New Relic (NYSE:NEWR) Q2: Beats On Revenue But Quarterly Guidance Underwhelms

Petr Huřťák /
2022/11/08 4:33 pm EST

Application performance management software company New Relic (NYSE:NEWR) reported Q2 FY2023 results that beat analyst expectations, with revenue up 15.9% year on year to $226.9 million. However, guidance for the next quarter was less impressive, coming in at $232.5 million at the midpoint, being 1.32% below analyst estimates. New Relic made a GAAP loss of $43.5 million, improving on its loss of $48 million, in the same quarter last year.

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New Relic (NEWR) Q2 FY2023 Highlights:

  • Revenue: $226.9 million vs analyst estimates of $222.5 million (1.97% beat)
  • EPS (non-GAAP): $0.13 vs analyst estimates of -$0.06 ($0.19 beat)
  • Revenue guidance for Q3 2023 is $232.5 million at the midpoint, below analyst estimates of $235.6 million
  • The company reconfirmed revenue guidance for the full year, at $916 million at the midpoint
  • Free cash flow was negative $43 million, down from positive free cash flow of $38.3 million in previous quarter
  • Gross Margin (GAAP): 71.4%, up from 67.1% same quarter last year

“Our focused execution against our key priorities enabled us to beat the high-end of our guidance. We continue to innovate rapidly to further expand our all-in-one observability platform,” 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 steady over the last two years, growing from quarterly revenue of $166 million in Q2 FY2021, to $226.9 million.

New Relic Total Revenue

This quarter, New Relic's quarterly revenue was once again up 15.9% year on year. We can see that revenue increased by $10.4 million in Q2, which was roughly the same as in Q1 2023. This steady quarter-on-quarter growth shows the company is able to maintain its paced growth trajectory.

Guidance for the next quarter indicates New Relic is expecting revenue to grow 14.1% year on year to $232.5 million, slowing down from the 22.3% 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 17% 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 follow 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 $43 million in Q2, increasing the cash burn by 5.63% year on year.

New Relic Free Cash Flow

New Relic has generated $16.4 million in free cash flow over the last twelve months, 1.92% 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 Q2 Results

With a market capitalization of $3.41 billion New Relic is among smaller companies, but its more than $833.3 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.

New Relic topped analysts’ revenue expectations this quarter, even if just narrowly. And we were also glad to see the improvement in gross margin. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations and the revenue guidance for the full year slightly missed expectations. Overall, this quarter's results could have been better. The company is up 3.29% on the results and currently trades at $53.62 per share.

New Relic may have had a tough quarter, but does that actually create an opportunity to invest 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.

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