Dynatrace (DT) priced its IPO on July 31 , 2019, selling 35.6 million shares at $16.00, raising gross proceeds of around $544 million.
The firm provides enterprises with DevOps software and related services that help them increase the efficiency of their IT infrastructure while reducing complexity.
As a result of the Covid 19 pandemic and its effects on the need for speedier digital transformation among customers and prospects, DT has been in high demand.
The firm has developed the Dynatrace software intelligence platform that simplifies the complexity of enterprise clouds and provides actionable insight that supports faster cloud migration and adoption of DevOps.
Dynatrace works with OneAgent, an automatic instrumentation technology, SmartScape, a real-time dependency mapping system, PurePath, a transaction-centered code analysis technology, and Davis, an open artificial intelligence engine [AI] for instant response to service degradation, behavioral anomalies and user impact.
Below is a short demo video of the firm's software intelligence platform:
The company's platform is compatible with Amazon Web Services, Azure, Google Cloud Platform, Pivotal Cloud Foundry, Red Hat OpenShift, and Kubernetes where it 'automatically launches and monitors the entire cloud stack, and all applications and containers running anywhere in the stack, including applications and workloads that can traverse multiple cloud and hybrid environments.'
Dynatrace offers customers who choose to store data at the edge of the customer-provided infrastructure called Dynatrace Managed, where the company automatically provides monthly updates and enhancements while allowing customers to adhere to their own data security and sovereignty requirements in terms of flexibility and control.
According to Technavio 's 2018 market research report , the global market for IT monitoring tools is expected to grow by $19 billion or 34 per cent CAGR between 2018 and 2022, as detailed in the following chart:
The main drivers of market growth are the increasing demand for improved IT operations efficiency, as well as the increasing use of Big Data in IT monitoring and analytics.
In the forecast period the Asia-Pacific region is projected to grow at the highest rate per region.
Major competitors providing or developing IT surveillance tools include:
- BMC Software
- Datadog (DDOG)
- Hewlett Packard (HPE)
- IBM (IBM)
- Microsoft (MSFT)
- SolarWinds (SWI)
- Splunk (SPLK)
In the past five quarters, DT's topline revenue per quarter has steadily grown, despite the impact of the Covid-19 pandemic.
Gross profit per quarter has also trended up considerably, as shown here:
Quarter-by-quarter operating income has turned positive and reached a five-quarter high in the latest quarter:
In the last three quarters, earnings per share (Diluted) have turned positive:
Source for chart data: Seeking Alpha
In the past 12 months, DT 's stock price has risen 71.8 percent vs. the U.S. The rise of the software index by 39.1 per cent and the overall growth of the U.S. market by 17.1 per cent as shown in the chart below:
Source: Simply Wall Street
In its last earnings call, covering fiscal Q1 2021, management highlighted its ‘solid business performance...and Dynatrace continues to be considered an essential component for sustained digital transformation success.’
As the Covid-19 pandemic hit, firms of all sizes have prioritized to a greater degree their digital transition as they seek to obtain sales and conduct more of their operations via online means.
Clients were forced to shift their cloud workloads to react to new working-from-home conditions as well as increased demand from online customers.
Even after the initial work-from - home disruptions have faded, the firm sees continued growth in digital transformation projects by clients and prospects.
In response, management has grown its employee base by 90 in FQ1 and already more than 100 are expected to be added in FQ2.
As to its financial results, due to its topline revenue growth and operating improvement, management increased its annual guidance for fiscal 2021.
Revenue growth was quite strong, with FQ1 30 percent year-on-year; non-GAAP gross margin was 85 percent, sequentially an increase of 2 percent.
Operating income finished the quarter at $50.8 million, well above the high end of its previous guidance and unlevered free cash flow was an impressive $37 million.
Management guided revenue for the full year to range from $698 million to $708 million, representing a projected growth rate of 23 to 25 per cent.
Notably, the firm expects a net expansion rate of greater than 120%, which is very strong.
While DT appears to not be growing as fast as direct competitor Datadog, there is so much business available that Dynatrace has been producing an impressive trajectory nonetheless.
Furthermore, the stock 's valuation multiples have room to grow as the company expands.
Finally, DT's 120 per cent net retention rate forward assumption is quite impressive and indicative of excellent product market fit and efficiency in sales and marketing.
Accordingly, I'm Bullish on Dynatrace throughout its current fiscal year ending 2021.
(I have no position in any stock as of the date of the article, no plans to initiate any positions within the next 48 hours and no business relationship with any company whose stock is listed in this article. IPO stocks may be very volatile in the days immediately following the IPO. Information provided is for educational purposes only, may be in error, incomplete or outdated and may not be c)
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