New Relic just took Wall Street by surprise, but it was a nice surprise after turning in a non-GAAP profit a quarter ahead of expectations.
For its third quarter non-GAAP operating income was $2.7 million compared to an operating loss of $4.9 million for the same period last year. Revenue was $91.8 million for the third quarter, up 35% year-over-year.
The non-GAAP profitability is something that CEO Lew Cirne expects to see continuing now that the milestone has been passed:
Looking forward, we expect to maintain non-GAAP profitable growth, but believe that we are only in the early stages of a huge market opportunity and we plan to continue to heavily invest in ahead of what we see as a multibillion-dollar opportunity.
We believe that virtually every company in every industry has a need for a solution like ours, which is why we're so excited about our long-term opportunity.
The list of customer use cases for New Relic continues to expand, said Cirne:
Our installed base now includes more than 50% of the Fortune 100 and in Q3 alone, we signed new deals with over a quarter of the largest 20 on that list. More broadly, we engaged in new or expanded relationships across a remarkably diverse set of industries, with companies including Barrick Gold Corp, the largest gold mining company in the world; McCormick, the 125-year-old spice company and Reckitt Benckiser, one of Europe's largest consumer goods companies and Caribou Coffee, adding to the dominance of our coffee business.
The business case among those customers varies of course, but there’s a common theme running through them, argued Cirne:
Digital is the new front door to their business and companies are quickly recognizing how delivering a strong customer experience can drive customer loyalty and ultimately the businesses bottom line.
It is apparent that software will continue to play an increasingly strategic role in every industry and as the amount of software in the world increases, so does the market opportunity for New Relic. With the increasing complexity in modern software architectures, one of the hardest things to do is to understand what's actually happening when something goes wrong and if you can't accurately diagnose the problem, you can't fix it.
Cirne picked out the New Relic Infrastructure product for particular attention. Introduced a year ago, it’s now pitched as “one of our highest attaching products” with a potential market as big as APM (Application Performance Monitoring).
Cirne sees Infrastructure as a future “landing point” into new customers, - it’s currently around 10% of new business - although at this stage it’s more of a complementary offering to APM:
Customers who use APM and infrastructure together get a comprehensive view of the health of their servers and host as well as the applications and services they depend on. Our customers continually tell us that they want to see infrastructure health and performance in the same painted glass as their application performance, which is why they select New Relic. We see these markets rapidly converging, which gives us confidence that our platform strategy is working.
Another popular offering has been New Relic Mobile, said Cirne, citing the example of a major airline as a case in point:
They are leveraging New Relic mobile to dramatically improve the customer experience on their mobile app. Every week, millions of people use this app to book flights, check flight status, change seats and so much more. Before New Relic, the Android version was crashing 40% of the time. Thanks to New Relic, they’ve identified and implemented multiple fixes and they are now down to nearly zero app crashes. This means their precious development resources are now spend adding new features instead of fixing bugs.
The firm has also been expanding its relationship with Amazon Web Services, now boasting integration with 31 AWS services. Cirne sees this as validation of the strategy of aligning New Relic closely with leading Cloud Services Providers:
We see companies who use New Relic with AWS achieving more success adopting the cloud than companies who don't use New Relic. In fact, we're thrilled that many companies have partnered with us to accelerate their cloud adoption. These companies include 21st Century Fox, Vantec, Blackboard, Dunkin' Donuts, MorningStar, Scripps Networks, West Corporation, Zipcar and many, many more, from media to education, to retail and financial services, modern companies across every industry are making cloud core to the digital strategy.
He added that market trends back up the New Relic thinking:
Virtually every enterprise is making strategic bet to decommission, and in some cases entirely get out of, their hosting business and go entirely to the cloud over a period of say five years or so. It's forcing them to rethink their tooling, not in a tactical way, but in a strategic way and that's where our platform story is really resonating because we're SaaS delivered, we're a 100% SaaS delivery.
We're the perfect solution to contemplate if you want to go strategic with the cloud. It works in virtually every vertical and again it helps our cloud partners too. So, we feel like our customers want an honest broker that helps them successfully adopt a multi-cloud strategy and that's why we see such a great opportunity as an independent in the space.
That AI thing
Refreshingly absent from Cirne’s remarks is any AI hard-sell, seemingly de rigeur for any enterprise tech player these days. That’s not to say the topic isn’t ticking away in the background in the guise of the firm’s Project Seymour. But Cirne is pragmatic about the current potential for the technology:
We think that Artificial Intelligence is not just a feature. It ought to be baked into how we think about our products going forward. Where is the point of differentiation? I feel like there is a few. First off, how much data are you collecting? What's the type of data you're collecting? And then, can that data be used to, can you continually improve your models and your algorithms based on that data and the signals you're getting from your customers?
We think it's a combination of how much data we collect and we collect an enormous amount of data. I think the last time I checked, we're collecting like five million events per second of performance data, infrastructure data, customer experience data, all into our cloud and then we're processing it all in real-time. We feel like that's a point of leverage that if we do really well. I don't think we're quite there yet, but if we do really well, it could become a true network effect in a very strong mode.
Good progress on all fronts. A very encouraging start to 2018 for New Relic - and a commendably realistic stance on the AI hype wave.