Dynatrace (NYSE:DT) Exceeds Q2 Expectations, Stock Soars
Application performance monitoring software provider Dynatrace (NYSE:DT) reported Q2 FY2024 results topping analysts' expectations , with revenue up 25.9% year on year to $351.7 million. The company also expects next quarter's revenue to be around $357.5 million, slightly below analysts' estimates. Turning to EPS, Dynatrace made a non-GAAP profit of $0.31 per share, improving from its profit of $0.22 per share in the same quarter last year.
Is now the time to buy Dynatrace? Find out by accessing our full research report, it's free.
Dynatrace (DT) Q2 FY2024 Highlights:
Revenue: $351.7 million vs analyst estimates of $344.5 million (2.09% beat)
EPS (non-GAAP): $0.31 vs analyst estimates of $0.27 (17% beat)
Revenue Guidance for Q3 2024 is $357.5 million at the midpoint, roughly in line with what analysts were expecting
The company reconfirmed its revenue guidance for the full year of $1.41 billion at the midpoint
Free Cash Flow of $34.1 million, down 72.4% from the previous quarter
Gross Margin (GAAP): 81.7%, in line with the same quarter last year
“Dynatrace’s second quarter results exceeded the high end of guidance across all of our key metrics, demonstrating strong top and bottom-line performance," 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.
Cloud Monitoring
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 this challenge, companies and their engineering teams have turned to a range of cloud monitoring tools that provide them with the visibility to troubleshoot 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 $226.4 million in Q2 FY2022 to $351.7 million this quarter.
This quarter, Dynatrace's quarterly revenue was once again up a very solid 25.9% year on year. Quarter on quarter, its revenue increased by $18.8 million in Q2, which was roughly in line with the Q1 2024 increase. This steady growth shows that the company can maintain a strong growth trajectory.
Next quarter's guidance suggests that Dynatrace is expecting revenue to grow 20.2% year on year to $357.5 million, slowing down from the 23.5% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 18.3% over the next 12 months before the earnings results announcement.
The pandemic fundamentally changed several consumer habits. There is a founder-led company that is massively benefiting from this shift. The business has grown astonishingly fast, with 40%+ free cash flow margins. Its fundamentals are undoubtedly best-in-class. Still, the total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.
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's left after paying for servers, licenses, technical support, and other necessary running expenses, was 81.7% in Q2.
That means that for every $1 in revenue the company had $0.82 left to spend on developing new products, sales and marketing, and general administrative overhead. Dynatrace's excellent gross margin allows it to fund large investments in product and sales during periods of rapid growth and achieve profitability when reaching maturity. It's also comforting to see its gross margin remain stable, indicating that Dynatrace is controlling its costs and not under pressure from its competitors to lower prices.
Key Takeaways from Dynatrace's Q2 Results
With a market capitalization of $13 billion, a $701.5 million cash balance, and positive free cash flow over the last 12 months, we're confident that Dynatrace has the resources needed to pursue a high-growth business strategy.
It was good to see Dynatrace beat analysts' expectations this quarter. We also enjoyed seeings strong free cash flow. Zooming out, we think this was a decent quarter, showing that the company is staying on target. The stock is up 9.01% after reporting and currently trades at $48.41 per share.
So should you invest in Dynatrace right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research 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 50% year on year and best-in-class SaaS metrics it should definitely be on your radar.
Join Paid Stock Investor Research
Help us make StockStory more helpful to investors like yourself. Join our paid user research session and receive a $50 Amazon gift card for your opinions. Sign up here.
The author has no position in any of the stocks mentioned in this report.
