Wall Street gave Oracle CEO Larry Ellison an early Christmas present of, oh, about a billion dollars, and other early investors in e-commerce technology provider NetSuite Inc. enjoyed some holiday cheer, as well.
The glad tidings came in the form of an enthusiastic reception for the shares of NetSuite, which went public this week at nearly twice the price the company initially projected—and the stock took off from there. In trading today, the stock—which carries the prestigious single-letter designation N on the New York Stock Exchange—traded as high as $45.98 before closing at $39.14. That closing price gives the company a market value of more than $2.3 billion. In all, the company raised about $185 million from the IPO, more than double its original projection.
Ellison, who owns more than half the shares of San Mateo, CA-based NetSuite, is the biggest winner. But the soaring stock price is also a sign of investor confidence in e-commerce and in NetSuite’s business model.
NetSuite hosts software for smaller and mid-sized companies that handles such functions as e-commerce, accounting, customer data and order fulfillment. That allows NetSuite to get a lift from three concepts currently in investor favor—e-commerce, the hosted “software as a service” model, and the opportunities in serving mid-sized businesses, says Paula Rosenblum of Retail Systems Research.
“E-commerce is a vibrant, growing part of the business world—and that stock price reflects market recognition of an integrated solution for the mid-market that includes e-commerce and the value of software as a service,” Rosenblum says. “The mid-market remains hot as a pistol, and software as a service and end-to-end solutions are strong technology enablers of that market.”
NetSuite’s success makes sense in light of the high price-to-earnings multiples of such e-commerce firms as e-retailer Amazon, No. 1 in the Internet Retailer Top 500 Guide, and e-commerce platform provider GSI Commerce, as well as hosted customer relationship technology provider Salesforce.com, says Internet analyst Tim Boyd of American Technology Research. Those multiples, Boyd says, make clear “investors’ perceptions of the long-term growth opportunities here.”
The investor enthusiasm apparently caught NetSuite and its underwriters by surprise. NetSuite projected Dec. 10 that its shares would open at a price between $13 to $16, and said a price in the middle of that range would have netted the company $80.9 million after IPO expenses. On Dec. 18 it revised the price range to $16 to $19 per share, and a day later upped its projection again to between $19 and $22 per share. On Wednesday, the stock began trading at $26.
NetSuite sold 6.2 million shares, bringing in more than $161 million. The shares sold represented 10.4% of the equity in the company, which was founded in 1998.
NetSuite says it generated revenue of $67.2 million in 2006, up from $17.7 million two years earlier, and had revenue of $76.8 million in the first nine months of 2007. The company reported a loss of $35.7 million in 2006 and of $20.6 million for the first three quarters of this year. NetSuite had 5,400 active customers as of Sept. 30. Among its online retailer clients are Rock Bottom Golf, No. 300 in the Internet Retailer Top 500 Guide, and Toolfetch.com, No. 479.
Ellison has put his shares into a trust to minimize concerns of a possible conflict of interest between his stake in NetSuite and his position at Oracle, which also offers business software, but typically to larger companies.
Back...
