Dynatrace down on lower ARR despite beating estimates

In this photo illustration, the Dynatrace logo is seen on a...

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Dynatrace (NYSE:DT) shares dropped nearly 7% by afternoon trading Thursday despite releasing third quarter 2024 financial results that beat expectations.

Earnings per share of $0.32 beat the estimate by $0.04 while revenue of $365M surpassed analysts’ expectations by $7.27M.

Looking ahead to the fourth quarter, Dynatrace expects revenue ranging from $372M to $377M which is slightly above the market estimate of $373M. The company expects revenue per share at $0.27, which surpasses the average estimate of $0.25.

“We now expect foreign exchange to be a tailwind of approximately $10 million on ARR and approximately $13 million on revenue for fiscal 2024,” Dynatrace reported. “Given recent weakening in the U.S. dollar, this represents an incremental tailwind of approximately $15 million to ARR and $6 million to revenue for the full year when compared to our prior guidance.”

The software observability company announced it has extended its partnership with Amazon (AMZN) Web Services. Dynatrace is also expanding its artificial intelligence capabilities with the acquisition of Runecast.

Analysts remained mostly positive on Dynatrace following its latest earnings call. Raymond James reiterated its Market Perform rating on Thursday. However, some concern was shown over lower forward ARR guidance.

“The next few quarters should be a barometer for Dynatrace as a true ‘platform’ if larger consolidation deals are executed upon, and this inherent increase in LTV could arguably push valuation multiples higher,” wrote Raymond James analyst Adam Tindle in a note.

And while BMO Capital was impressed with third-quarter results, it was also disappointed with ARR growth lowered by $10M for the March quarter.

“Heading into the report, we thought March quarter CC ARR growth rates would increase modestly, by 1 to 2 points, not decrease by 1 point,” Keith Bachman wrote in an analyst note.

“The observability market opportunity is growing, the demand environment remains healthy and our pipeline continues to grow at a faster pace than our reported ARR growth rate,” said Dynatrace Chief Financial Officer Jim Benson, of the lower-than-expected ARR.

William Murphy

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