Keep in mind that the analysts are always cautious and looking backwards over their shoulders, but here they are:
Saul
I always find it amusing when analysts do things like raising “target” prices exactly 3 points from $110 to $113., when in fact nobody knows what it will be. Of course if it goes from $110 to $200 they will be right but completely miss the point. I don’t have a target price beyond “more than I paid, hopefully a lot more.” Predicting that sort of vague future from the near infinite number of possible futures is hard enough.
JPM sayeth:
New Relic
1Q19: Clean Quarter But More Investments Come in Back Half
Neutral
?Price Target: $110.00
Previous: $100.00
Results for the June quarter were good overall, but after such a strong March quarter even these results may not receive the positive response we saw a quarter ago. The same enterprise trends remain intact helping deliver the 35% revenue growth in the quarter.
Beats all metrics handily with $20M upside in OCF. NEWR reported 1Q19 revenue/non-GAAP EPS of $108.2M/$0.15 compared to our estimate of $106.2M/$0.11 and Street’s $106.1M/$0.11. Operating cash flow of $50.4M beat our estimate of $30.4M and Street’s $26.8M.
Focus continues to shift toward enterprises. New Relic is continuously delivering results above expectations while Paid business accounts relatively stayed flat q/q at 17,000 in 1Q19. This is an indication of higher focus on landing higher ARPU generating enterprise customers and expansion in the existing base.
Net retention rate of 118% is good in a seasonally weak upsell quarter. Looking at the net retention rate of 118%, investors might view the decline from the 141% last quarter as a sign of reducing upsell potential or increasing churn in the installed base. But we would like to remind investors, that as NEWR penetrates more in the enterprise base, seasonality causes the net retention rate to be higher in the back half of the year. Also, NEWR uses a quarterly net expansion rate which is then annualized unlike many other SaaS companies that uses a trailing 12 months net retention rate. This exemplifies the seasonality in the first half further.
Increased expenses cause weaker back half margins. NEWR had one of the strongest hiring quarters to start the year and the company continues its plan to hire more through the rest of the year. The operating income guidance is only going up roughly by the magnitude of the beat in the quarter, which after factoring in an increased level of capitalization of sales commissions than previous guidance might indicate that management is actually lowering guidance on the operating income for the back half of the year. The total expenses also incorporate a lower gross margin due to coming live of European operations and addition of capacity domestically.
Establish December-2019 price target of $110. Our price target is based on our 10-year DCF model and implies a EV/Sales multiple of 9.5x on our FY21 (March) revenue estimate.