NetSuite has been hiring ahead of what it considers a lengthy period of migration to the cloud. Credit: NetSuite via Facebook.
Shares of NetSuite (N) stock rose 0.35% as of 7:04 p.m. ET Thursday evening as investors were unmoved by first-quarter results that beat expectations. Here's a closer look at the final totals versus Wall Street's projections:
| N | Revenue | YOY Growth | EPS | YOY Growth |
|---|---|---|---|---|
| Consensus estimate | $161.5 million | 31.3% | $0.05 | (16.7%) |
| Q1 actuals | $164.82 million | 34% | $0.11 | 83.3% |
| DIFFERENCE | ($3.32 million) | (2.7%) | ($0.02) | 100% |
Sources: S&P Capital IQ and NetSuite press release.
Commenting on the results, CEO Zach Nelson said in a press release:
NetSuite's fiscal year 2015 started strong with record first quarter results, as we grew recurring revenue year-over-year by more than 30 percent for our eighth consecutive quarter, and beat our outlook on revenue, operating cash flow and non-GAAP earnings per share. What's even more exciting is that we are just at the beginning of a multi-year business system replacement cycle, as companies move from legacy, pre-Internet applications to NetSuite's solution designed to run companies in a modern cloud-centric world.
What went right: Cash from operations ballooned 46.6%year over year, to $28 million, a good sign for a business that needs to keep reinvesting in marketing and development to take advantage of the coming migration Nelson speaks about in the press release. Eight consecutive quarters of 30%-plus revenue growth suggests the transition may already be well underway.
What went wrong: Less clear is whether NetSuite is winning larger, longer-term deals. Deferred revenue fell more than 30% -- from $12.8 million in last year's first quarter to $8.9 million in the current Q1. For companies like NetSuite, which collect cash upfront to provide service over a specified period, growing deferred revenue is a key indicator of long-term health.
What's next: NetSuite chose not to include a second-quarter outlook in its press release. Analysts tracked by S&P Capital IQ have the company generating $172.07 million in revenue and $0.06 a share in adjusted profit, versus $131.79 million and $0.06 a share in last year's Q2. Longer term, analysts have NetSuite growing earnings by an average of 17.97% annually during the next three-to-five years.
And in terms of the overall business? Investors should keep a close eye on growth in cash from operations and deferred revenue. Continued divergence between these two might signal trouble.
