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NetSuite’s Recent Acquisition

Posted on Tuesday, Oct 14th 2014

According to an IDC report released earlier this year, the worldwide public cloud services market is projected to grow 23% annually over the period until the year 2018. The market was estimated to be worth $45.7 billion in 2013. Within the market, the SaaS segment accounts for 72% of the total public cloud services market. It is projected to grow 20% annually over the period 2013 through 2018 driven by growth in enterprise applications cloud solutions such as enterprise resource management (ERM), customer relationship management (CRM), and collaborative applications.

NetSuite’s Financials
Cloud computing software developer, NetSuite’s (NYSE: N) recently reported their second quarter results. Revenues for the quarter grew 30% over the year to $131.8 million, in line with market expectations. EPS of $0.06 was significantly ahead of the Street’s forecast of $0.03 per share.

By segment, subscription and support revenues grew 32% over the year to $105.86 million. Professional services and other revenues grew 25% to $25.94 million.

Netsuite expects to end the current quarter with an EPS of $0.03-$0.04 compared with the market’s forecast of $0.08. They changed their year’s revenues expectations from an earlier forecast of $540 million-$580 million to $545 million-$550 million with an EPS of $0.24-$0.26. The Street was forecasting revenues of $549 million with an EPS of $0.26 for the year.

NetSuite’s Expanding Portfolio
NetSuite continues to diversify their offerings to capture a bigger market. Recently, they announced a $50.5 million acquisition of e-commerce solutions provider Venda. London-based Venda offers a Convergent Commerce Platform that is an integrated e-commerce platform that lets retailers deliver a streamlined and unified experience to end customers across desktop, mobile, social, and in-store media. Through their solutions, Venda’s customers are able to reduce the risk, complexity, and costs of deploying e-commerce options. Their strong presence in the European market will help NetSuite expand their presence in the region. NetSuite plans to integrate Venda’s capabilities of delivering a real-time, scalable commerce platform with their cloud capabilities to offer customers additional capabilities within B2B and B2C segments.

NetSuite recently also expanded their offerings to include an end-to-end payroll processing service. The Premier Payroll Service includes a payroll interface which is able to validate leave, payroll and salary data, compute full gross-to-net workings, support check printing, and provide pay cards and direct deposit while managing to handle payroll workflows for large transaction volumes. The service includes employee self-service capabilities along with an expense tracking system that is seamlessly integrated into ERP. The service will provide their customer with access to improved scalability, performance, and usability in managing payrolls.

According to an IBISWorld report, the payroll and bookkeeping market is expected to have grown 3%.2 over the period 2009 through 2014 to be worth $41 billion this year. The industry is expected to continue growing at this rate through to 2019. So far, the market has been dominated by ADP, which back in 2012 accounted for 17% of the market. But other vendors such as Paychex, PayCycle (Intuit) and more recently, cloud-based vendors such as Workday and NetSuite are also making their presence felt. NetSuite will, however, have to take on Paychex in particular to gain a foothold in this space.

Their stock is trading at $85.12 with a market capitalization of $6.5 billion. It touched a 52-week high of $120.77 in February this year.

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