IPO Report: New Relic (NEWR)

New Relic (NEWR) is building a new category of enterprise software it calls Software Analytics. The company is based in San Francisco, CA,

Nine other companies are scheduled for the week of Dec. 8, 2014. The full IPO calendar is available at IPOpremium.

Manager, Joint-managers: Morgan Stanley and J.P. Morgan

Co-managers: Allen & Company, UBS Securities, JMP Securities, and Raymond James

End of lockup (180 days): Wednesday, June 10, 2015

End of 25-day quiet period: Tuesday, January 6, 2015

NEWR scheduled a $95 million IPO with a market capitalization of $876 million at a price range midpoint of $19 for Friday, Dec. 12, 2014 on NYSE. SEC Documents

New Relic IPO Report

Overview

NEWR is building a new category of enterprise software it calls Software Analytics.

NEWR's success is dependent on the market adoption of this emerging and unproven category of software, which may not yet be well understood by the market.

Valuation

Glossary

Conclusion

Neutral plus, C, 7

Rev +83%;  gross profit of 81%

Loss rate of -40%; never made money

250,000 users, 10,590 paid accounts

Accumulated deficit of -$100mm

Price-to-sales of 8.7; P/E of -22.5

Price-to-book of 4.4

Business

NEWR is building a new category of enterprise software it calls Software Analytics.

NEWR's success is dependent on the market adoption of this emerging and unproven category of software, which may not yet be well understood by the market.

For the foreseeable future, NEWR expects that revenue growth will be primarily driven by the pace of adoption and penetration of products and NEWR will incur significant expenses associated with educating the market about the benefits of our products.

Cloud-based

NEWR’s cloud-based suite of products enables organizations to collect, store, and analyze massive amounts of software data in real time.

NEWR designs its products to be highly intuitive and frictionless; they are easy to deploy, and customers can rapidly, often within minutes, realize benefits and results.

With NEWR’s products, technology users can quickly find and fix performance problems as well as predict and prevent future issues.

Business users such as product managers can get answers to how their new product launch is being received, or how a pricing change impacted customer retention, without waiting for help from IT.

Software developers can build better applications faster, as they can see how their software will perform and is actually performing for end-users.

As of September 30, 2014, NEWR collected, stored, and analyzed over 690 billion data points daily across more than 4 million application instances and monitored user experiences on over a million website domains and from over one billion mobile application installs.

Users & paid business accounts

As of September 30, 2014, NEWR had over 250,000 users.

NEWR defines a user as an email address associated with an account that has deployed its software code, called agents, and from which NEWR receives data from at least one application.

As of September 30, 2014, NEWR had 10,590 paid business accounts.

Software & data

Software has become critical to businesses and consumers worldwide, from online retailing to social networking to customer relationship management.

This software is found in applications and throughout the architectures on which those applications run: servers, websites, operating systems, mobile devices, and other IT assets.

The use of this software generates huge volumes of data about how it is performing, the end-user experience, and the transactions flowing through it.

Historically, organizations collected and analyzed only a small fraction of this data due to technology and business constraints, including high costs and limited benefits, except for specific use cases such as application performance management, clickstream analysis, and web traffic measurement.

Legacy software products were typically customized, expensive, required training, and were thus limited to business-critical applications within large organizations.

As a result, the vast majority of software data has been underutilized.

Intellectual property

As of September 30, 2014, NEWR had one patent application pending in the United States and two trademark registrations for “New Relic.”

Competition

NEWR’s competitors fall into four primary categories:

diversified technology companies such as HP, IBM, Microsoft, and Oracle;

large enterprise software and service companies such as BMC Software, CA, Inc., Compuware, Riverbed Technology, and SAP;

software performance providers such as AppDynamics and Splunk; and

companies offering analytics products competing with its New Relic Insights product, including Google and Webtrends.

5% shareholders pre-IPO

Lewis Cirne   27.2%

Benchmark Capital Partners VI, L.P.       21.9%

Entities affiliated with Insight Venture Partners   5.6%

Entities affiliated with Trinity Ventures   13.6%               

Dividends

No dividends are planned.

Use of proceeds

NEWR expects to receive $86 million from its IPO and use it for the following:

primarily for general corporate purposes, including headcount expansion, working capital, sales and marketing activities, product development, general and administrative matters, and capital expenditures.

NEWR cannot specify with certainty the particular uses of the net proceeds that NEWR will receive from this offering. Accordingly, NEWR will have broad discretion over the uses of the net proceeds of this offering.

Pending these uses, NEWR intends to invest the net proceeds from this offering in short-term, investment-grade interest-bearing securities such as money market accounts, certificates of deposit, commercial paper, and guaranteed obligations of the U.S. government.