Dynatrace Q1 FY3/25 Earnings Review
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A Rock Steady Pulse
by Alex King, CEO, Cestrian Capital Research, Inc
Dynatrace is a pretty boring business, unless you’re in the business of enterprise software whereupon you think it’s an essential kind of company. Along with DataDog ($DDOG), the company leads the application performance monitoring segment, which is to say it makes software whose job it is to watch how other software applications, and indeed hardware installations, perform. If you run even a modestly sized datacenter - or even a large-ish server closet - you need this kind of functionality. This means that the company’s revenues are sticky and margins are high. Revenue growth rates are never going to be in the stratosphere unless they break out into new adjacent product categories (something that companies like this tend not to be able to do btw), but growth in the 20%-25% range is fine for the stock I think.
This quarter was solid; growth declined to 20% but again I think that’s acceptable, particularly as cashflow margins moved up to 32% on a TTM basis. Those margins will fall a little in the coming quarters as they were driven by a major inflow of working capital which looks one-time in nature. The balance sheet now features better than $1bn in net cash, and the order book (“remaining performance obligation”) hit 25% year on year growth - since RPO represents >1.5x TTM revenue there is a chance that this rising growth rate in orders may in time drag up the growth rate in recognized revenue too.
Below - available to paying subscribers of all tiers here - we review the fundamentals, the valuation, the stock chart, our rating and price target. Read on folks.