Dynatrace Faces Challenges in Fiscal-Year Guidance

by Warren Seah

Shares of Dynatrace, an IT infrastructure software company, took a hit as the company revised its fiscal-year guidance for constant-currency annual recurring revenue (ARR).

The stock saw a decline of over 7% to $56.20 on Thursday. However, it is worth noting that shares have still managed to gain almost 28% over the past 12 months.

According to Chief Executive Rick McConnell, the trimmed ARR guidance is a result of a change in the mix of new contracts. Dynatrace is experiencing increased interest from larger companies who seek to consolidate their various tech services under one roof, resulting in bigger contracts that take longer to finalize.

McConnell emphasized that the excess number of tools can lead to unnecessary costs and reduced efficiency and productivity. As a result, customers are turning to tech vendors with the goal of streamlining expenses.

This trend has given rise to more deals valued at $1 million or more, which naturally require an extended duration to close and may temporarily pose a challenge to ARR. Consequently, Dynatrace has adjusted its target for constant-currency ARR growth for the fiscal year to 18% to 19%, down from its previous goal of 19% to 20%.

Despite this slight setback, the company’s third-quarter sales and adjusted earnings surpassed expectations set by Wall Street analysts. As a result, Dynatrace has also raised its outlook for fiscal-year sales and adjusted earnings.

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