Dynatrace (NYSE:DT) Exceeds Q3 Expectations, Provides Optimistic Full Year Guidance

Petr Huřťák /
2023/02/01 6:35 am EST
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Application performance monitoring software provider Dynatrace (NYSE:DT) reported Q3 FY2023 results topping analyst expectations, with revenue up 23.5% year on year to $297.4 million. On top of that, guidance for next quarter's revenue was surprisingly good, being $305.5 million at the midpoint, 4.65% above what analysts were expecting. Dynatrace made a GAAP profit of $15 million, improving on its profit of $14.5 million, in the same quarter last year.

Is now the time to buy Dynatrace? Access our full analysis of the earnings results here, it's free.

Dynatrace (DT) Q3 FY2023 Highlights:

  • Revenue: $297.4 million vs analyst estimates of $284.7 million (4.46% beat)
  • EPS (non-GAAP): $0.25 vs analyst estimates of $0.21 (17.1% beat)
  • Revenue guidance for Q4 2023 is $305.5 million at the midpoint, above analyst estimates of $291.9 million
  • Free cash flow of $57.5 million, up 129% from previous quarter
  • Gross Margin (GAAP): 81.2%, down from 83.1% same quarter last year

“Dynatrace delivered another strong quarter, beating expectations across the board and demonstrating the durability of our business model that supports a balance of growth and profitability,” 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.

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 the challenge, companies and their engineering teams have turned to a range of cloud monitoring tools that provide them with visibility to troubleshoot the 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 quarterly revenue of $182.9 million in Q3 FY2021, to $297.4 million.

Dynatrace Total Revenue

This quarter, Dynatrace's quarterly revenue was once again up a very solid 23.5% year on year. On top of that, revenue increased $18.1 million quarter on quarter, a very strong improvement on the $12 million increase in Q2 2023, which shows acceleration of growth, and is great to see.

Guidance for the next quarter indicates Dynatrace is expecting revenue to grow 20.9% year on year to $305.5 million, slowing down from the 28.5% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 15.5% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.


What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Dynatrace's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 81.2% in Q3.

Dynatrace Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.81 left to spend on developing new products, marketing & sales and the general administrative overhead. This is a great gross margin, that allows companies like Dynatrace to fund large investments in product and sales during periods of rapid growth and be profitable when they reach maturity. It is good to see that the gross margin is staying stable which indicates that Dynatrace is doing a good job controlling costs and is not under pressure from competition to lower prices.

Key Takeaways from Dynatrace's Q3 Results

Sporting a market capitalization of $11 billion, more than $422.4 million in cash and with positive free cash flow over the last twelve months, we're confident that Dynatrace has the resources it needs to pursue a high growth business strategy.

We were impressed by the very optimistic revenue guidance Dynatrace provided for the next quarter. And we were also excited to see that it outperformed Wall St’s revenue expectations. Overall, we think this was a really good quarter, that should leave shareholders feeling very positive. The company is up 2.75% on the results and currently trades at $39.5 per share.

Should you invest in Dynatrace right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

The author has no position in any of the stocks mentioned.