New Relic (NYSE:NEWR) Posts Better-Than-Expected Sales In Q1 But Quarterly Guidance Underwhelms

Kayode Omotosho /
2022/08/04 4:23 pm EDT
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Application performance management software company New Relic (NYSE:NEWR) beat analyst expectations in Q1 FY2023 quarter, with revenue up 19.9% year on year to $216.4 million. Guidance for the full year also exceeded estimates, however the guidance for the next quarter was less impressive, coming in at $221.5 million, 1.39% below analyst estimates. New Relic made a GAAP loss of $56.2 million, improving on its loss of $74 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) Q1 FY2023 Highlights:

  • Revenue: $216.4 million vs analyst estimates of $213.1 million (1.55% beat)
  • EPS (non-GAAP): -$0.26 vs analyst estimates of -$0.36
  • Revenue guidance for Q2 2023 is $221.5 million at the midpoint, below analyst estimates of $224.6 million
  • The company reconfirmed revenue guidance for the full year, at $925 million at the midpoint
  • Free cash flow of $38.3 million, down 13% from previous quarter
  • Net Revenue Retention Rate: 120%, in line with previous quarter
  • Customers: 1,137 customers paying more than $100,000 annually
  • Gross Margin (GAAP): 70.4%, up from 67.1% same quarter last year

“Q1 was a strong start for New Relic as we beat both top and bottom line expectations,” 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 solid over the last year, growing from quarterly revenue of $180.4 million, to $216.4 million.

New Relic Total Revenue

This quarter, New Relic's quarterly revenue was once again up 19.9% year on year. We can see that the company increased revenue by $10.7 million quarter on quarter. That's a solid improvement on the $2.16 million increase in Q4 2022, so shareholders should appreciate the acceleration of growth.

Guidance for the next quarter indicates New Relic is expecting revenue to grow 13.1% year on year to $221.5 million, slowing down from the 17.8% 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 16.6% 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.

Large Customers Growth

You can see below that at the end of the quarter New Relic reported 1,137 enterprise customers paying more than $100,000 annually, an increase of 38 on last quarter. That's in line with the number of contracts wins in the last quarter and quite a bit again above what we have typically seen over the last year, confirming the company is sustaining a good pace of sales.

New Relic customers paying more than $100,000 annually

Key Takeaways from New Relic's Q1 Results

With a market capitalization of $4.21 billion New Relic is among smaller companies, but its more than $867.3 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.

It was good to see New Relic improve their gross margin this quarter. And we were also happy to see it topped analysts’ revenue estimates, even if just narrowly. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations. Overall, it seems to us that this was a mixed quarter for New Relic. The company is flat on the results and currently trades at $61.3 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.