UBS Remains Sidelined on New Relic (NEWR) as Challenges Overshadow 2Q Upside

UBS maintained a Neutral rating on New Relic (NYSE: NEWR), and cut the price target to $38.00 (from $39.00), following the company's 2Q earnings report. NEWR reported Revenues and EPS upside of $1.5M and $0.07. However, these results are most likely overshadowed by billings down q/q for the 2nd consecutive quarter and deferred revenue down q/q for the first time ever.

Analyst Brent Thill commented, "NEWR delivered FQ2 Revenue/EPS upside of $1.5M/$0.07, but these results are likely overshadowed by billings down q/q for the 2nd consecutive qtr ($61.6M, +24% y/y vs. +39% in FQ1) and deferred revenue down q/q for the first time ever – a rare occurrence for a subscription model. We don't think these metrics capture the true story given the sizeable SMB portion of the business and short contract duration (~6 mos, in-line with FY16), but also note that with shares trading at ~6x EV/S on CY17e, the results are unlikely to sit well with investors. Despite these missteps, we still like the fundamentals - as NEWR is one of just a few modern horses in the APM race, and believe the move towards enterprise is also introducing a more pronounced seasonality into the business, with 1H17 focus on landing new customers (1H17 net adds +50% vs. 2H16) providing seeds for expansion into the back-half of the year. We expect to hear more at the analyst day session on Nov. 16th in SF."

For an analyst ratings summary and ratings history on New Relic click here. For more ratings news on New Relic click here.

Shares of New Relic closed at $34.36 yesterday.

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