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Technology

Two small cloud companies beat big on revenue — and are proving the subscription model can work

Shares of software vendors New Relic and Twilio surged on Wednesday after reporting revenue that topped analysts’ estimates and showing investors that they can continue to get more spending from existing customers.

New Relic, which helps companies track and quickly fix software bugs, jumped $13.55, or 18 percent, to $90.67 as of mid-day. Twilio, a provider of communications software for clients including Airbnb and Intuit, rose $9.12, or 21 percent, to $53.49.

Both companies have more than doubled in value in the past year by sticking with the subscription software playbook: Land big customers and then get them to buy more stuff. It’s a model that was pioneered by Salesforce almost two decades ago and is now being employed by dozens of companies, including many like New Relic and Twilio that have gone public in recent years.

“We’ll obviously be getting new customers, but the average spend we expect to continue to go up in our existing folks,” said Mark Sachleben, New Relic’s chief financial officer, during Tuesday’s earnings call with analysts. “We saw some great metrics around that this past year.”

New Relic reported fiscal fourth-quarter revenue growth of 34 percent, beating analysts’ expectations, according to Thomson Reuters. The company recorded a net expansion rate, or the amount of increased spending from existing customers, of 141 percent, up from 133 percent a year earlier.

Revenue at Twilio jumped 48 percent in the first quarter and the company projected second-quarter growth of up to 37 percent, with both numbers topping analysts’ estimates. The company, once heavily reliant on Uber and WhatsApp, has been diversifying its customer base. Those two companies now make up 4 percent and 7 percent of total revenue, respectively.

Twilio CEO Jeff Lawson said the company recorded a net expansion rate of 132 percent as customers move more contact center software to the cloud.

Source: Tech CNBC
Two small cloud companies beat big on revenue — and are proving the subscription model can work

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