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"This is what we were built for!" - New Relic CEO Bill Staples' observations on a tough macro-economic climate

Stuart Lauchlan Profile picture for user slauchlan February 9, 2023
Summary:
Cloud consumption is slowing down in the current economic crisis, but that just makes observability all the more essential.

New Relic
Bill Staples

Reduced losses, increased revenue and impressive customer wins left Wall Street happy with observability platform provider New Relic’s ongoing transformation. Third quarter revenue was $239.8 million, up 18% from $203.6 million a year ago, while operating loss was $29.1 million, compared to $51.9 million.

CEO Bill Staples pointed to the number of new logos added to the firm’s user list, with 800 net new paid platform customers:

We closed a strategic agreement with Confluent, the data streaming pioneer, who is standardizing their observability practice on New Relic. Confluent chose to move off a leading competitor in order to have access to more than 30 capabilities in one platform with better cost scaling that supports their rapid growth and better TCO. And second, BlackLine, a financial operations management platform, is standardizing on New Relic in order to consolidate spend from eight different tools as we partner with them to increase the productivity of their engineers and improve their service performance. So we’re clearly winning new customers through our growth engine at industry-leading rates as well as new strategic logos who are standardizing on New Relic.

There’s also been expansion among existing customers, he added: 

One key factor in our success driving expansion within our base is our all-in-one platform pricing model which translates to better economies of scale and lower TCO as customers standardize on our platform. For example, unlike competitors, our data pricing model follows modern cloud service pricing trends where customers pay for actual usage instead of monthly peaks. This aligns with how our customers are driving their own cloud optimization efforts by making use of elastic scaling of their infrastructure and can translate to significant savings in their observability spend.

He pointed to two examples of increased customer usage: 

MercadoLibre, the largest online commerce ecosystem in Latin America, has been standardizing on our platform for observability for some time. This quarter, they more than doubled their already large commitment to supporting their growing observability needs, including the use of OpenTelemetry. OpenTelemetry is a cloud-native computing foundation-driven standard, which New Relic is proud to support and a top contributor in our category.

Next, William Hill is one of the world’s leading game and entertainment companies, and they quadrupled their commitment this quarter to support their consumption growth, which is also fueled by their embrace of OpenTelemetry in addition to using New Relic’s capabilities across mobile, network and MLOps. 

Competitive

Staples also said that New Relic is increasingly displacing competitors, citing the example of the EMEA sales team taking out 25 rival tools across the quarter: 

I think it’s really driven off of the strategy that we put in place two years ago to build an all-in-one platform. If you remember, we told investors that we thought this category was ripe for disruption, and we wanted to bring it. 

The number one concern that we heard from customers, and we continue to hear, is that observability, the price is too high for the value. And the number two concern they have is tool fragmentation. Customers have been really hungry for a platform that helps them standardize their observability practice. So their engineers can stop swiveling between screens and get work done faster and because a platform approach will drive efficiency in their spend.

We’ve been heads down building that business. And we believe the current economic climate really only accelerates what we saw coming two years ago. In essence, this is what we were built for. And the road ahead is an exciting opportunity to show the strength of our strategy to be the first true consumption observability business and solve those hard customer problems.

All that said, New Relic is still subject to the current macro-economic climate. But Staples argued: 

It’s obvious cloud consumption is slowing down as reported by all three hyperscalers this quarter. While we aren’t immune to the cloud consumption slowdowns, we did see some of that in our base. It’s really important to think about the use cases of observability in answering the question, because New Relic really helps our customers do two things. We help them save money, and we help them make money. That’s why observability is so mission-critical, it supports both top line and bottom line initiatives for our customers.

To help drive more efficiency, our customers use New Relic to understand how their infrastructure and apps are performing and where there are efficiencies to be gained. So in part, we play a role in helping them drive that cloud efficiency, but we also help drive their top line. Customers are using New Relic to optimize their digital business and increase its performance, reach more customers, deliver better experiences, sell more product and services. And therefore, it’s a key priority for every business right now who’s fighting harder for every dollar.

So will optimization within our customer base happen around New Relic’s consumption services? Yes, absolutely. No vendor is immune. Every company is looking for efficiencies. But will they turn off observability? Absolutely not. And we believe the economic reset that we’re going through is ultimately just accelerating the vision that we had for observability two years ago.

My take

Impressive performance as the long-running operating transformation bears fruit. 

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