Correction (5/6/2008): As the Senior Director of Investor Relations from NetSuite correctly pointed out to me in an email yesterday, NetSuite beat analyst earnings expectations by a penny a share instead of missing earnings by a penny as I had originally mentioned in this blog entry. Earnings according to GAAP (Generally Accepted Accounting Principles) have included stock based compensation as an expense since the rule went into effect in 2005 and NetSuite reported a GAAP loss of 3 cents a share. The mistake I made was to compare the GAAP loss of 3 cents a share against analyst expectations of a 2 cent loss, which did not include stock based compensation. NetSuite’s earnings excluding stock based compensation was a loss of one cent a share, hence beating estimates by a penny.
On-demand software provider NetSuite (N) reported its first quarterly results as a public company yesterday with a 3 cents a share or $2 million loss, which came in below above analyst expectations of a 2 cent loss. The stock registered a sharp drop in reaction to the results, falling $3.81 or 17.08% in after hours trading. It appears that my concerns about NetSuite’s valuation, as published in the April investment newsletter, were well founded. However it is always a good idea to go beyond the headlines (even mine) and take a deeper look.