The provider of cloud-based e-commerce and business operations software, NetSuite, says it’s getting strong demand from B2B clients.
Increasing demand from manufacturers, distributors and wholesalers for e-commerce software integrated with financial software contributed to a sharp increase in third-quarter revenue for NetSuite Inc., the company says.
“Distributors, wholesalers, and manufacturers are all in a similar situation, where matching the demand side of the equation with the supply side is very important for efficiency in that business,” CEO Zach Nelson said in a conference call with stock analysts last week. “The combination of [NetSuite’s] commerce front-end with all of the capabilities we have in the enterprise resource planning and services resource planning are very important for them.”
Manufacturers and distributors use enterprise resource planning, or ERP, systems to manage such operations as inventory, financial accounting and customer relationships. During the third quarter ended Sept. 30, more than 430 manufacturers, distributors, wholesalers and retailers deployed NetSuite’s SuiteCommerce e-commerce platform, along with its OneWorld global business software systems, the company says. “OneWorld sales accounted for more than 50% of new business, and we had a higher number of customers upgrading to OneWorld than in any quarter in history,” said Ron Gill, chief financial officer.
Total Q3 revenue increased 34.2% to $192.8 million from $143.7 million a year earlier.
The majority of NetSuite’s new clients are small-and medium-sized businesses involved in industrial distribution or in employee benefits administration, Nelson said. WHSmith, a retail chain offering books, periodicals, stationery and gifts based in the United Kingdom, launched NetSuite SuiteCommerce in Q3 as an e-commerce platform for selling to businesses. “WHSmith sells its own brand and selected branded merchandise to over 200 franchise stores and various wholesale customers throughout the world,” says David McGrath, head of shared I.T. services at WHSmith. “To meet the needs of our customers we needed to develop a world-class business-to-business commerce capability. NetSuite SuiteCommerce offers an ideal combination of rapid time to market and rich functionality that will help us support the growth of our franchise and wholesale business.”
Other companies that have recently deployed SuiteCommerce include Maclaren, a manufacturer of baby strollers, and Domino’s Pizza, which uses NetSuite’s e-commerce software to let its franchisees order supplies. Businesses located in the Europe, the Middle East and Africa regions showed the strongest demand for NetSuite software, Nelson said. “In Q3, EMEA continued its streak as being our strongest region,” he said. “During the quarter, we doubled down on our investment there.”
NetSuite generates about 25% of its revenue outside the United States. The software provider opened two new European data centers in Q3—one in Dublin, the other in Amsterdam—to support increased demand as well as to accommodate changing requirements in European data privacy. NetSuite also hired sales and marketing staff at its European offices during Q3, and now has a total of 700 personnel based in Europe.
NetSuite does not break out sales of SuiteCommerce, its e-commerce software, from sales of it broader OneWorld software that companies use to manage globally dispersed operations and balance their financial books, track sales, customer history and inventory, among other functions.
“In 2015, we’ve grown the sales organization about 48% year over year, which is probably the fastest we floated in several years,” Nelson said. “Our services organization has grown concomitantly with that, it’s a little bit of 50% from a year earlier. For us, when we hire sales people, we’re often also hiring services people to ensure that implementation and ensure customer satisfaction.”
NetSuite also reported for the third quarter ended Sept. 30:
- $154.7 million in revenue from software subscription and support services, up 33.6% from $115.8 million a year earlier;
- Sales and marketing costs of $102.1 million, up 36.7% from $74.7 million;
- Product development costs of $36.1 million, up 26.2% from $28.6 million;
- A GAAP net loss of $37.3 million, which widened by 27.3% from $29.3 million;
- Non-GAAP net income, which excludes such expenses as stock-based compensation and costs related to acquisitions, of $2.6 million, down from $8.3 million.
GAAP, or generally accepted accounting principles, is the set of accounting rules used by U.S. publicly owned companies.
NetSuite didn’t provide year-to-date financial figures for its first nine months, which it will release next month in its 10Q third-quarter financial statement filed with the U.S. Securities and Exchange Commission.