NetSuite's Forecast: Cloudy with a Strong Chance of Gains

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Get Your Own Cloud Man
The familiar Rolling Stones’ classic, “Get Off of My Cloud,” was a hit when it was released in September of 1965; 48 years later, it is still relevant today.  In fact it may stage a comeback as a business anthem due to a tsunami that is currently hitting the IT market. 

NetSuite Inc. (NYSE: N) is an enterprise software company--that is, a maker of software that businesses and other enterprises access via the “cloud” on the internet.  Companies use it for accounting, customer relationship management, and other business-related uses.  Based in San Mateo, CA, the company is one of the leaders in cloud software, also known as software-as-a-service, or SaaS.  Offered as a pay-as-you-go system, companies use it only when needed instead of paying big, upfront, long-term licensing fees.

Many IT professionals feel that the cloud is the biggest disruption in technology since the move from mainframe to client-server computing.  As companies initiate the transition from the PC era to the cloud era, the whole process of how data, applications and other IT services are delivered and used will change dramatically.

Forget the Rest; Our SaaS is the Best
The Maxim Group recently completed a Software Spending Survey of 50 chief information officers and technology mangers.  One of the takeaways suggested that the majority had strong expectations about an increase in SaaS technologies across a broad range of applications; more importantly, 40%-70% of the respondents expected to deploy this strategy over the next three years;  not just in familiar areas like mobile deployment and social areas, but in more traditional business functions like business intelligence and financial reporting.

Surf with ERP
Another segment of the NetSuite model is the Enterprise resource planning (ERP) site.  These types of systems integrate internal and external management information across an entire organization – capturing finance/accounting, customer relationship management, sales, and customer relationship management with automated, integrated software applications.  ERP exists to facilitate the flow of information between all business functions within the boundaries of the organization, even managing connections to outside stakeholders.

Your Only as Good as Your VARs
NetSuite has an army of Value Added Resellers (VARs) who have lined up to support the company’s growth.  These companies not only have a proven record of success serving their regional clients in the US, but they have a strong international footprint as well.  NetSuite’s Solution Provider Program, launched in 2002, is considered one of the industry’s leading cloud channel partner programs, providing hundreds of VARs with a cloud solution to offer prospective customers.  Using smart incentive programs, NetSuite continues to gain traction with clients.

<img height="223" src="/media/images/user_15468/netsuite_large.png" width="472" />


Cloudy Competition
The competition in this area is formidable, with companies like LivePerson (NASDAQ: LPSN), Ellie Mae (NYSE: ELLI), and (NYSE: CRM).
LivePerson provides online engagement solutions that facilitate real-time assistance and expert advice in the United States, Canada, Latin America, Europe, and the Asia-Pacific region.   The company facilitates real-time online interactions, such as chat, voice/click-to-call, email, and a self-service/knowledge base for corporations of various sizes, and connects businesses and independent service providers with individual consumers seeking help on its hosted software platform.

Ellie Mae, together with its subsidiaries, provides business automation software for the mortgage industry in the United States. Its on-demand technology-enabled software solutions help streamline and automate the process of originating and funding new mortgage loans, facilitating regulatory compliance, and reducing documentation errors., provides cloud computing and social enterprise solutions to various businesses and industries worldwide. The company delivers customer relationship management applications through the Internet or cloud. Its cloud computing services enables customers to connect, engage, sell, service, and collaborate with other customers.

Cloudy Returns Suggest a Very Strong Chance of Reign
Gross Margin, Sales Growth quarter-over-quarter, and EPS Growth over the next 5 years all add testament to some interesting returns:

<table> <tbody> <tr> <td> </td> <td><strong>NetSuite Inc.</strong></td> <td><strong>LivePerson Inc.</strong></td> <td><strong>Ellie Mae, Inc.</strong></td> <td><strong>, Inc.</strong></td> </tr> <tr> <td><strong>Earnings Date</strong></td> <td>1/31/2013</td> <td>2/11/2013</td> <td>2/14/2013</td> <td>2/28/2013</td> </tr> <tr> <td><strong>Gross Margin<br /></strong></td> <td>69.43%</td> <td>77.88%</td> <td>76.34%</td> <td>77.64%</td> </tr> <tr> <td><strong>Sales Growth Qtr over Qtr<br /></strong></td> <td>30.89%</td> <td>15.50%</td> <td>87.12%</td> <td>34.94%</td> </tr> <tr> <td><strong>Sales Growth Past 5 Years </strong></td> <td>28.60%</td> <td>31.75%</td> <td>7.56%</td> <td>35.45%</td> </tr> <tr> <td><strong>EPS Growth Next 5 Years</strong></td> <td>30.38%</td> <td>24.38%</td> <td>37.83%</td> <td>27.34%</td> </tr> </tbody> </table>

On a post-report conference call with the Street, NetSuite projected 2013 revenue of $397 million to $402 million, and profits of 26-27 cents a share; consensus has been $396.3 million and 31 cents.

mjwcopywriter has no position in any stocks mentioned. The Motley Fool recommends Ellie Mae, LivePerson, Netsuite, and Try any of our Foolish newsletter services free for 30 days. 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 has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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