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Dynatrace: Maintaining The Strong Momentum

Mar. 09, 2020 10:09 AM ETDynatrace, Inc. (DT)1 Comment
Kayode Omotosho profile picture
Kayode Omotosho


  • Dynatrace's recent resurgence has been compelling.
  • Besides its unattractive leverage ratios, other investing factors are improving.
  • The market has priced in near-term gains, making the stock frothy to acquire.
  • Regardless, I find the overall value proposition compelling if DT can sustain its growth momentum.
  • I will be reiterating a Hold rating until the near-term macro headwinds subside.

Source: Author

Dynatrace (NYSE:DT) reported strong growth results last quarter. The thesis for the company to keep dominating in the APM and DevOps space is intact. Favorable market trends like digital transformation and global cloud adoption have helped bolster ARR growth and strong ARR guidance, margins expansion as revenue outpaces cost, and improvement in cash flow as margins improve owner's earnings. I will be reiterating a Hold rating, though I see strong potential for more multiples expansion in the near term as more enterprises adopt DT's solutions.

Demand (Rating: Bullish)

ARR came in strong last quarter at 44% growth y/y. This was mostly driven by new customers and lesser contribution by existing expansion and migration to the new SaaS platform. Going forward, management is guiding for ARR growth of 40% to be driven by demand for its subscription and service offerings.

Dynatrace will continue to record solid growth due to its strong positioning in the expanding DevOps space. Also, the potential to cross-sell new products will drive margins. As a result, I remain bullish on the demand for DT's solutions in the near term.

Business/Financials (Rating: Neutral)

Source: Author (using data from Conference Call)

Dynatrace's leadership in the magic quadrant for APMs is solid. This is also reflected in the strong third-party product reviews. I expect add-ons like the business analytics module and its Logs products to continue to drive expansion. Also, its OpenTelemetry initiative is compelling as this will drive intelligence and the market footprint of its products.

"The ultimate goal of OpenTelemetry is to become the default way that developers and operators capture performance information from their services," said Morgan McLean, Product Manager at Google. "We cannot reach that goal without the support of a strong ecosystem. We are thrilled Dynatrace is a core contributor to OpenTelemetry. The broader community will benefit from

This article was written by

Kayode Omotosho profile picture
Kayode's strategy aligns only with businesses that have competitive moats, solid financials, good management, and minimal exposure to macro headwinds.-------------------------------------Coverage tilted towards tech stocks (IoT, Cybersecurity, Cloud, DevOps, Data management)

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Kayode Omotosho profile picture
Subscription impact report COVID-19 Edition

Overall, the COVID-19 Subscription Impact Report found that 53.3% of companies have not seen a significant impact to their subscriber acquisition rates. 22.5% of companies are seeing their subscription growth rate accelerate, 12.8% of companies are seeing slowing growth, but are still growing, and the remaining 11.4% of companies are starting to see subscriber churn outpace their subscriber acquisition rates.

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