NetSuite Reports 50-Percent Channel Sales Growth In Q1

NetSuite's channel sales grew 50 percent in its first quarter, contributing heavily to the cloud application vendor's 32-percent growth in the period.

CEO Zach Nelson, on an earnings call with financial analysts Thursday, said NetSuite continues to recruit solution providers that are adding the company's cloud computing software and services to their offerings.

For the first fiscal quarter ended March 31, NetSuite reported sales of $91.6 million, up 32 percent from $69.3 million in the same period last year. The company's net loss also increased, however, to just over $13.0 million from $7.7 million last year.

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Subscription revenue was nearly $74.0 million in the quarter, while professional services and other revenue totaled $17.7 million.

"This growth was driven by excellent performance across the company with revenue in each major vertical, geography and channel growing in double-digits," Nelson said. "Q1 was a strong quarter on the new customer front," Nelson said. "We added roughly 325 total new customers and we did it with an average [deal] selling price that was 14 percent higher than the prior year."

"Our channel sales efforts continue to show great success and accelerated to 50 percent growth year-over-year," the CEO said. That included growth from what he called "the classic VAR channel" that services SMB customers and systems integrators that work with enterprise customers.

"I think the really exciting thing about the channel is, we've always managed the business on things that we feel that we can control pretty tightly, which is really our direct sales and service efforts. The beauty of what's happening now is some of these things that are outside of our control, which are really demand-driven, and by that I mean things that are going through the channel are really starting to grow very nicely, both in the mid-market and in the enterprise."

NEXT: CEO Says Channel Remains In Early Stages Of Re-Inventing Itself For Cloud Computing

While continuing to grow its SMB customer base, NetSuite is increasingly counting big companies among its sales wins. Nelson said the number of sales contracts valued at $100,000 or more grew 40 percent year-over-year. Average deal size increased 14 percent in the quarter. Sales of NetSuite's OneWorld application suite, which is designed for global companies, accounted for 40 percent of new business deals in the quarter, Nelson said.

The company also reported strong growth in its Ecommerce cloud applications.

"I think we're probably in, sort of, the third inning of the channel re-architecting itself for cloud solutions," Nelson said, in response to a question about where the channel stands in re-inventing itself for the cloud computing market. "software-as-a-service was enormously disruptive to the traditional VAR channel." He cited several solution providers, including Sage partner Blytheco and Microsoft partner RSM McGladrey, which are both building cloud-computing practices based on NetSuite's products.

NetSuite is holding its SuiteWorld conference for customers and partners in San Jose in May, and Nelson promised "major announcements" about new products and technologies. "On the partnership front, we have many announcements slated, several of which will surprise the market," he said.

Nelson said 2013 will be "a year of investment," noting that the company has been aggressively hiring sales personnel and talent for the company's product development operations. In the quarter, the company added 175 employees, many of them in sales.

For the current quarter, NetSuite is forecasting sales to reach between $100 million and $101 million. And because of the strong first quarter, the company raised its revenue forecast for all of 2013 to between $404 million to $408 million, up from $397 million to $402 million.

PUBLISHED APRIL 25, 2013