spiked 47% to $34.1 million and the net loss fell from $9.28 million to $2 million.
In fact, NetSuite had more than one million log-ins for the quarter and there were more than 400 new customers. Then again, the company continues to innovate – with new offerings like OneWorld, which is a good fit with multinational companies.
At the same time, NetSuite is striking key deals for distribution. For example, there is a new alliance with BT (NYSE: BT).
No doubt, Wall Street can get jittery – especially in the short run. But, NetSuite likes to say that it is gunning for the "Fortune 5 Million" businesses, which is a multi-billion market opportunity. And despite attempts from competitors – like SAP (NYSE: SAP), which recently scaled back its plans – NetSuite is still positioned nicely.
MOST NOTEWORTHY: Jefferies Group, Quality Systems and Techwell were today's noteworthy initiations:
Friedman Billings initiated Jefferies Group (NYSE: JEF) with a Market Perform citing the difficult underwriting environment and challenging credit market.
JMP Securities initiated Quality Systems (NASDAQ: QSII) with an Outperform rating and $35 target. The firm expects the company's practice management and electronic medical record solutions to benefit from growth opportunities within the ambulatory market.
Techwell (NASDAQ: TWLL) was assumed with an Overweight rating and $14 target at Thomas Weisel, as they expect TWLL to have continued stable revenue growth given its market leadership and increased global security demand.
OTHER INITIATIONS:
Bernstein initiated NetSuite (NYSE: N) with a Market Perform rating and $23 target.
Keefe Bruyette started Comerica (NYSE: CMA) with a Market Perform rating and $37 target.
The folks at NetSuite (NYSE: N) certainly have good timing. They were able to launch their IPO late last year – before the equity markets came undone.
Now, the company has released its first quarterly report as a public company. Q4 revenues spiked 57% to $31.7 million and there was a net loss of $3.3 million, which was much better than the loss of $8.1 million in the same period a year ago.
NetSuite, which is majority-owned by Oracle's (NASDAQ: ORCL) Larry Ellison, is a provider of web-based business applications. Think of it as filling the gap between Intuit's (NASDAQ: INTU) QuickBooks and mega applications from SAP (NYSE: SAP) and Oracle.
And, it's a big market opportunity. In fact, NetSuite often says that it is focused on the "Fortune Five Million" companies.
But, as is the case with other web-based providers, there is some uncertainty in the marketplace. While NetSuite isn't seeing a fall-off, the company is still providing in-line guidance – with a full-year revenue projection of $153 million to $156 million, which is a 44% increase (on the top end).
Keep in mind that NetSuite had to deal with the severe tech recession of 2001-2002 and was able to actually thrive in the environment. A key reason is that companies were looking for cost-effective solutions.
In today's trading, NetSuite's stock is down 5.62% to $22.17.
Last year was fairly robust for on-demand software IPOs, as seen with companies like NetSuite Inc. (NYSE: N).
Well, Wall Street wants to give more deals for investors to chomp on. This week, LogMeIn filed to go public. The company develops solutions for remote-connectivity for IT systems, such as for small and medium-sized businesses (SMBs).
The company is getting traction. Over the past year, the customer base jumped from 48,000 to 92,000. For the first nine months of 2007, revenues spiked 151% to $18.4 million (although, the company is still losing money).
Then again, LogMeIn has a robust free version of its software, which allows for a seamless upgrade to a premium offerings (the business model is based on subscriptions that range from $40 to $1,900 per year).
It also helps that the LogMeIn platform is quite scalable. That is, it connects more than 4.2 million computers. Oh, and the company has a key deal with Intel Corp. (NASDAQ: INTC).
It's going to be a nice Christmas for Larry Ellison, the founder and CEO of Oracle Corp. (NASDAQ: ORCL). He's the majority owner of NetSuite, which had a nice IPO today. (It will start trading on Thursday under the ticker N.)
And, of course, Oracle posted a stellar fiscal Q2. Revenues spiked 28% to $5.31 billion and earnings came in at $1.3 billion, up 35%. In fact, this was the strongest growth spurt in a decade.
A big positive was license revenues, which were up 38% to $1.67 billion. Then again, it helps that Oracle has cobbled together a variety of acquisitions, boosting the product offerings as well as the customer footprint. Because of the diversification, Oracle is not seeing a drag from recent problems in the financial services space. The heft has also been helpful in combating fierce competitors, such as IBM (NYSE: IBM), SAP (NYSE: SAP) and Microsoft (NASDAQ: MSFT).
Over the past couple years, I've met with Zach Nelson several times. He's a veteran of the software world and is currently the CEO of NetSuite (which starts trading tomorrow as NYSE: N). The company develops on-demand software for the small-to-mid size business (SMB) segment, essentially allowing for sophisticated enterprise resource planning (ERP) functionality at affordable pricing.
Despite the success of NetSuite, it has been in the shadows of mega player, Salesforce.com (NYSE: CRM).
But this may change; that is, today NetSuite had a successful IPO, raising $161 million. At first, the company had a $13-$16 price range on the offering, but was able to price the deal at $26. NetSuite used an online Dutch auction system for its IPO, which allows any investor to participate.
The ERP market for large businesses is mostly dominated by SAP (NYSE: SAP) and Oracle (Nasdaq: ORCL). However, the SMB market is fairly under penetrated (Nelson calls it the "Fortune Five Million").
