Application performance monitoring software provider Dynatrace (NYSE:DT) reported third-quarter 2024 results that beat Wall Street revenue expectations, with revenue up 18.9% year over year to $418.1 million. Revenue expectations for next quarter were upbeat at $426.5 million at the midpoint, 2.4% above analyst estimates. Non-GAAP earnings of $0.37 per share were also 14.6% above analyst consensus estimates.
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Gain: $418.1 million vs. analyst estimates of $406.4 million (2.9% better)
Custom EPS: $0.37 vs. analyst estimates of $0.32 (14.6% better)
Adjusted operating result: $130.7 million vs. analyst estimates of $114.5 million (14.1% better)
The company has lifted full-year revenue guidance from $1.65 billion to $1.67 billion at the midpoint, an increase of 1.2%
Management raised expectations for full-year adjusted earnings per share to $1.32 at the midpoint, up 3.5%
Gross margin (GAAP): 81.4%, compared to 82.8% in the same quarter last year
Operating margin: 11.2%, compared to 10% in the same quarter last year
Free cash flow margin: 4.8%, compared to 57% in the previous quarter
Annual recurring turnover: $1.62 billion at the end of the quarter, up 20.4% year over year
Market capitalization: $16.83 billion
“Our continued outperformance across all of our key metrics is the result of the strength of our platform and the ability to perform effectively in a dynamic marketplace,” said Rick McConnell, Chief Executive Officer of Dynatrace.
Founded in 2005 in Austria, Dynatrace (NYSE:DT) provides companies with software to monitor the performance of their entire technology stack, from software applications to the infrastructure they run on.
Software is eating the world, increasing organizations’ dependence on digital-only solutions. As more workloads and applications move to the cloud, the reliability of the underlying cloud infrastructure becomes increasingly important and complex. To solve this challenge, companies and their engineering teams have turned to a range of cloud monitoring tools that give them the visibility to resolve issues in real time.
A company’s long-term performance can be an indication of its business quality. Any company can perform well for a quarter or two, but many sustainable companies grow for years. Fortunately, Dynatrace’s 24.2% annualized revenue growth over the past three years has been solid. This is a good starting point for our analysis.
Total revenue of Dynatrace
This quarter, Dynatrace reported year-over-year revenue growth of 18.9%, and revenue of $418.1 million exceeded Wall Street estimates by 2.9%. Management currently expects a 16.8% year-over-year increase next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 13.4% over the next twelve months, a slowdown from the past three years. This projection is still remarkable and illustrates that the market is seeing success for its products and services.
Today’s young investors probably haven’t read the timeless lessons in Gorilla Game: Picking Winners In High Technology, because it was written more than twenty years ago when Microsoft and Apple first established their supremacy. But if we apply the same principles, enterprise software stocks that leverage their own generative AI capabilities could be the gorillas of the future. In that spirit, we’re excited to present our special free report on a profitable, fast-growing business software stock that’s already riding the automation wave and looking to create the next generative AI.
Investors interested in Dynatrace should track annual recurring revenue (ARR) in addition to reported revenue. While reported revenue for a SaaS company may include low-margin items such as implementation costs, the ARR is a sum of the next twelve months of contracted revenue purely from software subscriptions, or the predictable, high-margin revenue streams that make SaaS companies so valuable. to make.
Over the past year, Dynatrace’s ARR growth has been impressive, with an average increase of 20.7% year-over-year and an increase of $1.62 billion in the last quarter. This performance was in line with revenue growth and shows that customers are willing to bet on the company’s technology for several years to come. The growth also makes Dynatrace a more predictable company, which helps its valuation as investors typically prefer companies with recurring revenues.
Dynatrace annual recurring turnover
The customer acquisition cost payback period (CAC) represents the months it takes to recoup the costs of acquiring a new customer. Essentially, this is the breakeven point for marketing and sales investments. A shorter CAC payback period is ideal as it implies a better return on investment and better scalability of the business.
Dynatrace is quite efficient at acquiring new customers and its CAC payback period was 30.8 months this quarter. The company’s efficiency indicates that it has a highly differentiated product offering, giving it the freedom to invest its resources in new growth initiatives.
It was great to see Dynatrace increase full-year revenue and EPS guidance. We were also pleased that revenue, earnings per share and adjusted operating income exceeded Wall Street expectations. Overall, we think this was a solid quarter, with some key positives. However, the market was likely hoping for more and shares fell 6% to $53.10 immediately after the news.
Is Dynatrace currently an attractive investment opportunity? When making that decision, it is important to take into account the valuation, the business qualities and what happened in the last quarter. We cover that in our useful full research report which you can read here. It’s free.
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