Is NetSuite a Rule Breaker?

It's another week of earnings reports from fast-growing upstarts. We've already seen strong results from Acme Packet (Nasdaq: APKT  ) and Fortinet (Nasdaq: FTNT  ) . Today, NetSuite (NYSE: N  ) gets its turn on the stage.

We'll get into the details of its first-quarter results momentarily. First, here's a closer look at the business from a Foolish perspective:

Metric

NetSuite

Operations

Its OneWorld platform ties together business applications residing in the cloud. The company bills its offerings as "Cloud ERP."

CAPS stars (5 max)

*

Total ratings

228

Percent bulls

73.2%

Percent bears

26.8%

Bullish pitches

26 out of 37

Highest rated peers

Radiant Systems, Check Point Software, TeleCommunication Systems

Data current as of April 29.

Fools may loathe NetSuite's valuation, but it's hard to argue with the company's results. Revenue grew 21% and adjusted net income 52% year-over-year. Most importantly, cash from operations soared 43% as contributions from deferred revenue more than doubled.

As a renter of online software, deferreds are an important part of NetSuite's business. Customers sign long-term agreements and pay upfront subscription fees that flow directly into the company's coffers -- even though the revenue from these fees is recognized ratably, over the course of the contract term.

Deferreds rise when contract signings increase. NetSuite tracks signings via a non-GAAP measure called "calculated billings," which rose 30% in the first quarter to $61.8 million. All signs point to the company winning converts to its platform.

Contrast that with the results reported by peer SuccessFactors (Nasdaq: SFSF  ) , which saw booked revenue rise twice as fast as deferred revenue. SuccessFactors may look like the faster grower, but it's NetSuite that's building a backlog.

Does that make it a Rule Breaker? Not as far as I'm concerned. NetSuite looks better than it did a few months ago, but salesforce.com (NYSE: CRM  ) remains the Top Dog and First Mover in delivering business software via the cloud. I don't see that changing soon.

Do you agree? Disagree? Tell us what you think about NetSuite's report, approach, and competitive differentiation using the comments box below. You can also rate NetSuite in Motley Fool CAPS.

The Motley Fool recently introduced a free My Watchlist feature that allows users to stay ahead of the curve and receive up to date news on companies like NetSuite, or any of its peers or competitors. To get up-to-date news and analysis, add these companies to your watchlist today:

Acme Packet, Check Point Software, and salesforce.com are Motley Fool Rule Breakers recommendations. Check Point Software is also a Motley Fool Global Gains pick. Salesforce.com is a Motley Fool Big Short short-sale selection. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers is a member of the Rule Breakers stock-picking team. He didn't own shares in any of the companies mentioned in this article at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool is also on Twitter as @TheMotleyFool. Its disclosure policy is a rebel with a cause.


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