Application performance monitoring software provider Dynatrace (NYSE:DT) announced better-than-expected results in the Q4 FY2022 quarter, with revenue up 28.5% year on year to $252.5 million. However, guidance for the next year was less impressive, coming in at $1.15 billion million at the midpoint, being 1.05% below analyst estimates. Dynatrace made a GAAP profit of $929 thousand, down on its profit of $26.9 million, in the same quarter last year.
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Dynatrace (DT) Q4 FY2022 Highlights:
- Revenue: $252.5 million vs analyst estimates of $120.9 million (2.44% beat)
- EPS (non-GAAP): $0.17 vs analyst estimates of $0.15 (11.1% beat)
- Revenue guidance for Q1 2023 is $262.2 million at the midpoint, roughly in line with what analysts were expecting
- Management's revenue guidance for upcoming financial year 2023 is $1.15 billion at the midpoint, missing analyst estimates by 1.05% and predicting 23.7% growth (vs 32.3% in FY2022)
- Free cash flow of $82.3 million, up 39.1% from previous quarter
- Gross Margin (GAAP): 81%, down from 82% same quarter last year
“Dynatrace delivered an extremely strong fourth quarter, closing out fiscal 2022 with 35% Adjusted ARR growth for the second straight year,” 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.
As you can see below, Dynatrace's revenue growth has been very strong over the last year, growing from quarterly revenue of $196.5 million, to $252.5 million.
This quarter, Dynatrace's quarterly revenue was once again up a very solid 28.5% year on year. But the growth did slow down a little compared to last quarter, as Dynatrace increased revenue by $11.8 million in Q4, compared to $14.4 million revenue add in Q3 2022. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.
Guidance for the next quarter indicates Dynatrace is expecting revenue to grow 25% year on year to $262.2 million, slowing down from the 34.8% year-over-year increase in revenue the company had recorded in the same quarter last year. For the upcoming financial year management expects revenue to be $1.15 billion at the midpoint, growing 23.7% compared to 32.3% increase in FY2022.
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% in Q4.
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 Q4 Results
With a market capitalization of $9.37 billion Dynatrace is among smaller companies, but its more than $462.9 million in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.
It was good to see Dynatrace deliver strong revenue growth this quarter. And we were also excited to see that it outperformed analysts' revenue expectations. On the other hand, it was unfortunate to see that the revenue guidance for next year indicated a bit of a slowdown. Overall, this quarter's results could have been better. The company is up 6.29% on the results in the pre-market and currently trades at $34.86 per share.
Dynatrace may have had a tough quarter, but does that actually create an opportunity to invest 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.