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NetSuite affirms attraction of IPOs

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Associated Press / December 21, 2007

SAN FRANCISCO - NetSuite Inc.'s shares surged more than 36 percent in their stock market debut yesterday as investors latched on to the online business-software service backed by billionaire Larry Ellison.

The run-up built on the momentum of NetSuite's initial public offering, which generated such intense demand that the San Mateo, Calif., company wound up selling 6.2 million shares for $26 apiece - up from the $13 to $16 target set when bidding began in an online auction last week.

When trading began yesterday, it looked as if the IPO investors had buyer's remorse. The stock fell as low as $23.86 before rebounding strongly to finish at $35.50, up $9.50, or 36.5 percent.

That left NetSuite with a market value of $2.1 billion.

"This has been a surreal experience," Zachary Nelson, NetSuite's chief executive, said shortly after ringing the opening bell at the New York Stock Exchange. Nelson's 3.4 percent stake in NetSuite is now worth $73 million.

NetSuite's market debut easily outstripped the average first-day gain of 10 percent among the previous 234 IPOs priced this year, according to the Greenwich, Conn., research firm Renaissance Capital.

More IPOs have been completed in 2007 than in any other year since 2000, when 406 companies went public.

In those giddy times, it wasn't unusual for stocks to double or triple on their first day of trading. Although today's market isn't as frothy, hot technology IPOs still can deliver massive returns as soon as their stocks begin trading.

For example, the shares of business software maker VMware Inc. soared 76 percent in their debut four months ago, while those of a NetSuite rival, Salesforce.com Inc., climbed 56 percent when they hit the market three and a half years ago.

Unlike those two companies, NetSuite isn't profitable yet. The company has accumulated nearly $242 million in losses since its 1998 inception, although the deficits have been getting smaller in recent quarters. Through the first nine months of this year, NetSuite lost $20.6 million on revenue of $76.8 million.

NetSuite, though, boasts an asset that few other software makers have: the support of Ellison, one of the industry's biggest success stories.

The cofounder and chief executive of business software maker Oracle Corp. helped start NetSuite and still owns a 54.5 percent stake in the company.

Ellison's NetSuite holdings are now worth $1.15 billion, enlarging his estimated $26 billion fortune before the IPO.

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