Shares of private equity acquisition target New Relic Inc. fell sharply in extended trading today as it provided disappointing guidance for the coming quarter and new fiscal year.

New Relic delivered strong fourth-quarter results, reporting earnings before certain costs such as stock compensation of 42 cents per share on revenue of $242.5 million, up 18% from a year ago, resulting in a net loss of $55.2 million. The results beat expectations, with Wall Street analysts modeling earnings of just 22 cents per share on sales of $241.1 million.

The company also reported its full year fiscal 2023 results, with total revenue of $925.6 million, up 18% from a year ago. It said consumption-based revenue increased 60% from a year earlier, to $707.7 million.

New Relic’s stock had been given a boost last week when reports emerged that the private equity firms Francisco Partners Management LP and TPG Inc. were discussing a possible $5 billion acquisition to take the company private. However, there was no mention of any deal in today’s report.

Instead, New Relic disappointed investors when it offered guidance for the coming quarter and fiscal year that fell short of expectations. For the first quarter, New Relic is forecasting revenue of between $238 million and $240 million, while for the full year it’s expecting between $1.02 billion and $1.03 billion in sales. Wall Street’s analysts were hoping for more, with a first-quarter target of $251.3 million in sales and a full-year estimate of $1.07 billion.

New Relic’s stock consequently plummeted like a stone in after-hours trading, losing more than 7% of its value. That came after a 1% drop during the regular trading session.

San Francisco-based New Relic is considered a leading player in the application and infrastructure observability market. It sells software that’s used to track the performance of applications, services, DevOps environments and the infrastructure they run on. New Relic is especially popular with developers, because the software gives them a way to identify problems with their apps and work out how to resolve them.

But despite its popularity, New Relic has struggled in recent years to grow as much as its shareholders would have hoped. Three years ago, the company revamped its business model by moving to a consumption-based pricing structure, and consequently suffered a big drop in active customer accounts and revenue.

Although New Relic’s management insisted the newer model would put the company in a better long-term position, it struggled to achieve its growth and revenue targets. Former Chief Executive Lew Cirne stepped down, replaced by Bill Staples (pictured).

Under Staples’ leadership, New Relic has managed to turn itself around of late, with recent quarters showing encouraging growth. Indeed, it added more than 800 net new paid customers in the last quarter alone. However, talk of a sale has dogged the company for the best part of a year, suggesting that its executive leadership believes it may be able to reinvent itself more effectively away from public scrutiny.

“New Relic is making slow and steady progress, and importantly it keeps growing its revenue,” said Holger Mueller of Constellation Research Inc. “However, it’s loss has stayed constant, though in the last quarter this was partly due to some extra real estate charges. Shareholders will be looking to see if New Relic can finally put a stop to its losses in the new fiscal year, and perhaps even deliver some profit, something that would be a welcome change.”

In prepared remarks, Staples hinted that it may just be possible. “We look forward to fiscal 2024 and the innovation roadmap, continued customer growth and expansion, and the final chapter of our subscription business which will result in a simpler, more profitable, and high-growth New Relic,” he said.

Photo: New Relic