02.11.09 

n: A STRONG Q4:08 REPORT, BUT MAINTAINING A HOLD RATING ON A DIFFICULT MARKET
We thought NetSuite reported strong Q4:08 financial operating results, with a sequential improvement in revenue, positive net earnings, and solid new customer and OneWorld customer additions. Moreover, average revenue per customer and net bookings on a sequential and y/y all increased. However, with management's cautious revenue guidance, and evidence of a continued difficult spending environment for the near term, we meaningfully reduced our revenue forecast, although we raised our 2009 non-GAAP EPS forecast by a penny to $0.05. We are maintaining our Hold rating as a result, despite the financial results in the quarter and our generally favorable view of the company. Contact Us for Full Report - PDF

11.04.08 

n: SOLID Q3:08 RESULTS AND IMPLEMENTING HOLD RATING WITH A PRICE TARGET OF $11
While NetSuite shares have fallen by over 58% since our last earnings report on August 6, 2008, the overall downturn in the market has reduced the company's stock to a valuation that in our view is an attractive entry point for investors. NetSuite reported good numbers yesterday across most of the income statement. Revenue was in line with management expectations and EPS missed slightly due to appreciation in the US dollar and its unfavorable impact on international operations. In regard to guidance, management has reduced their outlook for Q4:08 to $41M-$42M in revenue, thus reducing full year guidance to $152M-$153M. We have also modeled in weaker demand for the first half of 2009 as result of a weaker global economy and tighter technology budgets. However, we continue to have a constructive view of the company and believe that it is well positioned within the market with comprehensive and targeted products for SMBs offered at an attractive price. Management should be able to leverage investments made in sales and recent acquisitions; we have consequently modeled y/y sales growth of 35% in FY:09. We believe shares are slightly undervalued at 2.3x FY:09 estimated revenue on an EV/Sales basis, and have placed a fair value of $11 on NetSuite shares based on comparable valuation. Our target price represents a multiple of 2.7x FY:09 estimate revenue and represents potential upside price appreciation of 9%. Consequently, we are placing a Hold rating on NetSuite shares, as we view shares at largely fair value. Contact Us for Full Report - PDF

08.06.08 

n: Q2:08 PERFORMANCE AND FORWARD GUIDANCE ALL GOOD - MAINTAINING POSITIVE OUTLOOK
While NetSuite shares have fallen by over 6.5% since our assuming coverage on July 16, we thought the overall downturn in the market was mostly responsible for price decline. As it turns out, our inclination was correct. NetSuite reported good numbers yesterday across most of the income statement. Both revenue and earnings met our estimates and the consensus Street revenue and EPS numbers. Moreover, the all-important deferred revenue balance grew 7% y/y to $78.2M (the highest in its history), while bookings in the quarter reached $38.7M. The Company also continued to add NetSuite OneWorld customers, ending the quarter with 130 active companies using the product (up from 30 at the end of Q1:08). In regard to management guidance, there were no changes to their prior full-year revenue and non-GAAP net loss forecast, while their Q3:08 revenue forecast was essentially in line with our own projection and the consensus estimate. The one negative we saw in the release was slightly higher-than-expected costs due to the acquisition of Open Air and additional staffing, and a lower gross margin than anticipated. That resulted in a non-GAAP net loss forecast of $0.02 to $0.01 for Q3:08, versus our estimate and a consensus forecast for a penny loss. Nevertheless, given the Company's strong revenue performance in the quarter, our expectations for continued growth in bookings and deferred revenue, and good visibility with NetSuite's business, we continue to have a constructive view of the Company. Our comparable valuation continues to place a fair value of $21 on NetSuite shares. Contact Us for Full Report - PDF

07.16.08 

n: ASSUMING COVERAGE WITH POSITIVE OUTLOOK
We are assuming coverage of NetSuite as we continue to expand our coverage universe into Software as Service offerings. Since its public offering in late 2007, NetSuite has enjoyed strong double-digit growth in each of the last three quarters based on its industry integrated on-demand business applications suites. Overall, we generally have a constructive view of NetSuite's products and market position in enterprise software for small and medium-size businesses. Specifically, we think the rapid pace of new product introductions at the Company, its strong presence in the SMB market, singular focus on an integrated suite of software, and its development of industry-specific verticals, should continue to bode well for the Company in the future. In addition, we think CRM applications will be among the top sectors in a slowing enterprise software market. However, there are several risks for investors, in addition to a growing global slowdown. For starters, NetSuite is not a cheap stock. On an EV / Sales basis, shares currently trade at 4.3x our CY:09 revenue estimate, versus a comparable universe average of 2.5x. Moreover, the competitive landscape is rife with both large rivals that include SAP, Microsoft, and Salesforce.com, and smaller up-and-coming software vendors that include SugarCRM and Sage Software. Moreover, since NetSuite is in an early stage of its company life cycle, it has yet to generate pro forma earnings and FCF. Nevertheless, given our expectations for global Company growth and improving financials next year, our comp group analysis places a fair value of $21 on NetSuite shares. Our analysis was largely based on analysis of an enterprise software comparable universe and review of several high-growth software companies. Contact Us for Full Report - PDF

