NetSuite Inc. Beats on Revenue, Earnings, but Investors Remain Unmoved

NetSuite has been hiring ahead of what it considers a lengthy period of migration to the cloud. Credit: NetSuite via Facebook.

Shares of NetSuite stock rose 0.35% as of 7:04 p.m. ET Thursday evening as investors were unmoved by first-quarter results that beat expectations. Here's a closer look at the final totals versus Wall Street's projections:

N Revenue YOY Growth EPS YOY Growth
Consensus estimate $161.5 million 31.3% $0.05 (16.7%)
Q1 actuals $164.82 million 34% $0.11 83.3%
DIFFERENCE ($3.32 million) (2.7%) ($0.02) 100%

Sources: S&P Capital IQand NetSuite press release.

Commenting on the results, CEO Zach Nelson said in a press release:

What went right: Cash from operations ballooned 46.6%year over year, to $28 million, a good sign for a business that needs to keep reinvesting in marketing and development to take advantage of the coming migration Nelson speaks about in the press release. Eight consecutive quarters of 30%-plus revenue growth suggests the transition may already be well underway.

What went wrong: Less clear is whether NetSuite is winning larger, longer-term deals. Deferred revenue fell more than 30% -- from $12.8 million in last year's first quarter to $8.9 million in the current Q1. For companies like NetSuite, which collect cash upfront to provide service over a specified period, growing deferred revenue is a key indicator of long-term health.

What's next:NetSuite chose not to include a second-quarter outlook in its press release. Analysts tracked by S&P Capital IQ have the company generating $172.07 million in revenue and $0.06 a share in adjusted profit, versus $131.79 million and $0.06 a share in last year's Q2. Longer term, analysts have NetSuite growing earnings by an average of 17.97%annuallyduring the next three-to-five years.

And in terms of the overall business? Investors should keep a close eye on growth in cash from operations and deferred revenue. Continued divergence between these two might signal trouble.

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