New Relic (NYSE:NEWR) Beats Q3 Sales Targets, Gross Margin Improves

Adam Hejl /
2023/02/07 4:09 pm EST
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Application performance management software company New Relic (NYSE:NEWR) reported Q3 FY2023 results that beat analyst expectations, with revenue up 17.8% year on year to $239.8 million. The company expects that next quarter's revenue would be around $241 million, which is the midpoint of the guidance range. That was in roughly line with analyst expectations. New Relic made a GAAP loss of $26.6 million, improving on its loss of $53.6 million, in the same quarter last year.

Is now the time to buy New Relic? Access our full analysis of the earnings results here, it's free.

New Relic (NEWR) Q3 FY2023 Highlights:

  • Revenue: $239.8 million vs analyst estimates of $232.9 million (2.94% beat)
  • EPS (non-GAAP): $0.32 vs analyst estimates of $0.15 ($0.17 beat)
  • Revenue guidance for Q4 2023 is $241 million at the midpoint, above analyst estimates of $239.7 million
  • Free cash flow was negative $29.5 million, compared to negative free cash flow of $43.1 million in previous quarter
  • Gross Margin (GAAP): 74.4%, up from 66.2% same quarter last year

“We executed the quarter with relentless focus on our customers, product innovation and operations, and beat the high end of our guidance for revenue and profitability,” said New Relic CEO Bill Staples.

With the name being an anagram of its founder, Lew Cirne, New Relic (NYSE:NEWR) makes a monitoring software that collects, scores, and analyses performance data about a client's IT stack.

Software is eating the world, increasing organizations’ reliance on digital-only solutions. As more workloads and applications move to the cloud, the reliability of the underlying cloud infrastructure becomes ever more critical, and ever more complex. To solve the challenge, companies and their engineering teams have turned to a range of cloud monitoring tools that provide them with visibility to troubleshoot the issues in real time.

Sales Growth

As you can see below, New Relic's revenue growth has been mediocre over the last two years, growing from quarterly revenue of $166.3 million in Q3 FY2021, to $239.8 million.

New Relic Total Revenue

This quarter, New Relic's quarterly revenue was once again up 17.8% year on year. We can see that the company increased revenue by $12.9 million quarter on quarter. That's a solid improvement on the $10.5 million increase in Q2 2023, so shareholders should appreciate the acceleration of growth.

Guidance for the next quarter indicates New Relic is expecting revenue to grow 17.1% year on year to $241 million, slowing down from the 19.2% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 15.1% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

Cash Is King

If you have followed StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. New Relic burned through $29.5 million in Q3, increasing the cash burn by 28.7% year on year.

New Relic Free Cash Flow

New Relic has generated $9.86 million in free cash flow over the last twelve months, 1.11% of revenues. This FCF margin is a result of New Relic asset lite business model, and provides it with at least some cash to invest in the business without depending on capital markets.

Key Takeaways from New Relic's Q3 Results

With a market capitalization of $4.35 billion New Relic is among smaller companies, but its more than $800.2 million in cash and positive free cash flow over the last twelve months give us confidence that New Relic has the resources it needs to pursue a high growth business strategy.

We enjoyed seeing New Relic’s improve their gross margin materially this quarter. And we were also excited to see that it outperformed analysts' revenue expectations. On the other hand, revenue growth is overall a bit slower these days. Overall, this quarter's results seemed pretty positive and shareholders can feel optimistic. The company is up 3.28% on the results and currently trades at $66.7 per share.

Should you invest in New Relic right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

The author has no position in any of the stocks mentioned.