New Relic (NEWR) Set To Report Q2 Earnings: What's In Store?

New Relic (NYSE:NEWR) is scheduled to report second-quarter fiscal 2019 results on Nov 6.

The company beat the Zacks Consensus Estimate in all the trailing four quarters, delivering average positive surprise of 79.7%.

In the last reported quarter, the company reported earnings of 15 cents per share against loss of 9 cents in the year-ago quarter. Moreover, the figure comfortably surpassed the Zacks Consensus Estimate by 4 cents.

Revenues increased 35.1% year over year to $108.2 million and came ahead of the Zacks Consensus Estimate of $106 million.

For the second quarter, New Relic projects revenues between $110.5 million and $112.5 million, representing year-over-year growth of 30-33%. Non-GAAP earnings are expected between 11 cents and 12 cents per share.

The Zacks Consensus Estimate for second-quarter earnings is pegged at 12 cents compared with the year-ago quarter’s 6 cents per share. Further, the consensus mark for revenues is pegged at $112.2 million, up 32.4% from the year-ago quarter

Let’s see how things are shaping up for the upcoming announcement.

Key Factors to Watch

New Relic is expected to benefit from large deal wins that reflect rapid adoption of its solutions. Enterprises are focusing on rapid migration to cloud and DevOps technologies to achieve scalability and agility for software development, which ultimately helps them deliver superior digital experience to clients.

Enterprises are finding New Relic’s easy-to-use solutions suitable to support these initiatives. Hence, the adoption rate is improving. In the last reported quarter, enterprises accounted for 55% of annualized recurring revenue (ARR), up from almost 49% in the year-ago quarter.

Moreover, the company had 748 paid business accounts, which pay more than $100,000 annually. New Relic has 17K paid business accounts in total. New Relic’s expanding support, particularly for Kubernates, is expected to further drive enterprise customer win.

The company is also likely to benefit from continuing momentum in the New Relic Infrastructure solution. Strong adoption for New Relic’s Application performance monitoring solution, which is supporting the likes of Epic Games (developer of Fortnite), is a key catalyst.

Moreover, New Relic’s solutions are easy-to-install and deploy. Hence, costs related to support and services are way lesser as compared with traditional peers. These, coupled with stringent cost control, are likely to keep gross margin expanding in the to-be-reported quarter.

However, increasing investments in infrastructure development and additional capacity are likely to negate some gross margin expansion.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. The Sell-rated stocks (Zacks Rank #4 or #5) are best avoided.

New Relic has a Zacks Rank #1 and an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks With a Favorable Combination

Here are some companies, which, per our model, have the right combination of elements to post an earnings beat this quarter:

Himax Technologies (NASDAQ:HIMX) has an Earnings ESP of +66.67% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

NetApp (NASDAQ:NTAP) has an Earnings ESP of +0.83% and a Zacks Rank #1.

The Trade Desk (NASDAQ:TTD) has an Earnings ESP of +0.29% and a Zacks Rank #1.

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