Play The Age Of Software Analytics And Get 20% Upside

• New Relic Inc NEWR shares are up 12 percent since June 11, although they plunged 4 percent since August 11.
• Oppenheimer analyst Ittai Kidron initiated coverage of the company with an Outperform rating and a price target of $42.
• Strong growth and large TAM opportunities should provide the necessary support to the company’s stock, Kidron said.

Analyst Ittai Kidron mentioned that New Relic is a provider of visibility and performance tools enabling software analytics. The company is poised to benefit from the growing importance of software analytics to enterprises, a growing APM total available market and the company’s focus on the enterprise market.

“New Relic's TAM reflects a combination of the fastest growing portions of the APM and the Availability-and-Performance markets, complemented by new growth opportunities in business intelligence and analytics,” Kidron wrote.

The company’s land-and-expand model has resulted in robust sales growth offering it a chance to deepen its penetration via its huge customer base. Kidron added that there is potential for the company to boost its customer retention rates and drive large renewals.

New Relic’s direct sales push, which targets enterprises, has not only lifted the ASPs but also attracted longer commitments with larger accounts. Terming it a “make-or-break” strategy, Kidron expects more enterprise gains.

The Oppenheimer report added, however, that the move towards enterprise carries execution risk, especially the security risks inherent to storing customer data in the cloud.