Dynatrace, a leading IT infrastructure software firm, experienced a decline in its stock price after announcing its quarterly results. Although the company surpassed Wall Street’s expectations on most headline numbers, it fell short on a key secondary measure, causing the stock to drop by 8.3% to $55.61 shortly after the market opened.
Dynatrace specializes in providing “observability” software, enabling companies to monitor their computing systems and identify emerging performance issues. It faces competition from companies such as Splunk and Datadog.
The stock market’s disappointment with Dynatrace’s numbers is in stark contrast to the positive reception recent results from enterprise software companies with higher-profile stories around artificial intelligence have received. Examples of these companies include Palantir, Microsoft, ServiceNow, and IBM.
For Dynatrace’s fiscal third quarter, which ended on December 31, revenue reached $365 million, marking a 23% increase from the previous year. Analysts tracked by FactSet had anticipated revenue of $358 million. On an adjusted basis, the company reported earnings of 32 cents per share in the quarter, surpassing the Street’s estimate of 28 cents.
Furthermore, management has provided solid guidance for the next quarter. The company expects revenue for the March quarter to range between $372 million and $377 million, with the midpoint slightly exceeding the consensus estimate of $373.5 million. Adjusted earnings are forecasted to be between 26 and 28 cents per share, ahead of the consensus estimate of 25 cents.
Dynatrace Raises Revenue Guidance for Fiscal Year 2024
Dynatrace, a leading software company, has increased its revenue guidance for the March 2024 fiscal year. The company now expects to generate between $1.422 billion and $1.427 billion in revenue, up from the previous forecast of $1.409 billion to $1.419 billion. This positive revision is also reflected in the adjusted profits forecast, which is expected to be between $1.16 and $1.18 per share compared to the previous range of $1.09 to $1.12.
In a statement, Dynatrace CEO Rick McConnell expressed satisfaction with the company’s third-quarter results, highlighting the balanced growth, profitability, and free cash flow achieved. These results demonstrate Dynatrace’s ability to successfully navigate a dynamic market.
However, despite the overall positive performance, some analysts have pointed out concerns regarding the company’s growth in annual recurring revenue (ARR). ARR is a crucial metric for software companies that rely on subscription-based business models, and its growth fell short of market expectations.
Dynatrace reported a total ARR of $1.43 billion, representing a 23% increase (or 21% when adjusted for changes in currency exchange rates). While this growth is commendable, it did not meet the projections of some industry experts. Gray Powell, an analyst at BTIG, noted that on an adjusted basis, Dynatrace added a net $72 million of ARR in the quarter, slightly below the expected $75.5 million. Powell suggests that investors were anticipating an increase of more than $80 million.
Although Dynatrace has revised its ARR guidance for the year with a midpoint of $1.49 billion, compared to the previous forecast of $1.485 billion, this adjustment is primarily due to fluctuations in exchange rates. On a constant-currency basis, however, the revised guidance shows a reduction of $10 million in ARR growth. As a result, the company now expects growth of 18% to 19%, down from the initial projection of 19% to 20%.
In light of these figures, Powell shared a cautious sentiment in his research note, expressing hope for better results. It remains to be seen how Dynatrace’s performance will evolve in the coming months.
Leave a Reply