GuruFocus Premium Membership

Serving Intelligent Investors since 2004. Only 96 cents a day.

Free Trial

Free 7-day Trial
All Articles and Columns »

NetSuite: This Stock Should Help You Benefit From SAAS Growth

May 24, 2014 | About:
jaggom

jaggom

0 followers

NetSuite (N) has performed impressively this year and risen around 50%. This is in line with the expectations for a company that is one of the leading vendors in the world for cloud computing solutions as SaaS (software as a service).

NetSuite has received excellent rating from Forbes for its exceptional products. And, Forbes claims it to be one of the 100 most trustworthy companies in America, while Gartner rates it as the fastest growing financial management software company.

Solid performance

The company has strong financial credentials with phenomenal growth. The recent results were robust and exceeded analyst estimates.

The top line increased 31% from last year to $101 million in Q2, which exceeded the consensus estimate of $100.62 million. The addition of 330 new customers and an increase of 20% in selling prices as compared to last year led to the growth in revenue. EPS at $0.05 surpassed the analyst estimate of $0.02.

Positive prospects ahead

NetSuite is extremely positive about its future prospects and is targeting much higher revenue in the next quarter, in a range of $105 million to $106 million. The company plans to achieve this target with its marketing strategies and revenue from global channel partners. NetSuite also recorded a growth of 70% in global channel partners as compared to the same term in the previous year.

The EMEA region is expected to accelerate its revenue with the gaining traction for cloud implementation and in-house hosting solutions.

NetSuite acquired Retail Anywhere recently that sells point of sale (POS) retail software and software solutions to multi-channel retail stores. The acquisition allowed NetSuite to grow its presence in stores. Retail Anywhere’s cloud capabilities will compile transactions from across stores, and integrate them with back-end support systems of businesses and offer customers a complete solution.

Further, the Oracle-NetSuite partnership for providing ERP solutions as SaaS on cloud to the mid-sized industry segment is expected to bring in more customers in the future.

NetSuite is also in partnership with Capgemini, and benefited from growth in sales due to the existence of the marketing network of Capgemini in 44 countries. These partnerships have helped the company expand its customer base rapidly and its revenue as well. Going forward, the cloud computing and SaaS growth is expected to push growth. According to Gartner, the SaaS market is expected to be worth $22.1 billion by 2015 and this growth is believed to be further driven by cloud computing.

Are competitors doing better than NetSuite?

Salesforce.com (CRM) also provides business solutions and is another major player in the industry. It majorly provides solutions in Customer Resource Management software.

In June 2013 it acquired ExactTarget worth $2.5 billion. ExactTarget has a client base of 6,000 customers for its cloud marketing platform with some famous ones like Coca-Cola, Nike, Gap etc. ExactTarget is expected to strengthen the marketing platform of Salesforce.com with its expertise and skills. However, Salesforce had to take a loan of $300 million to acquire ExactTarget which was eyebrows raiser.

Investors are losing confidence in Salesforce.com due to its history of posting losses and overpaying for acquisitions. The acquisition of ExactTarget is expected to drain the company’s cash and lead to a cash crunch and an increased debt load. But Salesforce recently illustrated excellent Q2 results which were accompanied by a terrific outlook.

Its revenue for Q2 jumped 31% from last year to $957 million and EPS came in at $0.09. These figures exceeded the analyst’s expectations and the company also increased its guidance for the year. It now expects revenue in the range of $4 billion to $4.03 billion, slightly ahead of the $4 billion analyst estimate.

Intuit (INTU) is popular for its financial software and has mid-sized businesses as its client to provide software services. "QuickBooks" is its financial and accounting products which is the most popular business accounting software in the U.S. among midsized businesses.

Intuit's revenue jumped 12% from the year-ago period to $634 million for Q4. The increase in QuickBooks Online subscribers, which grew 28% and higher revenue from the Small Business Group is expected to drive further growth. There is an impressive performance by Software as a service accounting for 37% of its overall revenue. The mobile usage jumped 300% in the tax season. These results illustrate Intuit's business strategy.

Intuit has different plans to grow with the divestment of its Intuit Financial Services business and selling of Intuit Health Group. The company aims at capturing small businesses and consumer tax for future growth.

Valuation

However, NetSuite's valuation shows that the stock is expensive as of now for investors. According to Yahoo! Finance, the forward P/E multiple is huge at 230 times earnings and the PEG ratio is also 12.6 times. So, investors having a greater risk apetite might consider NetSuite for their portfolio at current levels. The CAGR of company for the next 5 years is quite impressive at 29% above the industry average of 18.7% and hence, is expected to grow at a faster rate than the industry in the next five years according to analysts.

Conclusion

NetSuite has shown exceptional growth in its top line and bottom lines. It has huge opportunity to grow with the emerging cloud-based applications era. The company’s wide customer base and some strong partnerships make it a good choice for investors' portfolio.


Rating: 0.0/5 (0 votes)

Comments

Please leave your comment:


Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK