Software is at the heart of every business. Whether it’s customer-facing or located in the back office, software must always be up and running in the most efficient manner. Software availability, performance and usability these days are critical to business success.

I am adding New Relic (NEWR) to the Next Wave Portfolio. The company is a key innovator when it comes to helping customers make software run better. The company is disrupting the $4-billion application performance management (APM) market with its cloud-based analytics platform, which provides a single dashboard view into an application’s health, performance and data analytics.

By deploying New Relic’s Software Analytics Cloud, organizations can optimize their software performance and capitalize on the data flowing through the software, gaining valuable insights that are then used to make meaningful business decisions.

For example, with real-time data analytics from New Relic, an e-commerce company can see how many people are on its site, the items customers are browsing, products being added to/removed from shopping carts and the final steps taken to complete a transaction. All of that information is then processed and analyzed to try to improve the overall customer experience and drive more sales.

New Relic has two core APM products, one covering basic website performance and the other focused on mobile application performance/availability. In addition, the company has three additional analytics offerings: Insights (the core product aimed at front-end developers, operations managers, engineering managers and customer service), Browser (to improve browser-side performance)  and Synthetics (continuous monitoring and testing of business-critical functions).

The company is a leader in monitoring applications in the cloud. In fact, IDC ranks New Relic among the three largest players in cloud-based systems management, behind only (much larger) ServiceNow (NOW) and IBM (IBM). With more companies now moving operations to the cloud, it only makes sense that they’ll want to use a cloud-based solution to monitor all of the various applications. New Relic’s platform is known for being easy to deploy (often within minutes), enabling customers to quickly gain real-time visibility into the performance of their software.

The average legacy APM installation today costs around $830,000, according to IT research firm Gartner. Some larger installations can even go up to $5 million. That’s a lot of money for companies to be spending on on-premise infrastructure and systems management. In comparison, a New Relic customer can be up and running at a cost of just $200 a month.

New Relic’s revenue in fiscal 2015 (ended March) rose 75% to $110.4 million. In the first quarter of fiscal 2016, revenue was up 68% year over year to $38.1 million, well ahead of the consensus estimate of $35.3 million and the high end of the guidance range of $34.5 million to $35.5 million. Gross margin of 81% was flat sequentially and above the company’s fiscal 2016 goal of 80%.

The dollar-based net expansion rate in the June quarter held steady sequentially at 130% thanks to a combination of APM expansions within the customer base and increased cross-selling of newer solutions. In the latest quarter, analytics products outside of the core APM business represented greater than 10% of total revenue for the first time.

The number of paid business accounts in the June quarter rose 27% year over year to 12,440. While about 200 accounts spend more than $100,000 a year with New Relic, most of the company’s customers are smaller organizations. In many cases, customers start out with a basic APM deployment and then expand from there, adding more APM hosts and additional products. Another dynamic at play is expansion across different divisions at a customer.

New Relic is gaining traction when it comes to attracting larger accounts and selling more solutions into its customer base. In the fiscal first quarter, the number of customers spending at least $5,000 annually rose 45% year over year to 4,875 (representing 39% of the customer base). On a sequential basis, New Relic since March added 375 net new customers that hit the $5,000 annual benchmark, representing roughly 70% of the total number of net paid customer additions in the latest quarter. In comparison, in last year’s fiscal first quarter, 300 net new customers achieved the $5,000 benchmark, representing 48% of net customer adds.

The Insights analytics offering, introduced in fiscal 2015, has been an important driver of customer engagement. In the year since it was launched, the average paying customer has 40% more New Relic users. That’s a strong indication of customer acceptance, especially when it comes to expanding deployments across departments at larger enterprise customers.

For the fiscal second quarter (ending September), New Relic expects revenue of $40.2 million to $41.2 million (growth of 59% to 62%), vs. the consensus of $37.8 million at the time of guidance in early August. The latest consensus of $41.06 million represents growth of 61.9%.

For fiscal 2016, the company’s most recent revenue guidance range of $168 million to $171 million (growth of 52% to 55%) was revised upward from $155 million to $159 million. The consensus now stands at $171.4 million (growth of 55%), up from $159.4 million at the time of guidance.

Recently trading around $34.50 a share, New Relic has a market cap of $1.64 billion, 9.5 times the FY’16 consensus revenue estimate. While the valuation is high, it’s reasonable in this market environment when taking into consideration the company’s strong top-line growth rate. And compared to some other larger players in the sector, the valuation is more compelling. For example, Tableau Software (DATA), a provider of next-generation data analytics solutions, trades at 12.2 times forward revenue, with an expected top-line growth rate of 53%.

New Relic went public in December at $23 share. The stock opened for trading its first day at $30.16. The post-IPO high of $38.87 was reached earlier this month.

Taking into consideration New Relic’s current robust business momentum, I am modeling 60% revenue growth for fiscal 2016. Applying a multiple of 10.5x to a revenue estimate of $177 million and taking into consideration cash & investments of $195 million on the balance sheet (with no debt), my fair-value price target for the stock is $43.15.