02.15.08 

n: FQ4 RESULTS...'SUITE' ON VALENTINE'S DAY
Yesterday, Netsuite reported FQ4:07 results of $31.7 million in non-GAAP revenue and a non-GAAP loss per share of $0.01, well ahead of both our estimates ($30.5 million in revenue and a loss per share of $0.05) and street consensus ($30.52 million and a loss per share of $0.03). Overall, the results were strong as Netsuite added 430 new customers in the fourth quarter, increasing its active customers to 5,600 at the end of the year. Revenue from international markets doubled year over year to $19.2 million for CY:07. The performance for FQ4:07 has exceeded street expectations; however, investors must keep in mind that Netsuite is in the early stage of its product life cycle and the true growth and market opportunity / potential is difficult to gauge at this time. That said, Netsuite's shares are currently trading at ~$23, which represents 9.3x and 6.8x our CY:08 and CY:09 non-GAAP EV / Sales, respectively, which appears to us to be a more interesting entry point than its shares were previously at. Our comp universe median EV / Sales is currently trading for CY:08 and CY:09 at 3.4x and 2.6, respectively. The EV / Sales gap between Netsuite and the comp group is related to the relatively smaller size of Netsuite and the difference in Netsuite's expected revenue growth of 40% (vs. the comp group growth rate of 28%). We believe that Netsuite will continue to grow at a similar pace through CY:08. Management has provided guidance in the range of $33.0-34.0 million in revenue for FQ1 and a loss in the range of $1.5 million to $0.5 million or a loss per share of $0.02 to $0.01. We believe that management will keep costs under control through CY:08 and CY:09. Contact Us for Full Report - PDF

02.14.08 

n: HOW 'SUITE' IT IS...FQ4 PREVIEW
Netsuite is scheduled to report earnings for FQ4:07 tonight after the close. We are expecting Netsuite to report revenue of around $30 million, which represents 40% year-over-year growth from FQ4:06. Investors must keep in mind that Netsuite is in the early stage of its product life cycle and the true growth and market opportunity / potential is difficult to gauge at this time. Although the stock has come down to ~$23, it is still trading at a premium to its peers. Netsuite's shares are currently trading at 9.3x and 6.8x our CY:08 and CY:09 non-GAAP EV/ Sales, respectively. Our comp universe median EV / Sales is currently trading at CY:08 and CY:09 at 3.4x and 2.6, respectively. In our view, the EV /Sales gap between Netsuite and the comp group is related to the relative smaller size of Netsuite and the difference in Netsuite's expected revenue growth of 40% (vs. the comp group growth rate of 28%). Contact Us for Full Report - PDF

01.29.08 

n: INITIATING COVERAGE
We are initiating coverage of NetSuite as we continue to expand our coverage universe into Software as Service offerings. NetSuite, in our view, is not a cheap stock at these levels and investors must keep in mind that NetSuite is in the early stage of its product life cycle and the true growth and market opportunity / potential is difficult to gauge at this time. That said and, based on our comp universe noted in this report, we believe that the current valuation seems reasonable at this time with limited upside for the stock in the near future. NetSuite shares are currently trading at 11.6x and 8.5x our C2008E and C2009E non-GAAP EV / Sales. Our revenue estimates for C2008 and C2009 are $152 million and $207 million, respectively. Our enterprise value (EV) is based on roughly 69 million fully diluted shares (60.4 million shares primary) outstanding, a share price of $28, and cash post the IPO of roughly $171 million based on our forecasts as of 12/31/2007. Our comp universe median EV / Sales is currently trading for C2008 and C2009 at 5x and 3.8x, respectively. The EV / Sales gap between NetSuite and the comp group is related to the relatively smaller size of NetSuite, in our view, and the expected revenue growth (+40%) that should continue to outpace the comp group's growth rate of +28%. Contact Us for Full Report - PDF