NetSuite: Choosing Offense Amid the Downturn

NetSuite chief executive Zach Nelson may never match the legendary “It’s not enough that I win; everyone else must fail” intensity of his backer Larry Ellison. But he set a clear tone on today’s third quarter earnings conference call: NetSuite will survive this downturn by aggressively stealing other companies’ business.

First the results: NetSuite increased revenues by 44% to $40.4 million year-over-year, roughly in line with the second quarter’s year-over-year increase and what analysts were expecting. But net income missed analysts’ expectations by a penny, with NetSuite losing $1.7 million or three cents per share, excluding certain items. NetSuite said the dollar’s rise in value lead to $874,000 in losses. The stock closed up 1.82% at $10.05 and continued to trade up modestly in after hours.

Nelson described the last two days of the quarter—as luck would have it the days after the government failed to pass the bailout bill—as a time when customers just froze all spending, impacting a “healthy” chunk of NetSuite’s business. “It was unprecedented,” he said on the third quarter conference call. “Everyone just closed their wallets.”

That said, Nelson emphasized that he expected NetSuite to gain market share and come out of this downturn stronger. On the very day Salesforce.com announced a “connector” between it and NetSuite’s products, Nelson talked about the recently announced “RenewForce” program, which encourages companies using Salesforce.com to switch to NetSuite at a 50% discount in Salesforce’s price. Nelson also said NetSuite would target divisions of big companies currently running SAP. And smaller upstarts? The market will take care of them. “Smaller competitors will wither away and large competitors will de-invest from the mid-market,” Nelson said.

NetSuite’s stock has fallen precipitously from its IPO late last year, and remains unprofitable despite 36 quarters of revenue growth. Still, it’s one of the fastest growing public software companies and boasts a strong balance sheet with $133 million in the bank.

For more on the Salesforce.com-NetSuite rivalry check out my interview with Nelson on the day of the IPO.