NetSuite Takes Stock, and Sells It
NetSuite Chief Executive Officer (CEO) Zach Nelson had the honor today of ringing the opening bell at the New York Stock Exchange, signaling the start of trading for the market in general, and for NetSuite's stock in particular. The software-as-a-service (SaaS) CRM company made its initial public offering (IPO) of 6,200,000 shares of common stock at $26. The trading price as of 2:06 p.m. Eastern Time was $27.25, down slightly from a high of $27.71. "N" is the company's ticker symbol.
"Going public on the New York Stock Exchange is a dream for any start-up, and NetSuite is excited to have reached such a milestone today," Nelson said at the opening ceremony. "Our IPO and NYSE listing allow us to help small and medium-sized companies achieve their dreams by delivering a comprehensive software application to run their businesses."
The company raised $161.2 million as a result of the IPO. Initial estimates on December 10 were in the $13 to $16 range, but were adjusted upwards several times as the bidding process -- a modified Dutch auction -- progressed. Jim McGeever, NetSuite's CFO, said the company was "very pleased" with the results. "These are way over initial predictions. It's a difficult and choppy IPO market, and this speaks well to the story of NetSuite."
That story, which began in the late 1990s when the company was known as NetLedger, will expand with the infusion of capital from the sale of shares. "Going public brings us a lot of credibility -- companies can see our finances, our practices, and know we're solid," McGeever says.
There had been some question about potential liabilities surrounding the IPO, including the fact that NetSuite currently has only one data center for its customers. Clearly, those issues were addressed to investors' satisfaction. "Our data center has lots of redundancy, plenty of backup, and records are regularly taken offsite to a secure facility," McGeever says. "Remember, our customers are mostly small and medium[-sized] businesses; we do and have always done more to protect their data than they are able to themselves." He also noted that the company would be opening a second data center sometime in 2008.
Analyst reaction to the news was positive. "There's still a lot of interest in the [software-as-a-service] market, and especially in NetSuite," says Ray Wang, principal analyst at Forrester Research. "They serve a market where the typical customer company has 500 or fewer employees, and NetSuite is really the only vendor with a full suite. Its SuiteFlex tools are also very good." Wang says becoming a public company will enable NetSuite to expand its vertical offerings and its partner programs.
Wang wonders how much of the positive reception on the NYSE has to do with Larry Ellison's involvement with NetSuite: The Oracle Corp. founder and CEO, an early NetSuite investor, currently shared with family members a controlling 74 percent interest in the company through Tako Ventures. Whether that's a factor or not, Wang says NetSuite is positioned well to be publicly traded. "It shouldn't be difficult. From the beginning, they've structured themselves to plan for [an] IPO," he adds.
"This is a good endorsement for the on-demand hosted model," says Sanjeev Aggarwal, vice president of SMB IT infrastructure solutions for research firm AMI-Partners. He notes that rival vendor Salesforce.com was also likely to be a beneficiary of the IPO, as its own stock shot up 4 points upon NetSuite's announcement. "The fact that [software vendor] SAP has come out with a product that mimics NetSuite's functionality shows the public is ready and accepting."
The necessity of pleasing shareholders will put pressure on NetSuite to be more aggressive in expanding its reach, and in getting more customers, but Aggarwal seems unconcerned. "I think they're up to the task," he says.
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