There Are Challenges Behind New Relic's Encouraging Q2 Earnings

After underwhelming results over the last couple of quarters, software analytics company New Relic (NYSE: NEWR) released encouraging fiscal second-quarter earnings thanks to its new cloud-based monitoring and logging solutions. Management also expressed its confidence in reaching $1 billion of revenue by 2023. But significant uncertainties remain on the way to this ambitious goal.

Over the last several years, New Relic's strong revenue growth was due to its application performance monitoring (APM) solution. However, the company's year-over-year revenue growth has been decelerating from 113% in 2014 to 27% over the last quarter. The higher revenue base explains a part of this growth deceleration, but intensifying competition also contributed to the negative trend. For instance, rival Datadog (NASDAQ: DDOG) has developed an integrated broader monitoring offering that includes logging and infrastructure monitoring in addition to APM capabilities.

In May, New Relic released its New Relic One platform to catch up with its competitors. The platform integrates the three key monitoring components (infrastructure, logging, and application), and its programmability allows customers to develop their applications based on New Relic's solution.

Source Fool.com