Dynatrace’s second quarter results drew a negative market reaction despite outperforming Wall Street’s expectations on revenue and profitability. Management attributed the quarter’s year-over-year growth to strong customer demand for its unified observability platform, with CEO Rick McConnell citing "robust expansion activity, particularly in North America and the global systems integrator channel," along with significant momentum in log management adoption. The company emphasized the success of its go-to-market changes from the prior year, which drove a higher number of large enterprise deals and deeper consumption of platform capabilities, especially among existing customers. However, management also acknowledged a lighter contribution from new customer additions, noting that expansion activity outweighed new logo growth this quarter.
Is now the time to buy DT? Find out in our full research report (it’s free).
Dynatrace (DT) Q2 CY2025 Highlights:
- Revenue: $477.3 million vs analyst estimates of $467.5 million (19.6% year-on-year growth, 2.1% beat)
- Adjusted EPS: $0.42 vs analyst estimates of $0.38 (11.5% beat)
- Adjusted Operating Income: $143.1 million vs analyst estimates of $133.1 million (30% margin, 7.5% beat)
- The company lifted its revenue guidance for the full year to $1.98 billion at the midpoint from $1.96 billion, a 1% increase
- Management raised its full-year Adjusted EPS guidance to $1.60 at the midpoint, a 1.3% increase
- Operating Margin: 13.1%, up from 10.5% in the same quarter last year
- Annual Recurring Revenue: $1.82 billion vs analyst estimates of $1.78 billion (18.3% year-on-year growth, 2.4% beat)
- Billings: $388.2 million at quarter end, up 47.5% year on year
- Market Capitalization: $14.09 billion
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions From Dynatrace’s Q2 Earnings Call
- Koji Ikeda (Bank of America) asked why the company maintained constant currency ARR guidance despite strong momentum in logs and DPS. CFO Jim Benson explained the decision was driven by early-year caution and the unpredictability of large deal timing.
- Raimo Lenschow (Barclays) inquired about competitive dynamics in log management and vendor consolidation. CEO Rick McConnell stated that integrated platform demand is displacing stand-alone log solutions, with Dynatrace winning share from traditional log vendors.
- Patrick Colville (Scotiabank) sought clarification on the impact of new revenue recognition rules for on-demand consumption (ODC). Benson confirmed the change only affects revenue recognition and not metrics like ARR or net retention rate.
- Patrick O'Neill (Wolfe Research) questioned the decline in new customer additions. Benson acknowledged lighter new logo growth, attributing it to a pipeline weighted toward expansion, but emphasized that the quality and size of new customer lands remain a focus.
- Brent Thill (Jefferies) asked about rising enterprise demand for AI-driven observability. McConnell highlighted accelerating customer interest in AI workloads and Dynatrace’s investment in agentic AI to enable autonomous system actions.
Catalysts in Upcoming Quarters
In coming quarters, the StockStory team will watch (1) whether log management adoption continues to accelerate and reach management’s $100 million annualized target, (2) the pace and scale of large enterprise expansions, particularly among Global 500 customers, and (3) further penetration of the DPS licensing model. We will also monitor the impact of macroeconomic developments and the ability to sustain a healthy pipeline of new customer additions.
Dynatrace currently trades at $47, down from $50.55 just before the earnings. Is the company at an inflection point that warrants a buy or sell? Find out in our full research report (it’s free).
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