New Relic - A Relatively Unknown Gem
Summary
- New Relic is a relatively small ($2.4B) market cap company in a fast growing segment.
- The company is on a solid track to profitability by the end of FY18 (non-GAAP).
- NEWR is relatively unknown and not a battleground stock.
- It is worth a speculative buy at current prices.
I don't normally like to invest in stocks that are not profitable. But in New Relic's (NYSE:NEWR) case, I can make the rare exception. There are 10 types of people in the world, those that understand binary, and those that don't. A humorous(less) attempt at a joke, but seems to apply in this case trying to understand exactly what New Relic's products actually do. You either get it or you don't. I didn't, so I had to dig into it and find out exactly what they do. This is one of the lesser followed and written about stocks on Seeking Alpha, so I'll take a little time and try to explain its business model. From its own description:
We are defining a new category of enterprise software we call digital intelligence, designed to help companies see their business more clearly. Our cloud-based platform and suite of products, which we call the New Relic Digital Intelligence Platform, enable organizations to collect, store, and analyze massive amounts of data in real time so they can better understand their application and infrastructure performance, improve their digital customer experience, and achieve business success.
Did that clear it up? Let's try this version.
Not exclusively, its software is made for the "backroom" guys (and gals) who are monitoring and designing a business's applications. For example, they can show a real-time change in customer retention rates based off a price change. Or, where the mobile app they are designing is requesting too much data from the host. They can show the actual customer experience in real time as the team manages and designs their digital platform and data. They allow you to run custom queries to analyze users by location, device, browser, and other metrics vital to an app's success. This allows big data that can be seen up the management chain by showing, in a user-friendly format, page views, response times, and sessions of specific users to give support and operations teams insight into the customer experience. Its products aid in benchmarking, test tracking, segmentation, analysis, and refinement of data and apps.
It's a big data world, and the faster you can maximize your performance metrics, sales programs, and user interaction, well, that's big money. New Relic helps companies do just that.
New Relic went public in 2014. After some ups and downs, it has now moved to fresh new highs.
Here are some key company highlights and metrics. This info was provided from the company's Q4 conference call:
The company has best-in-class margins.
One interesting key metric that the company reports is the number of customers it has with an annual revenue of at least $100,000. This is a nice base of recurring revenue.
From its latest Q4, the company has updated its own projections on revenue for FY '18. Sales are now projected to grow from $263 million to $344 million for the year. The company believes it has a multi-billion-dollar market opportunity.
As I mentioned in the opening, I don't like to buy stocks without earnings and almost never stocks with losses into the great unknown. New Relic, however, recently gave guidance that on a non-GAAP basis, it will be profitable by the end of FY 2018. That is impressive for such an early and fast-growing enterprise. This is due to its scalability of growth and its large gross margins.
The company is also capturing larger customers as measured by its metric of tracking higher average revenue accounts over time.
Summary
These types of stocks are always difficult to judge. What appeals to me is their rapid growth rate, the attractive market they are in, and the fact they are relatively unknown. This is not a battleground stock with hundreds of articles reporting on it. It has a lot of time to get more attention and considerably appreciate in price. As a testament to the validity of its model, Cisco Systems (CSCO) purchased one of its competitors, AppDynamics, for $3.7 billion just before it went public in Jan. 2017.
With a relatively low market cap of $2.4 billion, if NEWR can hit or exceed its core estimated numbers, the stock could go much higher. Turning profitable by the end of FY 2018 gives a clear road map to an investor that New Relic is on the right track. Still a risky stock, but a risk that is well worth taking. As always, do your own research and let me know what you think below.
I have included its GAAP to non-GAAP financial adjustments below for the purists out there.
This article was written by
Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in NEWR over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.