Is New Relic Planing To Consolidate The APM Market?

According to Gartner, the global application performance monitoring (APM) market is estimated to grow to $5.6 billion by 2020. Billion Dollar Unicorn New Relic (NYSE: NEWR) recently announced its third quarter results. The market is extremely pleased with the company’s performance.

New Relic’s Financials

For the quarter, New Relic’s revenues grew 35% to $91.83 million, ahead of the analysts’ estimates of $89.4 million. During the quarter, New Relic’s GAAP loss narrowed from $13.9 million a year ago to $8 million. Non-GAAP income from operations came in at $2.7 million compared with a loss of $4.9 million reported a year ago. Adjusted non-GAAP net income earnings of $0.05 per share were better than the loss of $0.09 per share reported a year ago, and the loss of $0.08 per share expected by the analysts for the quarter.

For the current quarter, New Relic forecast revenues of $95-$96.5 million with non-GAAP net income per diluted share of $0.04-$0.05. It expects to end the year with revenues of $351.6-$353.1 million and non-GAAP loss per basic share of between $0.04-$0.06. The Street was looking for revenues of $96.3 million for the quarter with an EPS of $0.05 per share.

New Relic’s Cloud Focus

New Relic continues to help its customers with Cloud adoption through added integrations. It has announced new integrations for New Relic Infrastructure for services for Amazon Web Services, Microsoft Azure, and Google Cloud Platform (GCP). These new integrations are focused on simplifying the monitoring of infrastructure resources and application performance for its customers. Customers will have the ability to filter data by service type and region from the cloud service providers so that they can focus their attention on critical services when necessary and optimize cloud spend. Post the integrations, New Relic’s product now has more than 40 integrations to cloud services and infrastructure components.

Over the past year, New Relic has increased focus on the enterprise segment. To cater to the segment, New Relic has announced new product capabilities, customer enablement, and best practice guidance for organizations leveraging Amazon Web Services. New Relic’s platform integrates real-time metrics from all the components of the application with application and customer experience data to help organizations understand how the configuration and deployment of AWS services impacts the rest of their technology stack.

It has also expanded its digital intelligence platform with the release of Applied Intelligence (NRAI), a set of services that monitors data to uncover and resolve problems faster for the customers. The service will help engineering and operations teams identify abnormalities across billions of datasets, predict problems, and provide prescriptive recommendations.

Questions for New Relic’s Board

The APM market is led by Dynatrace, which accounts for nearly 15% of the market share. IBM is a runner up with 8% share. New Relic has made a mark for itself by being the third largest player in the industry with a 6% market share. This also means there is a tremendous amount of fragmentation in the market. The bigger names in the industry include CA Technologies, IBM, HP, AppDynamics, Compuware and Microsoft. But there are many other lesser known names as well such as ManageEngine, Nastel Technologies to name a few. Are we to expect consolidation? Is New Relic going to become an active acquirer to consolidate market share?

Its stock is trading at $75.24 with a market cap of $4.17 billion. It touched a 52-week high of $76.54 earlier this month. Over the last year, it has been steadily climbing from the lows of $34.61.

More investigation and analysis of Unicorn companies can be found in my latest Entrepreneur Journeys book, Billion Dollar Unicorns.

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