New Relic: Real-Time Analytics

09/08/2015 8:00 am EST


Rob DeFrancesco

Founder, Tech-Stock Prospector

Software is at the heart of every business. It must always be up and running in the most efficient manner, observes tech expert Rob DeFrancesco, editor of Smart Tech Investor.

New Relic (NEWR) is a key innovator when it comes to helping customers make software run better.

The company is disrupting the $4-billion application performance management (APM) market with its cloud-based analytics platform.

By deploying New Relic’s Software Analytics Cloud, organizations can optimize their software performance.

For example, with real-time data analytics from New Relic, an e-commerce company can see how many people are on its site, the items customers are browsing, products being added to/removed from shopping carts, and the final steps taken to complete a transaction.

All of that information is then processed and analyzed to try to improve the overall customer experience and drive more sales.

New Relic is a leader in monitoring applications in the Cloud. Its platform is known for being easy to deploy (often within minutes), enabling customers to quickly gain real-time visibility into the performance of their software.

The average legacy APM installation today costs around $830,000, according to IT research firm Gartner. In comparison, a New Relic customer can be up and running at a cost of just $200 a month.

New Relic’s revenue in fiscal 2015 (ended March) rose 75% to $110.4 million. In the first quarter of fiscal 2016, revenue was up 68% year over year to $38.1 million, well ahead of the consensus estimate of $35.3 million.

Recently trading around $34.50 a share, New Relic has a market cap of $1.64 billion, 9.5 times the FY’16 consensus revenue estimate. While the valuation is high, it’s reasonable when taking into consideration the company’s strong top-line growth rate.

New Relic went public in December at $23 share. The stock opened for trading its first day at $30.16.

Taking into consideration New Relic’s current robust business momentum, I am modeling 60% revenue growth for fiscal 2016.

Applying a multiple of 10.5x to a revenue estimate of $177 million and taking into consideration cash and investments of $195 million on the balance sheet (with no debt), my fair-value price target for the stock is $43.15.

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