NetSuite Reports 34 Percent Q3 Sales Growth, But Stock Price Still Falls

Cloud application developer NetSuite reported its 13th consecutive quarter of 30 percent-plus revenue growth for its third fiscal quarter Thursday. But a lower-than-expected forecast for sales in the current quarter sent the company's shares tumbling more than 9 percent in after-hours trading.

Profitability has been elusive for NetSuite as it focuses on spending for growth. While the company has grown rapidly, there have been signs some investors are getting impatient: The company's stock has been on a steady decline this year from its $109.17 close on Dec. 31, 2014, to Thursday's closing price of $91.72.

For the third quarter ended Sept. 30, NetSuite reported sales of $192.8 million, up 34 percent from $143.7 million in last year's third quarter. The company's loss for the quarter was $37.3 million compared with a $29.3 million loss in the same quarter one year ago.

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The most recent quarterly results included $154.7 million in recurring revenue from subscriptions and support services, up 34 percent year over year, and $38.2 million in revenue from professional services.

"Our bias is towards investment, if we can see opportunities to grow the product line, to grow the sales force, to grow our services organization strategically. We will always opt to invest in those efforts for future payoff," CEO Zach Nelson said in a conference call with financial analysts Thursday.

NetSuite's employee roster, for example, stood at 4,506 as of Sept. 30, up 43 percent from one year earlier, CFO Ron Gill said on the earnings call. The company's sales force has grown 48 percent in that time and its services organization by about 50 percent.

The company is also spending heavily on infrastructure. A new data center in the U.S. recently went online while two data center facilities in Europe are coming online this quarter.

"These investments combined with more general scaling investments, such as those in facilities and systems, mean that 2015 will be a significant year for capital investment," Gill said. "I’m now expecting total capital investments this year to be in the $45 million to $50 million range."

The revenue numbers were slightly below Wall Street's expectations. Gill also said the fourth (current) quarter results would not have the same spike in professional services revenue as happened one year before and that revenue recognition for a multimillion-dollar deal that's in the works wouldn't happen "for some time yet."

NetSuite expects revenue in the current quarter to be between $202 million and $205 million. That was below Wall Street's consensus expectations of $208.3 million. For all of 2015, revenue is now expected to be in the range of $737 million to $740 million, Gill said.

NetSuite recruited 430 new customers during the third quarter, the largest number this year, Nelson said. Sales of the company's OneWorld application suite for global companies accounted for 50 percent of new business in the quarter.