As Amazon Web Services (AWS) from Amazon.com (AMZN), Azure from Microsoft (MSFT) and Google Cloud from Alphabet (GOOGL) lead the growing cloud computing industry, Big Data analytics software developer New Relic (NEWR) has partnered with these tech titans to benefit from that demand.
According to market research firm Canalys, as of the end of 2018, Amazon Web Services (32.2%), Microsoft Azure (13.7%) and Google Cloud (7.6%) accounted for nearly 54% of the global cloud computing market.
By partnering with these industry leaders, New Relic provides Amazon, Microsoft and Google Cloud clients with SaaS (software-as-a-service) solutions to monitor performance of their applications and customer experiences. This cloud-based instrumentation platform gives companies the insights need to help create more perfect software.
Based in San Francisco, New Relic’s clients include more than 50% of the Fortune 500, as well as over 17,00 total customers.
Revenue gains have ranged from 33% to 40% over the last eight quarters. After posting four quarters of triple-digit earnings growth based on prior-year reports that showed a loss, New Relic passed a significant test in fiscal 2019 Q3 (ended Dec. 31, 2018). The company generated a fifth straight quarter of triple-digit EPS gains (280%). This time it was a true increase, compared to a year-over-year profit. So even though the comparisons got tougher, New Relic still delivered a stellar performance.
On Tuesday, New Relic was added to the IBD Breakout Stocks Index as it neared a buy point ahead of its fiscal Q4 earnings report after the market close. The stock closed Tuesday’s session up 4% in above-average volume.
After 187% Run, Can Cloud Computing Stock Float Higher?
As Facebook (FB), Square (SQ), Alibaba (BABA) and many other IPO stocks often do, New Relic took quite a while (about 28 months) before it started to climb following its December 2014 initial public offering. But then it headed straight for the clouds, gaining 187% from an April 2017 breakout before starting to retreat in July 2018.
Since then, the stock has been consolidating as the general market has fluctuated between a correction in Q4, a new uptrend starting on Jan. 4, and a return to a correction on Monday. (See how to track these trends with the Market Pulse.)
Understand that it’s risky to buy a stock just ahead of earnings. It’s better to wait and see how the company reports and how the market reacts. Or you may choose to use an options strategy to reduce your risk but still have skin in the game, as the IBD Leaderboard team recently did with Match Group (MTCH).
The fact that the general market has just entered a correction is another reason to be very cautious about making new buys. But corrections are always eventually followed by new uptrends, which can offer strong buying opportunities. So be sure to continue to build your watch list while the market is down. A follow-through day can launch a new uptrend in as little as four days from a bottom.
Heading into earnings Tuesday after the close, the buy point for New Relic was 109.01, 10 cents above the peak in the handle of a shallow cup-with-handle formation within a larger pattern. While not a completely traditional pattern, note that from a low in December the Big Data player did have the 30% or greater prior run-up required for proper bases.
New Relic Earnings
Late Tuesday, New Relic released earnings for its fourth quarter and full 2019 fiscal year (ended March 31, 2019). Revenue came in at $132.1 million, up from $98.4 million for the fourth quarter of fiscal 2018. Sales for the full fiscal year were $479.2 million, an increase of 35% over fiscal 2018.
But the company broke its streak of triple-digit EPS increases, posting a 44% gain for fiscal Q4.
The company also announced the launch of New Relic One, what it calls “the industry’s first entity-centric observability platform,” designed to help customers find, visualize and understand what they need to develop even better software.
On Wednesday, the stock is down over 4% in heavy volume. But New Relic has been bouncing back from an even sharper drop at the open, and has managed to retake its 50-day line. See if it can close the day above that benchmark and continue working on its base.
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