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NetSuite IPO & Data Center Disregard

After years of management telling employees the company is going to go public, NetSuite appears to really be going public. Rumors have circulated that the IPO was delayed first to improve NetSuite's massive financial losses and then due to an (unscheduled?) change in accounting firms. I have a feeling that there were likely some complications as NetSuite's majority owner is Larry Ellison - who also happens to be CEO of that small company called Oracle which is a NetSuite competitor. Interesting dynamics not the least of which suggest conflict of interests. But that's for another blog post.

Interestingly enough, the IPO will be performed via a Dutch auction. Not so interestingly, the underwriters are Credit Suisse and WR Hambrecht. A few of the more telling financial performance measurements revealed from the registration include the following:

  • Big revenue growth. Revenue grew from $36M in 2005 to $67M in 2006.
  • Big financial losses. NetSuite lost $23.4M in 2006 and had an accumulated deficit of $193M.

However, in my opinion the absolute most telling statement was the company's disregard for system and client data redundancy. Here's what NetSuite included in their SEC filing.

We host our services and serve all of our customers from a single third-party data center facility located in California. We do not control the operation of this facility. This facility is vulnerable to damage or interruption from earthquakes, hurricanes, floods, fires, terrorist attacks, power losses, telecommunications failures and similar events. Our data facility is located in an area known for seismic activity, increasing our susceptibility to the risk that an earthquake could significantly harm the operations of this facility. It also could be subject to break-ins, computer viruses, sabotage, intentional acts of vandalism and other misconduct. The occurrence of a natural disaster or an act of terrorism, a decision to close the facilities without adequate notice or other unanticipated problems could result in lengthy interruptions in our services. We do not currently operate or maintain a backup data center for any of our services or for any of our customers’ data, which increases our vulnerability to interruptions or delays in our service.

If I were a NetSuite prospect and became aware of the above statement, I would no longer be considering NetSuite as my possible provider of mission critical front to back office business systems.

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August 1, 2007 in NetSuite | Permalink | Comments (0) | TrackBack (0)
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