NetSuite Subscribers Demanding Easier Contract Terms


While most existing customers are renewing their subscriptions under the traditional contract terms of paying up front for a full year, CEO Zach Nelson, speaking during the company's fourth-quarter earnings call Tuesday, said many -- if not most -- new customers are seeking deals allowing them to pay for their subscriptions monthly or quarterly.

The trend is further evidence that businesses are doing whatever they can to conserve cash. While that's certainly been true for large capital expenditures for computing hardware and software, NetSuite's experience shows that suppliers of Software-as-a-Service applications are not immune from the recession.

Such demands from prospective customers will affect NetSuite's cash flow, but Nelson and CFO Jim McGeever told analysts they did not believe it would have a major impact on the company's financial results.

"I do believe we are one of the best-positioned software companies in the industry," Nelson said. He said the price of the average sale in the fourth quarter increased 20 percent because companies are adding more users to their subscriptions and subscribing to new products, such as the company's OneWorld system for businesses with global operations.

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NetSuite currently has 6,600 active customers, up from 5,600 at the end of 2007. Nelson said the company added 350 new accounts in the fourth quarter. "Our pipeline continues to build," he said. But the number of small businesses paying $10,000 or less per year was flat, or even down slightly.

For the fourth quarter ended Dec. 31, NetSuite reported sales of $41.4 million, up 30.5 percent from the same period in 2007. The company recorded a net loss of $4.5 million compared to a $3.3 million loss in the fourth quarter of 2007. But Nelson said the company reported a non-GAAP (generally accepted accounting principles) profit of $534,000, the company's first since its founding.

For all of 2008, NetSuite reported total revenue of $152.5 million, an increase of 40.5 percent from 2007. Net loss for the year was $15.9 million compared to the $23.9 million loss the company reported in 2007.

For the current quarter, NetSuite expects revenue in the range of $41.5 million to $42.5 million. But the company isn't offering guidance for expected financial results for all of 2009 given the rapid changes in the economy.