New Relic (NYSE:NEWR) Reports Q4 In Line With Expectations But Stock Drops

Anthony Lee /
2023/05/23 4:11 pm EDT

Application performance management software company New Relic (NYSE:NEWR) reported results in line with analyst expectations in Q4 FY2023 quarter, with revenue up 17.9% year on year to $242.5 million. However, guidance for the next quarter was less impressive, coming in at $239 million at the midpoint, being 4.87% below analyst estimates. New Relic made a GAAP loss of $52.5 million, improving on its loss of $56.4 million, in the same quarter last year.

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New Relic (NEWR) Q4 FY2023 Highlights:

  • Revenue: $242.5 million vs analyst estimates of $241.1 million (small beat)
  • EPS (non-GAAP): $0.42 vs analyst estimates of $0.22 ($0.20 beat)
  • Revenue guidance for Q1 2024 is $239 million at the midpoint, below analyst estimates of $251.2 million
  • Management's revenue guidance for upcoming financial year 2024 is $1.03 billion at the midpoint, missing analyst estimates by 4.29% and predicting 10.7% growth (vs 17.9% in FY2023)
  • Free cash flow of $68 million, up from negative free cash flow of $29.5 million in previous quarter
  • Gross Margin (GAAP): 76.7%, up from 68.9% same quarter last year

“We finished the fiscal year with consumption revenue growing in excess of 30% excluding the impact of migrations, with profitability at a new high watermark, and with our innovation leadership recognized broadly. I’m very grateful for such committed customers and all the hard work across the company which made fiscal 2023 a terrific year,” 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 $172.7 million in Q4 FY2021, to $242.5 million.

New Relic Total Revenue

This quarter, New Relic's quarterly revenue was once again up 17.9% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $2.73 million in Q4, compared to $12.9 million in Q3 2023. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Guidance for the next quarter indicates New Relic is expecting revenue to grow 10.4% year on year to $239 million, slowing down from the 19.9% year-over-year increase in revenue the company had recorded in the same quarter last year. For the upcoming financial year management expects revenue to be $1.03 billion at the midpoint, growing 10.7% compared to 17.8% increase in FY2023.

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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's free cash flow came in at $68 million in Q4, up 54.2% year on year.

New Relic Free Cash Flow

New Relic has generated $33.8 million in free cash flow over the last twelve months, a decent 3.65% of revenues. This FCF margin is a result of New Relic asset lite business model, and provides it with optionality and decent amount of cash to invest in the business.

Key Takeaways from New Relic's Q4 Results

With a market capitalization of $5.75 billion New Relic is among smaller companies, but its more than $879.8 million in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.

We enjoyed seeing New Relic’s improve their gross margin materially this quarter. That feature of these results really stood out as a positive. On the other hand, it was unfortunate to see that New Relic's revenue guidance for the full year missed analysts' expectations and the revenue guidance for next year indicates quite a significant slowdown in growth. While non-GAAP operating margin guidance was better, the market seems focused on the revenue guidance miss vs. expectations. Overall, this quarter's results could have been better. The company is down 7.62% on the results and currently trades at $76.25 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.