Dynatrace (NYSE:DT) Q2 Sales Beat Estimates, Reconfirms Guidance

Radek Strnad /
2021/10/27 6:45 am EDT

Application performance monitoring software provider Dynatrace (NYSE:DT) announced better-than-expected results in the Q2 FY2022 quarter, with revenue up 34.2% year on year to $226.3 million. Guidance was in line with expectations with next quarter revenues guided to $234 million, or 0.25% above analyst estimates. Dynatrace made a GAAP profit of $23.6 million, improving on its profit of $17.4 million, in the same quarter last year.

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Dynatrace (DT) Q2 FY2022 Highlights:

  • Revenue: $226.3 million vs analyst estimates of $220.6 million (2.58% beat)
  • EPS (non-GAAP): $0.18 vs analyst estimates of $0.16 (13.4% beat)
  • Revenue guidance for Q3 2022 is $234 million at the midpoint, roughly in line with what analysts were expecting
  • The company reconfirmed revenue guidance for the full year, at $916 million at the midpoint
  • Free cash flow of $13 million, down 83.8% from previous quarter
  • Gross Margin (GAAP): 81.5%, in line with same quarter last year

"I am extremely proud of our team’s performance, once again exceeding guidance across all our key operating metrics. ARR, our leading indicator for growth, was up 35% year-over-year, and Subscription Revenue was up 35% year-over-year,” said John Van Siclen, Dynatrace’s CEO.

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.

With the growing complexity of systems powering their businesses, it is increasingly harder for organizations to monitor the operational status of all their apps. Coupled with the increased reliance on digital-only solutions, monitoring systems are expected to play an important role in the future of the digital economy.

Sales Growth

As you can see below, Dynatrace's revenue growth has been very strong over the last year, growing from quarterly revenue of $168.5 million, to $226.3 million.

Dynatrace Total Revenue

And unsurprisingly, this was another great quarter for Dynatrace with revenue up an absolutely stunning 34.2% year on year. On top of that, revenue increased $16.6 million quarter on quarter, a very strong improvement on the $13.2 million increase in Q1 2022, and a sign of acceleration of growth.

Analysts covering the company are expecting the revenues to grow 24.7% over the next twelve months, although estimates are likely to change post earnings.

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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, licences, technical support and other necessary running expenses was at 81.5% in Q2.

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 a pressure from competition to lower prices.

Key Takeaways from Dynatrace's Q2 Results

Sporting a market capitalization of $22 billion, more than $370.3 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.

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. Overall, this quarter's results seemed pretty positive and shareholders can feel optimistic. The company is flat on the results and currently trades at $77.7 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.

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