DDOG - Dynatrace: Upside Is Likely Capped With Soft FY25 Revenue Guidance Despite Strong Fundamentals

2024-05-19 12:39:43 ET

Summary

• Dynatrace reported strong Q4 FY24 earnings with revenue and earnings growing 23% and 36% YoY respectively.
• The company is winning large deals as it strengthens its partner network, while deepening adoption as vendors increasingly consolidate from point solutions to a fully integrated platform.
• Although I believe the company is well positioned given its robust product innovation and financial discipline, the management has guided for soft revenue growth of 15-16% in FY25.
• Given the risk-reward, I believe that the upside is likely capped, and I will wait for a better entry point to add to my current position and rate it a “hold”.

Introduction & Investment Thesis

I initiated a “buy” rating on Dynatrace (NYSE: DT ) on March 18, and my bullish thesis was predicated on my belief that the company should continue to see its revenues and margins expand as the management is focused on strengthening its partner network and internal sales teams to drive new customer acquisition and adoption of its solutions among its existing customer base. Since then, the stock has climbed close to 6%, outperforming the S&P 500 and Nasdaq 100....

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