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NetSuite's Market Share Gains Lead to Continued Fast Growth

By Brian Feroldi - Apr 29, 2016 at 7:34PM

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The cloud-based software provider's products continue to outpace rivals as it gobbles up market share.

Image Source: Pixabay.

NetSuite (N), a provider of cloud-based ERP and e-commerce software, reported its first-quarter earnings results after the market closed on Thursday, April 28. Here's a look at how its results shook out during the period. 

NetSuite first-quarter results: The raw numbers

 Q1 2016Q1 2015Change %
Revenue $216.6 million $164.8 million  31%
Non-GAAP net income  $8.9 million $9.0 million -1%
Non-GAAP EPS $0.11 $0.11 No change

Data Source: NetSuite

What happened with NetSuite this quarter?
NetSuite continues to grow its top line rapidly as its sales once again grew by more than 30% when compared to the year-ago period. This marks the 15th quarter in a row that it has grown its revenue by at least 30%.

Beyond the headline numbers, the company also had plenty of good news to share with investors:

  • NetSuite's business management platform, called OneWorld, continues to grow rapidly and it accounted for more than 50% of the company's new business booked during the quarter.
  • SuiteCommerce, its e-commerce solution, continues to grow quickly and 20% more customers added this platform to their order than did in the year-ago quarter. For the first time ever, sales of SuiteCommerce represented more than 20% of total new business booked.
  • In total, the company signed up 372 new customers during the period and its average deal size jumped by a healthy 20%.

NetSuite also let investors know that they continue to rapidly grab market share as Gartner estimated that the company is now the sixth largest player globally among top financial management system vendors. For perspective, Gartner estimated that NetSuite was eighth in the rankings last year.

While everything is going well for the company, there were a few blips that investors should monitor. Margins once again declined on the back of heavy investments in building out its platform as overall gross margin dropped by 100 basis points to 70%. In addition, spending on sales and marketing jumped by 33%, which is faster than overall revenue growth. The jump was caused by a 31% increase in overall head count.

According to NetSuite, it will continue to invest aggressively in expanding its capacity in future quarters.

What management had to say
Here's CEO Zach Nelson's explanation for how the company continues to grow so quickly:

Our financial results, and the results we are delivering for more than 10,000 companies operating around the globe, are driven by a new approach to building business software and by fantastic execution by our nearly 5,000 employees around the world.

Nelson also didn't hold back on the conference call as he believes that the company's market shares gains are coming directly at the expense of software giant SAP (SAP 2.46%):

On the opposite side of the spectrum SAP was the biggest revenue loser dropping $443 million in revenue according to the report. These significant market data points show that when companies are replatforming their core mission critical business systems they are choosing NetSuite far more than other alternatives.  

Looking ahead
The good times are expected to roll into next quarter as management is guiding for revenue to be in the range of $229 million to $231 million, the midpoint of which suggests growth of 30%. On the bottom line, it is calling for non-GAAP earnings per share to land between $0.02 to $0.03, which is flat with the year-ago period. 

For the full year, the company raised its revenue guidance range by $5 million and now expects total sales to come in between $955 million to $975 million. It also believes that the revenue growth will allow them to invest aggressively in the business while at the same time expand net margin slightly. For that reason, NetSuite raised its earnings-per-share guidance to $0.42 to $0.47, both up $0.02 versus the prior forecast.

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