Dynatrace posts strong fourth quarter results amid cloud growth

Dynatrace posts strong fourth quarter results amid cloud growth

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Observability provider Dynatrace Inc. today posted fourth quarter financial results that surpassed analyst estimates across the board.

In conjunction, Dynatrace announced that Chief Financial Officer Kevin Burns will leave at the end of the year. Burns joined the company in 2016 and led its initial public offering three years later.

Dynatrace provides a cloud platform that organizations use to fix technical issues in their applications. The platform can detect malfunctions, as well as find the root cause. It uses artificial intelligence to automate several of the tasks involved in troubleshooting applications. 

Over the years, Dynatrace has expanded its platform’s feature set to multiple adjacent areas. The platform now enables companies to monitor not only their applications but also business metrics and can highlight notable developments, such as a change in the average value of e-commerce purchases. For cybersecurity teams, meanwhile, Dynatrace provides tools for detecting software vulnerabilities.

Dynatrace added 205 new customers in the fourth quarter. It achieved a net expansion rate, a measure of how existing customers increase their spending on a software product over time, of 120%. The result: Dynatrace’s revenues grew 31% year-over-year on a constant currency basis to $253 million, more than what analysts polled for the Zacks Consensus Estimate were expecting.

Dynatrace’s partnerships with cloud providers play an increasingly important role in its revenue growth. During the fourth quarter, the company made its platform available as a software-as-a-service product on Microsoft Corp.’s Azure cloud platform and Google Cloud. According to Dynatrace, the annual recurring revenue generated through its partnerships with the major public cloud operators has tripled over the past year.

The company has also been growing its partner ecosystem in other ways. Against the backdrop of today’s earnings report, Deloitte LLP today announced that its cloud observability practice will use Dynatrace’s platform to help customers manage their technology environments. Earlier, Dynatrace launched a partner program that enables third party software makers to integrate their products with its platform.

During the fourth quarter, Dynatrace realized an adjusted operating income of $58 million on its $253 million revenue. This translated into earnings per share of $0.17 on a dilutive basis, which surpassed the $0.16 per share that analysts polled by Zacks had projected. 

In the full 2022 fiscal year, Dynatrace generated revenues of $929 million. The company’s adjusted operating income reached $234 million.

‘“Dynatrace delivered an extremely strong fourth quarter, closing out fiscal 2022 with 35% Adjusted ARR growth for the second straight year,” said Dynatrace Chief Executive Officer Rick McConnell. “Digital transformation and cloud migration trends continue to grow at a rapid pace and serve as the foundation for significant future growth.”

Dynatrace expects to close the first quarter with earnings of $0.17 to $0.18 per share on revenues of between $261 million and $263.5 million. For the full 2023 fiscal year, the company projects a 23% to 25% revenue increase, which is in line with what analysts are expecting.

Datadog Inc., another major provider of observability software, has also been experiencing strong growth recently. The company revenue jumped 83% year-over-year last quarter, to $363 million, thanks partly to strong demand from large enterprises. 

Image: Dynatrace

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