Consumption-based revenue model is a growth tailwind for New Relic.So far, the strategy has proven effective at maintaining robust ~20% y/y revenue growth. "New Relic One" was rolled out in 2020 specifically to address this problem, in addition to dramatically reducing the company's product count into just three main platforms, as well as rolling out a free tier with the hope of "landing and expanding" new customers. Much of New Relic's growth stagnation came from the fact that its product stack was very difficult to comprehend, especially at a time when companies like Datadog were stealing the limelight. New Relic's new, simplified sales approach has driven re-invigorated growth rates.Now, for the first time in years, New Relic is showing itself to be a viable competitor and a threat to its younger but much faster-growing rival Datadog ( DDOG).Īs a reminder for investors who are newer to this name, here are my top reasons to be bullish on New Relic: I think this stock shines especially given the strength of its transition to a consumption-based business model, which has tremendously boosted its margin profile and raised its expansion potential with its existing customer base relative to its older subscription model. Given the strength of New Relic’s recent results as well as its incredibly attractive valuation, I am upping my rating on New Relic to strong buy.
I’d encourage investors not to read into this too much, however: in my view, New Relic has plenty of room to jump even on a standalone basis. The stock has already enjoyed a nearly ~30% jump year-to-date however, these gains have lost steam ever since acquisition rumors by TPG ended. New Relic ( NYSE: NEWR) is one of my favorite names in this regard. Yet the best strategy amid all this noise, in my view, is investing in “growth at a reasonable price” stocks that have room from a valuation front to rise amid a wide spate of macro scenarios.
So far this year in the market, it seems to be “one step forward, two steps back.” Every resurgence of optimism around pausing interest rate hikes seems to be met with a number of bearish factors (the debt ceiling crisis, persistent inflation, bank turmoil).
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