It’s become the norm to talk about living in “unprecedented times”, but as Lew Cirne, CEO of New Relic, notes, that’s become such a familiar phrase of late simply because it’s unfortunately true.
But there’s another truth he sees coming out of the current global crisis:
The world needs software more than ever. Software is the lifeblood of the world.
The point he makes is that while the current situation is bad for everyone, it could actually be worse if it wasn’t occurring in a tech-enabled age:
Imagine if this horrible virus hit the world a mere 30 years ago. At that point in time, internet was virtually unknown to the world. There [were] a few people like me struggling to get their 28k modems to connect to [bulletin boards] or to AOL. But for all intents and purposes internet was a toy, a fad and not capable of doing much at all. There was no online shopping, there was no e-commerce, there was no way to get the supplies you needed delivered to you.
There [was] no way to deliver education online. There [was] no way for our kids to do the incredible and important work they need to do right now to further their educations at home, with a help of a teacher or a resource instantly available online. There was no video conferencing and telephone calls were very expensive, long distance. So [it] would have been a disconnected world that truly would have been paralyzed and yet here we are finding our way through this incredibly difficult and, yes, unprecedented times.
What all this has to do with New Relic is simple, he adds:
New Relic’s mission is to instrument the internet and help companies of all sizes, organizations around the world deliver more perfect software. We’ve always believed our niche mission was noble and important. But now more than ever it’s indispensable. We do have customers in the e-commerce vertical. We have customers delivering online education. We have customers delivering video conferencing. We even have customers that provide games and, yes, in all those segments, their traffic has spiked an unprecedented and unexpected ways. Without our platforms, these facilities simply couldn’t deliver the performance and availability that people depend on now more than ever.
It’s a message that appears to resonate with customers and investors alike. Yesterday saw a healthy uptick in the New Relic share price after the release of the latest quarterly and full year numbers, which beat Wall Street expectations. For Q4, revenue was $159.7 million with a net loss of $28 million, while full year revenue was $599 million and a loss of 88.9 million. The firm leaves fiscal 2020 with 16,000 paying customers, nearly 1,000 with contracts valued at over $100k in annual recurring revenue.
That said, even without the onset of the COVID-19 crisis and its impact, fiscal 2020 was always set to be one of transition for the firm and transitions can be notoriously difficult to navigate at the best of times. Cirne admits:
Any time a company goes through the difficult, but important, work of preparing for the next 10 years, investing for the future at the expense of doing more expedient things that could help us in the short-term, there are trade-offs involved and short-term pain is involved. And to be candid, it’s a lot of work to align the company around those tough trade-off calls. That was the natural course of what happened going into fiscal 2020 and we didn’t make it any easier on ourselves. I think we could have executed better throughout most parts of the business as we went through that transitional year. In that sense, I’m thankful that 2020 is behind us and we have made the transition to New Relic One and we are positioned now to establish ourselves for growth for the next years.
Part of that growth plan has included putting in place some new faces with lots of industry pedigree on the executive team, including Wayne Purboo, formerly SVP Product at New Relic customer AT&T, as Chief Strategy Officer; Bill Staples, formerly of Adobe and Microsoft, as Chief Product Officer; and Seema Kumar, formerly VP marketing at Salesforce, as Chief Marketing Officer.
Clearly the current macro-climate means that the months ahead are going to be unpredictable with the variables yet to coalesce, but Cirne argues:
There’s a short-term and long-term way to think about this. Long-term, this is unquestionably driving new habits for everyone in the world to do more digitally than they have done in the past. That could be in business learning, that could be in video conferencing, it could be in shopping and so on. We have many of our customers seeing sudden spikes in usage and they’re thankful that New Relic is there to help them handle that change in application behavior.
But because of the macro-economic environment, it’s not necessarily turning into instant new business. Depending on the nature of company it might have more traffic, but may not have corresponding more revenue in some of those cases. We believe that this just further makes our mission and category more important and more exciting, but it doesn’t necessarily translate to short-term business benefits. But we think that it does set well for long-term successes as those companies move to cloud and move to digital.
Overall, he takes solace from a quote by Andy Grove, the founder of Intel:
Andy said this, ‘Bad companies are destroyed by crises; good companies survive them; great companies are improved by them’. Now there’s no question that Andy Grove is one of the greatest CEOs in the history of technology and Intel is truly one of the great companies in the history of technology, so I think it would be premature for us to make that kind of declaration of New Relic. I’m biased. I’m a founder, I believe we’re a great company. But here’s how I want us to be judged - did we do great things during the crisis of 2020 to improve ourselves?
Wall Street likes what it’s seeing with New Relic and the firm is certainly well-positioned to support customer needs at this turbulent time. The transition pains are now behind it and while the COVID-19 crisis has knocked all predictable norms off course for now, New Relic looks in a good state to ride out the storm and be ready to grow in the aftermath.