By:
Nicholas Rohrer, AIM Student at Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
Summary
- New Relic, Inc. (NYSE:NEWR) enables users to collect, store, and analyze real time data through its cloud-based analytics platform. NEWR’s cloud-based architecture operates under the Software as a Service (SaaS) delivery model, enabling companies to monitor, manage, and operate their digital businesses.
- 1Q20 sales miss and decreased revenue estimates cost investors over 36% as shares fell from $94.45 on August 1, 2019 to $59.78 on August 7, 2019. Since its tank in August, shares have rebounded slightly as the stock is currently trading for $65.51.
- Share
prices fell 8% after reporting of 2Q20, despite beating top and bottom
line expectations and raising EPS guidance from $0.55-$0.63 to $0.60-$0.67
for FY20.
- Effective October 1, 2019, Mike Christenson replaced Hilarie Koplow-McAdams as President and COO.
Key
points:
NEWR
tanked in August 2019 leading up to and following its reporting of 1Q20
results, in which NEWR missed quarterly sales estimates. Management attributed
this miss to a soft EMEA, an underperforming United States, and an increasingly
competitive environment. Additionally, NEWR lowered its revenue expectations
and growth estimates. NEWR’s price dropped over 36% from $94.45 on August 1,
2019 to $59.78 on August 7, 2019.
NEWR reported 2Q20
earnings on November 5, 2019. YOY revenue growth was reported at 27%. The key
operating metric, Annualized Dollar-Based Net Expansion Rate, was reported at
112%, down from 124% in the prior year. CFO Mark Sachleben stated that this
decrease was in line with expectations and driven by lower upsell activity.
Comments by Founder and
CEO Lew Cirne acknowledged difficulties faced in the first half of the year and
provided positive outlook going forward. NEWR released its New Relic Logs, New
Relic Traces, and New Relic Metrics capabilities to its platform at the
FutureStack user conference in September 2019. Additionally, New Relic also
added programmability to its New Relic One Platform. Management is excited
about its recent enhancements of the New Relic One platform stating that the
platform is now “open, connected, and programmable.”
Lew Cirne also added
excitement regarding the addition of Mike Christenson as President and COO,
stating that Christenson’s experience will help drive NEWR revenues and
increase management’s capacity to focus on strategic product initiatives.
Key growth drivers for
the second half of FY20 include: increasing application coverage, international
market penetration, and platform expansion yielding additional paid offerings
and platform capabilities. Management anticipates to meet its $1B annual
revenue goal in FY23.
What
has the stock done lately?
Upon announcement of 2Q20
earnings, NEWR opened down approximately 7% from $66.50 to $61.76, despite
beating top and bottom line expectations and raising EPS guidance from
$0.55-$0.63 to $0.60-$0.67 for FY20. NEWR has slightly rebounded and is
currently trading for $65.51.
Past
Year Performance:
NEWR is down 26% since reporting
2Q19 earnings in November 2018, despite continually beating consensus revenue
and EPS estimates. The stock peaked in March 2019 at $108.84 and bottomed out
at $55.46 in September 2019.
Source:
FactSet
My
Takeaway:
NEWR was added to the AIM Equity Fund
in October 2017 with a price target of $70.41, representing a 27.87% upside.
Over the holding period, the stock peaked in July 2018 at $111.96 but has since
receded to its current price of $65.51 due to its tank in August 2019 and
recent dip in November 2019. With recent developments in the New Relic One
platform coupled with a change in management, I believe that New Relic will
rebound from its tank in August has room to grow. For these reasons, it is
recommended that the AIM Equity Fund hold its position in NEWR.
Source:
FactSet
