Application performance management software company New Relic (NYSE:NEWR) reported results in line with analyst expectations in Q4 FY2022 quarter, with revenue up 19.1% year on year to $205.7 million. However, guidance for the next quarter was less impressive, coming in at $213 million at the midpoint, being 0.24% below analyst estimates. New Relic made a GAAP loss of $56.3 million, improving on its loss of $58.8 million, in the same quarter last year.
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New Relic (NEWR) Q4 FY2022 Highlights:
- Revenue: $205.7 million vs analyst estimates of $205.1 million (small beat)
- EPS (non-GAAP): -$0.24 vs analyst estimates of -$0.20
- Revenue guidance for Q1 2023 is $213 million at the midpoint, roughly in line with what analysts were expecting
- Management's revenue guidance for upcoming financial year 2023 is $925 million at the midpoint, missing analyst estimates by 0.27% and predicting 17.7% growth (vs 17.6% in FY2022)
- Free cash flow of $44 million, up from negative free cash flow of $22.9 million in previous quarter
- Net Revenue Retention Rate: 119%, up from 116% previous quarter
- Customers: 1,099 customers paying more than $100,000 annually
- Gross Margin (GAAP): 68.9%, up from 66.9% same quarter last year
“We finished FY22 with revenues of $786 million, well above the guidance of $710 million we set a year ago,” 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.
As you can see below, New Relic's revenue growth has been mediocre over the last year, growing from quarterly revenue of $172.6 million, to $205.7 million.
This quarter, New Relic's quarterly revenue was once again up 19.1% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $2.16 million in Q4, compared to $7.89 million in Q3 2022. 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 18% year on year to $213 million, improving on the 11% 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 $925 million at the midpoint, growing 17.7% compared to 17.6% increase in FY2022.
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Large Customers Growth
You can see below that at the end of the quarter New Relic reported 1,099 enterprise customers paying more than $100,000 annually, an increase of 35 on last quarter. That is a bit less contract wins than we saw in the last quarter but quite a bit still above what we have typically seen over the last year, suggesting sales momentum is coming off slightly after a stronger quarter.
Key Takeaways from New Relic's Q4 Results
With a market capitalization of $3.14 billion New Relic is among smaller companies, but its more than $268.6 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 enjoyed seeing New Relic’s improve their gross margin materially this quarter. And we were also glad that the revenue guidance for the next year looks positive. On the other hand, it was unfortunate to see the slowdown in new contract wins and the revenue guidance for the full year missed expectations. Zooming out, we think this was still a decent, albeit mixed, quarter, showing the company is staying on target. The company is flat on the results and currently trades at $47.79 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.
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The author has no position in any of the stocks mentioned.