UPDATE 3-NetSuite loss narrows, sees slower revenue growth

(Adds comments from NetSuite CEO)

By Jim Finkle

BOSTON, Feb 14 (Reuters) - NetSuite Inc (N.N), a business software maker majority-owned by Oracle Corp's (ORCL.O) billionaire CEO, Larry Ellison, forecast slower sales growth in 2008 because it had not expanded its sales force substantially, and its shares fell 4 percent.

Along with its first earnings report since going public in December, NetSuite on Thursday predicted 2008 sales between $153 million and $156 million, which would mean growth of at most 44 percent. Sales last year had grown 55 percent.

Investors have high hopes for NetSuite, which sells software for small and medium-sized businesses. It is one of the largest providers of software as a service, delivered to customers over the Web.

While it is early days, some analysts say the software industry is at the beginning of a major shift to that sales and distribution model.

Chief Executive Zach Nelson, whose company is unprofitable and expects a 2008 loss, said this year's sales growth would be restrained by the size of his sales force, which did not grow in 2007.

"Salespeople can basically do one deal per month," he told Reuters in an interview. "When you don't add salespeople for a year, you basically miss out on those deals."

This year NetSuite plans to boost its sales force to 200 people from 135 at the end of last year.

"We are going to grow responsibly," Nelson said.

The company posted a fourth-quarter net loss of $3.3 million, or 22 cents per share, compared with a loss of $8.1 million, or $1.25 per share, a year earlier. Excluding items, the loss was 1 cent a share, better than the average forecast for a 4 cent loss by analysts, according to Reuters Estimates.

Revenue rose 57 percent to $31.7 million, versus the average Wall Street estimate of $30.5 million.

NetSuite forecast a first-quarter loss of 1 or 2 cents a share, excluding items, on revenue of between $33 million and $34 million.

Analysts were looking for a first quarter loss of 2 cents per share and revenue of $33.51 million, on average.

Nelson declined to say when the company would report its first profitable quarter. The company forecast a loss of 1 to 4 cents per share for this year and several analysts expect it to post its first profitable quarter sometime this year.

Analysts expect NetSuite to report a 2008 loss of 3 cents per share on revenue of $152.8 million, according to averages on Reuters Estimates.

AMR Research analyst Rob Bois said that while growth was forecast to slow, it would still be a healthy pace for any company, especially in a weak economy.

He said NetSuite and other software companies that sell their products as services accessed via the Web were poised to grow much more quickly than rivals that offer programs installed on customers' computers.

"They will do better than traditional vendors," Bois said.

NetSuite shares fell 3.8 percent in after-hours trading. They were quoted at $22.60, down from their close of $23.49.

Nelson said he does not see an economic slowdown hurting his business.

"Demand seems to be the same. Nothing has really changed with our customers," Nelson said on a conference call.

He added that he joined the company in 2002, toward the end of the last slowdown, and found demand was strong because the product helps cut costs and makes companies more efficient.

"NetSuite is sort of a counter-cyclical product," he said. (Editing by Tim Dobbyn and Braden Reddall)