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New Relic Sales Warning: Cloud Monitoring Market Concerns?

A weak New Relic sales forecast provided a painful reality check for the cloud, infrastructure and application performance monitoring (APM) software markets.

New Relic CEO Lew Cirne blamed the weakness on execution issues, and the company’s stock (Symbol: NEWR) fell 28 percent on the news.

Cirne said he believes the issues are an anomaly limited to the first half of New Relic’s fiscal year. But the sales weakness comes at a critical time for the overall cloud, application and infrastructure monitoring market. Indeed:

ChannelE2E, meanwhile, has spent the past four years or so promoting APM as a major opportunity for MSPs (managed IT service providers), particularly those that are working on cloud migrations.

Cloud, Application and Infrastructure Monitoring: Past, Present, Future

For several years now, the cloud-focused monitoring market has enjoyed rapid growth without any major hiccups. On the partner front, public cloud MSPs have adopted the monitoring tools to improve end user experiences across Amazon Web Services (AWS), Microsoft Azure, Google Cloud Platform, hybrid clouds and on-premises systems.

Consistent market winners have included New Relic. And at first glance, the company’s latest financial results are quite positive. Revenue increased 30 percent year-over-year to $141.0 million, a growth rate plenty of software companies would celebrate.

New Relic CEO Lew Cirne

But in prepared statements and during and earnings call, Cirne pointed to execution challenges at the software company. In a statement during the earnings call on August 6, Cirne said:

“While revenue was above our guidance for the quarter, we did not execute well enough to meet quarterly sales and headcount targets. This resulted in a lower-than-expected deferred revenue balance and net dollar-based expansion rate.

We are not pleased with these results, but we do believe they are an anomaly limited to the first-half of the fiscal year and largely the consequence of our moving aggressively to complete go-to-market and product-related organizational transitions. At the same time, this was compounded by the release of a new product and user interface platform against the backdrop of a seasonally soft quarter.

Longer-term, we anticipate the benefits of these initiatives, which align our operations to a common, powerful platform, New Relic One. The culmination of nearly two years of engineering time, we view the New Relic One platform as the foundation for the next decade of New Relic’s innovation.”

New Relic: Extending From APM to An Overall Platform

Partners will play a key role as New Relic seeks to regain its footing. For instance, the New Relic One platform has “programmability capabilities” that will let partners and customers create their own applications on top of the platform, Cirne asserts.

Still, New Relic didn’t say much about the company’s overall channel partner and strategic alliance strategy during the earnings call. And Cirne conceded that the hot software monitoring market is creating more intense competition in the sector.

“It’s a strong and healthy market and growing. And with that growth – and with the scale that we happen to be at, that does attract more competitors,” he conceded.

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