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NetSuite Shares Get Knocked

A forecast of slower revenue growth hits the stock.
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SAN FRANCISCO -- As traders were rejecting most stocks on Friday, NetSuite (N) received a thumbs down for its 2008 projections offered late Thursday.

The stock was off $1.88, or 8%, to $21.61 in recent trading.

After a solid December quarter, the company

projected 2008 revenue growth of 41% to 44%, or $153 million to $156 million, a drop from 61.5% growth in 2007.

The company's guidance was only in line with analysts' estimates. "If this were a conventional software vendor, the stock would be responding favorably today," says Benchmark Capital analyst Mark Schappel.

NetSuite had been trading "at a stratospheric revenue multiple," Schappel says. Following the excitement of NetSuite's December IPO, when the stock gained 36.5% in its first trading day, "people are looking for more upside in both the earnings and the guidance" than the company projected for 2008. Benchmark does not make a market in NetSuite.

San Mateo, Calif.-based NetSuite sells software modules that are used in conjunction with its hosted subscription software to manage businesses.

NetSuite targets growing small businesses that rely on


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QuickBooks software. But the company also goes after


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customers using Great Plains software, CEO Zach Nelson said on the conference call.

While NetSuite appears expensive on a near-term basis, JMP Securities values the stock based on the company's longer-term opportunity, analyst Patrick Walravens wrote Friday, reiterating his $32 price target. Walravens projects that by 2012, NetSuite will capture 12,500 customers, up from 5,600 today, which will pay double the current average of $20,000 a year, or $500 million in revenue. JMP makes a market in shares of the firm.