Please ensure Javascript is enabled for purposes of website accessibility

Here's Why New Relic Stock Is Tumbling Today

By Brian Feroldi - Updated Feb 5, 2020 at 10:32AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Shares drop after the company releases mixed earnings results and guidance.

What happened

In response to the company's announcement of fiscal 2020 third-quarter results that missed the mark, shares of New Relic (NEWR 3.01%), a software maker that focuses on application performance management, dropped as much as 14% in early morning trading on Wednesday. Shares were down about 8% as of 10:53 a.m. EST today. 

So what

Here are the headline numbers from the quarter: 

  • Revenue jumped 23% to $153 million. That was ahead of management's guidance and beat the consensus estimate on Wall Street.
  • The number of customers who spend more than $100,000 with New Relic each year jumped to 926, up from 816 at the end of 2018. 
  • The dollar-based net expansion rate was 109%. That was much lower than the 122% in the year-ago period. 
  • The GAAP operating loss rose sharply to $24.2 million. But on an adjusted basis, operating income came in at $3.0 million. 
  • GAAP net loss was $0.46 per share.
  • Non-GAAP (adjusted) net income dropped by more than 50% to $0.09 per share. While the drop was expected, the $0.09 came in $0.03 below the $0.12 in adjusted profits that analysts were looking for.
  • The cash balance at quarter-end was $737 million. 
Arrow pointing up and down with question mark

Image source: Getty Images.

As for guidance, here's what New Relic expects in the upcoming quarter:

  • Revenue is forecast to grow by about 17% to between $154 million and $156 million. That range is right in line with Wall Street's estimate of $155 million.
  • The non-GAAP loss from operations is expected to range from breakeven to $2.0 million.
  • Non-GAAP net income per share is expected to land between $0.02 and $0.06. That's behind the $0.08 that analysts were projecting.

Guidance for the full fiscal year was adjusted, too:

  • Revenue is now forecast to grow by about 24% and land between $594 million and $596 million. That's up from management's prior outlook of $588 million to $593 million.
  • Non-GAAP income from operations is expected to land between $19 million and $21 million. That's much lower than the previous guidance range of $21 million to $25 million.
  • Non-GAAP net income is projected to land between $0.54 and $0.59 per share. That's also down from management's previous outlook of $0.60 to $0.67, and below the $0.64 that Wall Street was expecting.

Given the lower-than-hoped-for profitability, it's no surprise to see shares taking a step backward today.

Now what

The updated guidance shows that management is choosing to invest heavily in itself right now to drive top-line growth. That's a trade-off that investors should applaud as long as that growth translates into increased profitability down the road. 

New Relic remains out of favor with growth-focused tech investors right now, which makes sense given the slowing growth and declining profitability. Only time will tell if the company's recent strategy change and management shake-up will pay off. 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

New Relic Stock Quote
New Relic
NEWR
$54.08 (3.01%) $1.58

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
336%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.