Dell Inc. (NASDAQ: DELL) has struck again -- that is, another acquisition. This time, Dell purchased Everdream, a privately-held firm based in Fremont, California. The price tag was not disclosed.
Started in the heyday of the internet, Everdream has displayed staying power. The company has been able to build software tools that allow for remote management of computers -- such as dealing with patches, backups, and antivirus updates. The company uses an on-demand approach, which is gaining lots of traction in the tech sector. Just look at the success of companies like Salesforce.com (NYSE: CRM), NetSuite, and Taleo Corp. (NASDAQ: TLEO).
Currently, Everdream manages about 140,000 desktops. Although, with the power of Dell, that footprint will likely spike. What's more, the deal should be a nice fit with Dell's recent acquisition of SilverBack Technologies, which is also a remote services player.
Intuit (NASDAQ: INTU) has made a fortune by selling easy-to-use and affordable accounting software for small businesses. But competition is heating up -- which is, no doubt, a great benefit for customers.
The latest entrant is NetBooks, which recently raised about $9 million in a Series A round. The investors include CMEA Ventures and Integral Capital.
Developing accounting software is extremely complex. As a result, it took NetBooks about four years to create its offering. Interestingly enough, the company's founder, Ridgely Evers, was the mastermind of Intuit's QuickBooks.
With NetBooks, a small business can accomplish things like sales management, customer relationship management (CRM), vendor management, and so on.
And since it uses an on-demand approach, NetBooks is fairly easy to implement and does not require large information technology (IT) expenses.
But the big test will be the upcoming IPO of rival NetSuite. If it's a success, I think we'll likely see more companies like NetBooks hit the market.
If you want to check out more venture fundings, click here.
Founded in 1999, Intacct is now a key player in the on-demand software space. The focus is on enterprise resource planning (ERP) solutions for small and mid-size companies (of which there are about 2,000 customers).
To ramp up growth, the company raised $14 million in venture capital. The investors include Sigma Partners, Sutter Hill Ventures, and Emergence Capital Partners.
I had a chance to interview the company's CEO, Mike Braun. He is a veteran of the tech world, having worked at high level positions for IBM (NYSE: IBM) as well as a variety of upstart companies.
Q: Salesforce.com (NYSE: CRM) just reported a record quarter. What's your perspective on the company's future growth prospects?
A: It was a fantastic quarter -- further demonstrating the momentum of the new "on-demand" computing model. Salesforce continues to focus on new customer acquisition, which drives high expenses in the near term, but you can get a preview on the future by looking at the cash flow growth of 197% YTY. Once companies move to this delivery model, whether with salesforce.com or Intacct, they love it and will stay for life.
Over the past couple weeks, we've seen some interesting IPO filings from on-demand software players. There is NetSuite, as well as Constant Contact.
In light of the success of Salesforce.com (NYSE: CRM), it's a good bet investors will be interested.
So to get some insight, I talked to the CEO of Centive, Mike Torto.
Founded about ten years ago, the company uses on-demand applications to help companies with compensation management.
How are things going at Centive?
We've just completed another fantastic quarter, and year to date we're winning about 70% of the deals we compete in. We have over 80 customers representing almost 13,000 subscribers, and we're two weeks away from the 5th major release of Centive Compel®. By any measure – most customers, most subscribers, most product awards, most mature solution – Centive Compel continues to be the clear leader in the on-demand sales compensation market.
As has been expected, NetSuite filed its IPO yesterday. The company – which is backed by Oracle's (NASDAQ: ORCL) Larry Ellison – is a leader in a new approach to software: on-demand. This uses the Internet as a way to deliver business applications.
To get some insight on the IPO, I interviewed Chris Cabrera, who is the CEO and founder of Xactly (which is a venture-backed on-demand software company). How are things going at Xactly?
Things at Xactly continue to go great. We have more than 70 customers, we are dominating the on-demand compensation space, we were recently recognized by the ABA (American Business Awards) as "Best New Company" and we just moved into 30k square feet of prime real estate in downtown San Jose to house our 100 employees.
Not that long ago, on-demand software was considered a niche. Would real businesses use the Internet for their software needs? As seen with the stellar success of salesforce.com, inc. (NYSE: CRM), on-demand appears to be the next-big-thing and today another big player in the space filed to go public: NetSuite.
Founded back in 1998, NetSuite has built a comprehensive offering of on-demand applications for small and medium-sized businesses – such as ERP (enterprise resource planning), CRM (customer relationship management), and e-commerce. It means competing against rivals like Microsoft Corporation (Nasdaq: MSFT) and SAP AG (ADR) (NYSE: SAP).
The software is sold on a subscription basis and is fairly easy to use. Its getting traction. From 2004 to 2006, revenues increased from $17.7 million to $67.2 million. I suspect the growth will continue its ramp.
Interestingly enough, the biggest shareholder is Larry Ellison, who is the cofounder and CEO of mighty Oracle Corporation (Nasdaq: ORCL).
The underwriters include Credit Suisse Group (ADR) (NYSE: CS) and W.R. Hambrecht. You can find the prospectus at the SEC website. And if you want to see more recent IPOs, you can click here.
Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.
NetSuite Inc. (NYSE: N), which develops web-based enterprise resource planning (ERP) software, is making its first acquisition as a public company. That is, the firm is shelling out $26 million for OpenAir.
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