Application performance monitoring software provider Dynatrace (NYSE:DT) reported Q2 FY2023 results beating Wall St's expectations, with revenue up 23.4% year on year to $279.3 million. The company expects that next quarter's revenue would be around $284.5 million, which is the midpoint of the guidance range. That was in roughly line with analyst expectations. Dynatrace made a GAAP profit of $10.5 million, down on its profit of $23.6 million, in the same quarter last year.
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Dynatrace (DT) Q2 FY2023 Highlights:
- Revenue: $279.3 million vs analyst estimates of $273.2 million (2.22% beat)
- EPS (non-GAAP): $0.40 vs analyst estimates of $0.18 ($0.22 beat)
- Revenue guidance for Q3 2023 is $284.5 million at the midpoint, below analyst estimates of $286.8 million
- The company reconfirmed revenue guidance for the full year, at $1.12 billion at the midpoint
- Free cash flow of $25 million, down 81.5% from previous quarter
- Gross Margin (GAAP): 80%, down from 83.2% same quarter last year
“Dynatrace delivered strong second quarter results, demonstrating top to bottom line performance exceeding guidance across all of our key metrics," 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 $168.5 million in Q2 FY2021, to $279.3 million.
This quarter, Dynatrace's quarterly revenue was once again up a very solid 23.4% year on year. But the growth did slow down a little compared to last quarter, as Dynatrace increased revenue by $12 million in Q2, compared to $14.6 million revenue add in Q1 2023. 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 18.1% year on year to $284.5 million, slowing down from the 31.6% 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 19.9% over the next twelve months.
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Profitability
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 80% in Q2.
That means that for every $1 in revenue the company had $0.80 left to spend on developing new products, marketing & sales and the general administrative overhead. Despite it going down over the last year, this is still 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.
Key Takeaways from Dynatrace's Q2 Results
With a market capitalization of $9.81 billion Dynatrace is among smaller companies, but its more than $563.4 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 outperform Wall St’s revenue expectations this quarter. And we were also glad to see good growth. On the other hand, guidance was on the lower side of the analyst estimates. Overall, this quarter's results were ok. The company is up 1.93% in the pre-market and currently trades at $34.85 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.
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The author has no position in any of the stocks mentioned.