Business management software specialist NetSuite posted better than expected second-quarter earnings this week, with total revenue up 30 percent from last year to $131.8 million.
On a generally accepted accounting principles (GAAP) basis, net loss for the second quarter of 2014 was $23.2 million, or 31 cents per share, as compared with a net loss of $20.4 million, or 28 cents per share, in the second quarter of 2013.
The company reported that cash flows from operations were $18.6 million in the second quarter, up from $15.6 million in the same period in the prior year.
Non-GAAP net income for the second quarter was $4.8 million, or 6 cents per share, as compared with non-GAAP net income of $4.0 million, or 5 cents per share, in the second quarter of 2013.
A statement released by company CEO Zach Nelson highlighted the record second-quarter revenue and the company's first-ever $100 million quarter of recurring revenue.
"However, looking back, you see they have an operating loss almost every quarter," Christian Hestermann, research director with IT analytics firm Gartner, told eWEEK. "It doesn't have to mean anything in terms of cash flow, but I find it interesting that they are successful at growing but they find it difficult to be a profitable company."
Hestermann sees a relatively rosy future for the company, despite profitability issues, thanks to the small cloud-only space in the enterprise resource planning (ERP) software market, which it dominates.
NetSuite targets midsize organizations and subsidiaries of larger enterprises needing ERP, customer relationship management (CRM), and professional services automation and e-commerce capabilities.
"You have to remember they operate in a very small niche market of the $25 billion annual ERP market, but in their space they are dominant, and it doesn't look like anyone is moving very fast in that direction," Hestermann said. "Most companies are still using the system on-premises or in a hosted model—only 5 percent of the market is going with a cloud-based system."
In the overall ERP market, Hestermann sees a gradual move toward systems designed for mobile workforces, predictive analytics—something he notes that SAP is pioneering with its HANA platform—and social collaboration features, the idea of moving social media-style features into the enterprise space.
The worldwide ERP software market grew just 3.8 percent in 2013, a slight improvement over the 2.2 percent growth in 2012, according to a Gartner.
Analysts at the firm wrote in a January report that the concept of a single ERP suite that meets all of an enterprise's needs is dead, having been replaced by a hybrid ERP approach that combines cloud point solutions with a smaller "core" of on-premises ERP functions, such as financial and manufacturing.