Dynatrace (NYSE:DT) Beats Q3 Sales Targets

Radek Strnad /
2024/02/08 6:37 am EST

Application performance monitoring software provider Dynatrace (NYSE:DT) reported results ahead of analysts' expectations in Q3 FY2024, with revenue up 22.7% year on year to $365.1 million. The company expects next quarter's revenue to be around $374.5 million, in line with analysts' estimates. It made a non-GAAP profit of $0.32 per share, improving from its profit of $0.25 per share in the same quarter last year.

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Dynatrace (DT) Q3 FY2024 Highlights:

  • Revenue: $365.1 million vs analyst estimates of $357.7 million (2.1% beat)
  • Billings: $437.6 million vs. analyst estimates of $442.9 million (1.2% miss)
  • EPS (non-GAAP): $0.32 vs analyst estimates of $0.28 (14.5% beat)
  • Revenue Guidance for Q4 2024 is $374.5 million at the midpoint, roughly in line with what analysts were expecting
  • ARR Guidance for full year 2024 is $1,490 million at the midpoint, below expectations of $1,499 million
  • Free Cash Flow of $67.36 million, up 97.4% from the previous quarter
  • Gross Margin (GAAP): 81.4%, down from 82.5% in the same quarter last year
  • Market Capitalization: $17.86 billion

"Our Q3 results of balanced growth, profitability, and free cash flow reflect our continued ability to execute successfully in a dynamic market,” said Rick McConnell, Chief Executive Officer.

Founded in Austria in 2005, Dynatrace (NYSE:DT) provides companies with software that allows them to monitor the performance of their full technology stack, from software applications to the infrastructure they run on.

Cloud Monitoring

Software is eating the world, increasing organizations’ reliance on digital-only solutions. As more workloads and applications move to the cloud, the reliability of the underlying cloud infrastructure becomes ever more critical and ever more complex. To solve this challenge, companies and their engineering teams have turned to a range of cloud monitoring tools that provide them with the visibility to troubleshoot issues in real-time.

Sales Growth

As you can see below, Dynatrace's revenue growth has been strong over the last two years, growing from $240.8 million in Q3 FY2022 to $365.1 million this quarter.

Dynatrace Total Revenue

This quarter, Dynatrace's quarterly revenue was once again up a very solid 22.7% year on year. However, its growth did slow down compared to last quarter as the company's revenue increased by just $13.4 million in Q3 compared to $18.81 million in Q2 2024. While we'd like to see revenue increase by a greater amount each quarter, a one-off fluctuation is usually not concerning.

Next quarter's guidance suggests that Dynatrace is expecting revenue to grow 19.1% year on year to $374.5 million, slowing down from the 24.5% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 17.8% over the next 12 months before the earnings results announcement.

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Cash Is King

If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. Dynatrace's free cash flow came in at $67.36 million in Q3, up 17% year on year.

Dynatrace Free Cash Flow

Dynatrace has generated $339.6 million in free cash flow over the last 12 months, an eye-popping 25.4% of revenue. This robust FCF margin stems from its asset-lite business model, scale advantages, and strong competitive positioning, giving it the option to return capital to shareholders or reinvest in its business while maintaining a healthy cash balance.

Key Takeaways from Dynatrace's Q3 Results

It was good to see Dynatrace beat analysts' revenue expectations this quarter. However, billings missed. And while full-year revenue guidance came in higher than Wall Street's estimates, full year ARR (annual recurring revenue) came in below expectations. Also, its gross margin fell. Zooming out, we think this was a mixed quarter but with software stocks that are often expensive from a valuation perspective, small misses can lead to big disappointments. The stock is down 14.9% after reporting, trading at $51.61 per share.

So should you invest in Dynatrace right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

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