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New Relic: The Jury Is Out

Mar. 05, 2020 9:40 AM ETNew Relic, Inc. (NEWR)1 Comment


  • The net expansion rate is depressed for the third quarter in a row after the introduction of New Relic One.
  • The introduction of a new president/COO and new Chief Product Officer suggests that there may be ongoing problems.
  • New Relic has ramped sales rep hiring in an attempt to increase revenue growth in a competitive environment.
  • New Relic now has a platform of 3 apps that is expected to boost revenue. The jury is out.
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Back in July, I made one of my worst calls in recent memory by giving New Relic, Inc. (NYSE:NEWR) a bullish rating. 8 months later, this company is trading 40% lower than when the article was published.

Admitting when one is wrong, and learning from one's mistakes are important attributes for making it in the world of finance. I admit that I was wrong but it remains to be seen if I have learned anything. Today I am taking another look at New Relic and updating my rating.

Net Expansion Rate

One striking observation that I have made is the clear drop in the dollar-based net expansion rate for the last three quarters. Coincidentally, this lines up with the introduction of New Relic One which gives the product a new front and paves the way for addition of new apps. This is the company's attempt at converting to a Platform-as-a-Service offering.

(Source: New Relic)

Rewinding the clock back to earlier in the year, management indicated that:

changes within their sales organizational structure and moving to a new user interface platform hurt billings, though suggested these were only short-term issues and should be resolved in the coming quarter.

It is safe to say that the issues have not yet been rectified and in a broken record kind of way, management is still calling for a rebound in the coming quarter, 2020 Q4.

When you look at our guidance for the year you can impute, we expect cash flow to rebound in Q4. And then we are confident in our ability for that to rebound or to increase next year as we head towards the targets we set out for our fiscal 2023.

Is New Relic Struggling?

It appears to me that New Relic is struggling a little bit and I dare

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This article was written by

Steve Auger profile picture

I have been trading stocks, commodities, and options for more than 25 years. I have honed my skills in quantitative analysis and various stock investment tools for 15 years at Portfolio123 and offer services as a consultant in stock portfolios. I also own the financial data service Equity Analytx which provides aggregated fundamentals for a wide range of industries.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (1)

Kayode Omotosho profile picture
Awesome analysis, Steve. It's tough to decipher New Relic's product strength. I'll take a wait and see approach.

Thanks for the mention.
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