NetSuite Moves Ahead With IPO Plans

NetSuite made its long-anticipated move toward becoming a public company, filing the necessary paperwork on Monday. The company plans to raise up to US$75 million with its initial public offering of common stock. The filing did not state the number of shares or the expected IPO price, however.

Credit Suisse is the lead underwriter for the IPO. WR Hambrecht is serving as comanager.

NetSuite is the latest tech company to go public in a recent resurgence of activity that ended the years-long drought following the 2000 bubble. It has opted to follow the auction-style method for its IPO, which Google popularized in 2004, noted Frederic Ruffy, an analyst with the investor education firm Optionetics.

“The reason, perhaps, is the offering’s relatively small size,” he told CRM Buyer, adding that it “may be based on the view that investors will be eager to snap up shares of a fast-growing software company.”

Dwindling Interest From Wall Street

One result — perhaps unintended — of using the auction style process is that there doesn’t seem to be much interest from Wall Street banks, Ruffy continued, with only two firms involved in the offering.

“Consequently, the success of the IPO will depend heavily on investor interest,” he said. “That, in turn, will also be influenced by market conditions at the time of the offering and how investors view NetSuite’s future prospects in the face of rivals such as Oracle, SAP and Salesforce.com.”

Another wild card is what Oracle CEO Larry Ellison will do with the 74.1 percent stake that he and his family own in the company. It is possible he will sell once the lockout period is over, Ruffy pointed out.

The SaaS Story

NetSuite’s IPO, though, is more than just a tech story, because the company is one of the leading vendors in the Software as a Service (SaaS) CRM (customer relationship management) space. The trajectory of its IPO — and its ultimate success or failure — will be watched closely, not only for possible Schadenfreude, but also for a sign of how the model is received by the larger business and investment community.

So far, on-demand companies have provided attractive returns to investors, far outperforming traditional software companies, according to research by William Blair & Company.

“NetSuite’s S1 filing is further validation that the Software as a Service model represents the future of the software industry,” said Michael Gregoire, president and CEO of SaaS provider Taleo.

“Over the past several years, SaaS has evolved from an alternative to on-premise applications to a compelling business model and wise investment,” he observed, “as the publicly traded SaaS vendors are significantly outperforming the traditional software providers.”

For this reason, and because of the performance of such publicly owned companies as Salesforce.com, RightNow and WebEx, chances are good that NetSuite’s foray into the public markets will be a success.

The CRM Story

In the CRM space, not much will have changed for NetSuite — beyond the capital infusion — as it continues to carve out its own niche among SaaS providers.

“For any company, being successful beyond the initial IPO means not just meeting or exceeding the street’s expectations but having a compelling direction for what those expectations should be,” Rebecca Wettemann, vice president of Nucleus Research, told CRM Buyer. “To avoid going public as an also-ran, NetSuite needs to have customers articulate how it’s different from other CRM and on-demand applications — and why it should be valued as a displacement for SAP and other enterprise suites rather than just on-demand CRM.”

NetSuite’s key differentiator, of course, is that it is more than just CRM. Its core functionality is an integrated accounting-CRM-order management application. It has been building on this functionality with recent offerings, such as support for Google AdWords and advanced customization tools. Also, it has been leading the way among SaaS providers with its industry-specific and micro verticals.

“NetSuite has had a pretty good relationship with its customers,” Wettemann said, for these and other reasons. “Of course, the challenge for any company is to sustain and scale that over time as the customer base grows.” The $75 million plus it plans to raise will no doubt help achieve both goals.