Why New Relic (NEWR) Shares Are Trading Lower Today

Anthony Lee /
2023/06/15 9:20 am EDT

What Happened:

Shares of application performance management software company New Relic (NYSE:NEWR) fell 5.9% in the pre-market session after the company announced that Chief Operating Officer Kristy Friedrichs will be stepping down from her position at the end of the year. She will remain with the company until then to ensure a smooth transition. In addition, Lew Cirne, the Founder and Executive Chair of the company, will undergo a transition from his current position as Executive Chair to assume the role of Non-Executive Chair of the board. This change will take effect after the company's annual meeting on August 16, 2023, and consequently, it will mark the conclusion of his employment with the company.

What is the market telling us:

New Relic's shares are quite volatile and over the last year have had 19 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. The previous big move was 23 days ago, when the stock dropped 5.97% on the news that the company reported fourth quarter results that beat analysts' expectations for revenue and earnings per share (EPS). Additionally, there was an improvement in gross margin, and the company generated strong free cash flow, bucking the trend of cash burn observed in the past two quarters. However, the revenue guidance provided for the upcoming quarter and the full year both fell short of consensus expectations. Despite this, bottom line guidance remained strong, as the operating income guidance for the next quarter and full year exceeded estimates. The market seemed primarily concerned with the weak sales outlook. Nonetheless, management offered updates regarding the transition to a consumption-based model, which has impacted the topline.

New Relic is up 17.1% since the beginning of the year, but at $65.67 per share it is still trading 22.7% below its 52-week high of $84.95 from May 2023. Investors who bought $1,000 worth of New Relic's shares five years ago would now be looking at an investment worth $605.51.

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