NetSuite highlights tech resurrection

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NetSuite, a business software company controlled by Oracle founder Larry Ellison, registered to go public on Monday in the latest sign that lossmaking technology companies are again turning to public markets for capital.

The company, founded in 1998, is part of a new generation of software companies that sell their products “on-demand”, charging a subscription for delivering the application as a service over the internet. While and RightNow, among the first proponents of this new approach, went public three years ago, it is only in recent months that Wall Street’s appetite for technology stocks has revived.

Mr Ellison owns 61 per cent of NetSuite’s shares, potentially adding hundreds of millions of dollars to his net worth after an initial public offering – though that is dwarfed by his Oracle stake, which is worth nearly $25bn.

NetSuite lost $23m last year as its revenues grew 86 per cent to $67m. The business model of on-demand companies means that they reach profitability later than traditional software rivals, since their contracts are spread out over a number of years while marketing costs have to be recorded upfront. Once profitable, though, they stand to benefit from a steadier stream of subscription income.

The return of technology and communications companies was one of the highlights of the IPO market in the first six months of this year, according to Renaissance Capital. Some 28 per cent of new public companies came from these sectors, it added.

The moderate revival, though still far short of the IPO boom at the turn of the decade, comes in spite of widespread complaints in Silicon Valley that over-regulation in the wake of the Sarbanes-Oxley Act has made it hard for young tech companies to go public.

Aruba Networks, a networking equipment company, has been one of the best-performing IPOs of the year, even though the company has yet to record a profit., which has emerged as the leader of the new on-demand companies and registered a narrow profit last year, is valued at ten times its 2006 revenues, while the slower-growing RightNow trades at five times revenues.

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