NetSuite Reports Robust Q1 Sales Growth, Plans E-Commerce App Company Acquisition

Cloud application vendor NetSuite reported 34 percent sales growth in its first quarter Thursday. And the company's cloud e-commerce application offerings are an increasingly important part of those sales.

The company's e-commerce application sales are about to accelerate: Also Thursday, NetSuite said it had struck a deal to acquire Bronto Software, a Durham, N.C.-based developer of cloud-based commerce marketing automation applications.

NetSuite reported revenue of $164.8 million for its fiscal first quarter ended March 31, up 34 percent from $123.0 million in the first quarter of 2014.

[Related: SAP Reports Strong Q1 Sales Growth, But Slimmer Profits]

The quarterly sales figure included $133 million in recurring subscription and support revenue, also up 34 percent year-over-year, and $31.8 million in revenue from professional services. NetSuite's recurring revenue is now on an annual run rate of half a billion dollars, CEO Zach Nelson noted in a conference call with financial analysts Thursday.

NetSuite's core products are its NetSuite and NetSuite OneWorld ERP and financial management applications. But the company's SuiteCommerce line of end-to-end "omnichannel" applications is quickly becoming a significant contributor to NetSuite's top line.

Nelson said that during the first quarter, 25 percent more customers added SuiteCommerce to their NetSuite application deployments than in the same quarter in 2014. He also emphasized the broad applicability of the SuiteCommerce application set by noting that 50 percent of the new customer adoptions were outside the retail sector.

"The enormous investment we have made in SuiteCommerce is paying off," Nelson said, without disclosing specific sales figures.

The step in NetSuite's e-commerce efforts is combining customer transactional history with "rich behavioral data," Nelson said. And that's where Bronto Software comes in, which San Mateo, Calif.-based NetSuite is buying in a cash and equity transaction valued at about $200 million.

Bronto's commerce marketing automation platform is used by more than 1,400 brands. NetSuite plans to combine Bronto with its B2B and B2C SuiteCommerce cloud application set.

"With the acquisition, we are once again leapfrogging the competition by bringing together our next-generation omnichannel commerce platform with Bronto's next-generation omnichannel marketing automation system," Nelson said.

NetSuite said it expects to complete the acquisition sometime in the second quarter, subject to closing conditions and regulatory approvals.

NetSuite has pursued a growth strategy since the company's beginning and has yet to report a profit using generally accepted accounting principles (GAAP). For the just-completed quarter, the company reported a net loss of $22.7 million.

But that's only 2 percent higher than in last year's first quarter, on 34 percent more revenue. The company's quarterly losses peaked at $29.3 million in last year's third quarter and narrowed to $25.3 million in the fourth quarter.

Several recent analyst reports have questioned NetSuite's stock valuation given its continuing losses.

"We think the financial results we delivered in Q1 provide the proof that the investments we are making in our strategy of bringing the power of integrated, cloud-based business applications to companies of all sizes are paying off for our customers, our employees and our shareholders," Nelson said.

NetSuite added more than 350 new customers in the first quarter and recorded a record number of deals worth more than $250,000, Nelson said, although he did not disclose the actual number.

NetSuite also disclosed Thursday that Hewlett-Packard has deployed NetSuite's OneWorld applications for business management within its $5 billion software division. "It was a great win," Nelson said, noting that HP is "a big SAP shop."

NetSuite expects revenue in the current second quarter to be in the range of $170 million to $172 million, Chief Financial Officer Ron Gill said during the conference call with financial analysts. For all of 2015, the company is forecasting revenue in the range of $715 million to $725 million.

PUBLISHED APRIL 23, 2015