New Relic (NYSE:NEWR) Reports Bullish Q2, Stock Jumps 13.2%

Radek Strnad /
2021/11/08 4:20 pm EST

Application performance management software company New Relic (NYSE:NEWR) reported strong growth in the Q2 FY2022 earnings announcement, with revenue up 17.8% year on year to $195.6 million. Guidance for next quarter's revenue was surprisingly good, being $200 million at the midpoint, 9.15% above what analysts were expecting. New Relic made a GAAP loss of $48 million, improving on its loss of $47.9 million, in the same quarter last year.

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New Relic (NEWR) Q2 FY2022 Highlights:

  • Revenue: $195.6 million vs analyst estimates of $182.2 million (7.4% beat)
  • EPS (non-GAAP): -$0.10 vs analyst estimates of -$0.13
  • Revenue guidance for Q3 2022 is $200 million at the midpoint, above analyst estimates of $183.2 million
  • The company lifted revenue guidance for the full year, from $732.5 million to $780 million at the midpoint, a 6.48% increase
  • Free cash flow was negative $40.7 million, down from positive free cash flow of $4.78 million in previous quarter
  • Net Revenue Retention Rate: 112%, in line with previous quarter
  • Customers: 1,011 customers paying more than $100,000 annually
  • Gross Margin (GAAP): 67.1%, down from 72.7% same quarter last year

“This quarter marks the completion of our business turnaround and the beginning of a new chapter of growth for New Relic,” said Bill Staples, CEO, New Relic.

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.

The demand for application performance monitoring software has been increasing as businesses undergo digital transformation.

Sales Growth

As you can see below, New Relic's revenue growth has been slower over the last year, growing from quarterly revenue of $166 million, to $195.6 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 $15.2 million quarter on quarter. That's a solid improvement on the $7.81 million increase in Q1 2022, so shareholders should appreciate the re-acceleration of growth.

Analysts covering the company are expecting the revenues to grow 7.13% over the next twelve months, although estimates are likely to change post earnings.

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Large Customers Growth

You can see below that at the end of the quarter New Relic reported 1,011 enterprise customers paying more than $100,000 annually, an increase of 47 on last quarter. That is a bit more contract wins than last quarter and quite a bit above what we have typically seen lately, demonstrating that the business itself has good sales momentum. We've no doubt shareholders will take this as an indication that the company's go-to-market strategy is working very well.

New Relic customers paying more than $100,000 annually

Key Takeaways from New Relic's Q2 Results

With a market capitalization of $5.65 billion New Relic is among smaller companies, but its more than $231.9 million in cash and the fact it is operating close to free cash flow break-even put it in a robust financial position to invest in growth.

We were impressed by the very optimistic revenue guidance New Relic provided for the next quarter. And we were also glad that the revenue guidance for the rest of the year exceeded expectations. On the other hand, revenue growth is overall a bit slower these days. Zooming out, we think this impressive quarter should have shareholders feeling very positive. The company is up 13.2% on the results and currently trades at $103.02 per share.

New Relic may have had a good quarter, so should you 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.