NetSuite is going to the market for its proposed initial public offering (IPO) with high hopes: The company has upped its estimated price range for the second time this week. In a filing with the U.S. Securities and Exchange Commission, the company said it expects its IPO target price to be between US$19 to $22. On Tuesday, it raised its price range to $16 to $19 from an earlier target of $13 to $16.
The company makes a case for its on-demand suite application that offers front- and back-end functionality using the customer order as the common denominator. For CRM users — especially in the small and medium-sized business space — there are few alternatives that can offer such functionality on an on-demand basis. Over the last few years, NetSuite has focused on building out its stable of industry specific verticals andmicroverticals, as well as offering users more customization capabilities.
Whether the market will absorb — and then price — these competitive factors into the IPO remains to be seen.
Its timing is not working in its favor, Fred Ruffy, analyst with investor education firm Optionetics, told CRM Buyer.
“NetSuite is taking a gamble because investor participation will probably be lacking on the Friday before a major holiday. Trading will probably thin out late in the week as many investors hit the exits and begin holiday travel,” he said.
Another move that may work against the company, he continued, was its decision to opt for an auction-style offering similar to the one Google introduced in 2004.
“The process allows investors to bid for the number of shares they want and the price they are willing to pay,” he explained. “The process could create some additional volatility in the share price — perhaps producing a very high price at the open and then a decline later in the aftermarket.”
A long term consideration for investors is whether or not the capital from the offering will help the company gain a competitive advantage against rivals like Intuit, he said.
“The environment is likely to remain challenging. Although NetSuite has seen steady growth inrevenues, it is also struggling to generate profits. For the nine months ended Sept. 30, NetSuite lost $20.6 million. In the long run, the company must demonstrate the ability to generate profits inorder to support a share price above its initial public offering price,” he said.
Credit Suisse Securities will act as sole book-running manager for the offering, with W.R. Hambrecht acting as comanager. NetSuite will offer 6.2 million shares of its common stock in the offering. NetSuite and the selling stockholders have also granted the underwriters a 30-day option to purchase up to anaggregate of 930,000 additional shares.
The proceeds the company hopes to raise — which could top $100 million — will be used to pay off debt and make acquisitions.
The stock will trade on the New York Stock Exchange under the ticker symbol N.