The term customer relationship management (CRM) isn’t always viewed properly, according to Zach Nelson, CEO of NetSuite, a provider of cloud-based enterprise resource planning (ERP) solutions.
At the Sanford C. Bernstein Strategic Decision Conference in late May, Nelson said most people see CRM simply as a sales force automation tool used for prospect management. With a CRM solution, salespeople have the opportunity to generate forecasts based on leads in the pipeline.
But Nelson believes the big problem with most CRM solutions these days is they don’t include customer records. And in order to do CRM really well, Nelson argues there must be customer orders, which just happen to sit in the ERP system.
In fact, ERP systems contain a lot of important data on customers—such as where they bought, what they bought, when the item(s) shipped and if returns were made. By offering a single system to connect the front and back offices, Nelson says NetSuite is seeing more and more customers deploying its solutions in conjunction with e-commerce.
Nelson estimates that 70 percent of NetSuite customers use its solutions for things other than core ERP — including CRM, e-commerce and customer support. For example, Williams-Sonoma in Australia is using NetSuite for all of its omni-channel endeavors, ranging from the call center and point of sale to the back office (including procurement and shipping).
Nelson calls what NetSuite is doing “order-driven CRM,” and claims nobody is handling e-commerce on Salesforce.com because there’s no customer data there.
It’s all part of NetSuite’s strategy to exploit an expanded view of a total addressable market (TAM) for standalone ERP that’s estimated to range from $25 billion to $40 billion, with about half represented by the mid-market, which is the company’s niche.
NetSuite’s fundamentals remain on track, with the company over the past several years experiencing accelerated growth in recurring revenue, a key metric for the management team. An important driver: NetSuite has been benefiting from the build-out of its channel, as 40 percent of new business bookings now come from third parties, mainly resellers focused on the mid-market.
In the first quarter, NetSuite’s revenue rose 34 percent to $123 million, coming in above the consensus estimate of $120.9 million. There were several positive metrics in the quarter — including the addition of 310 new customers, billings growth of 33 percent and gross-margin expansion to 72.2 percent from 70.9 percent in the year-ago period.
Skewed by large deals, including the biggest in company history, the ASP in the first quarter jumped 90 percent year over year (without the big deals, it was still up 50 percent).
NetSuite raised its 2014 revenue guidance to a range of $540 million to $545 million (growth of 30.9 percent at the midpoint) from $535 million to $540 million previously. Given the positive momentum in large deals (OneWorld sales account for more than 40 percent of new business each quarter), there’s room for more upside to 2014 guidance during the second half of the year; the Street-high revenue estimate now stands at $550.8 million.
Shares of NetSuite got caught up in the recent momentum-stock meltdown, falling 42 percent from the all-time high of $120.77 reached in late February to the May 15 low of $69.48. The recent rally brought the stock back to around $85.
With the market cap at $6.47 billion, NetSuite shares trade at 11.9 times the 2014 consensus revenue estimate of $544 million and 9.3 times the 2015 consensus of $696.7 million. At the peak in February, the forward multiple on the 2014 consensus was 16.8.