NetSuite Raises $161 Million in IPO

Moreover, Thomson questions whether NetSuite is successfully growing its client base, noting the company has said for two to three years that it has approximately 6,000 customers. "They are growing the total number of users [seats] they have, because they are growing within the firms they have contracted with as clients.

However, 44% of NetSuite's new revenue in 2007 comes from new clients, according to the company. Revenue was $76.8 million for the first three quarters, up 63% from $47 million for the same period of 2006.

Hamilton said NetSuite will be faced with stiff competition. "Salesforce.com had a real, very focused, strong niche. I don't see that being the case with NetSuite," he said. "I wish these companies were a little more profitable before they went [public]."

NetSuite is not yet profitable because on-demand software requires higher initial sales and marketing expenses to generate growth than does traditional software, said Mike Fitzgerald, founding partner with Commonwealth Capital Ventures, which took Constant Contact public.

Because of the recurring revenue of on-demand software, such companies are "very stable and know what their expenses are," Fitzgerald said. NetSuite is well-positioned in the market and will appeal to growth investors, he added.

"I do think their offering will go pretty well," Hamilton noted. "The market is very receptive to this SaaS model. That's a high-energy field."

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