EPS of $1.19 increased by 764.3% from previous year
Gross margin of 81.1%
Net income of 361.75M
""We believe that an AI-powered observability platform with sophisticated analytic and automation capabilities is vital in providing the visibility needed for software to work perfectly."" - Rick McConnell
Dynatrace Inc (DT) recorded significant growth in Q3 2025, reporting total revenue of $436 million, a 20% increase year-over-year, exceeding guidance expectations. Subscription revenue alone rose by 21%, driven primarily by the company's innovative AI-powered observability platform that caters to the growing demand for cloud modernization solutions. The company achieved an annual recurring revenue (ARR) of $1.65 billion, reflecting an 18% growth year-over-year and demonstrating strong customer retention with a net retention rate of 111%. This quarter was further distinguished by a monumental tax benefit stemming from a strategic IP transfer, leading to a substantial net income of $361.75 million, representing an impressive growth of 747.37% from the prior year. Management highlighted strong customer feedback and demand across various sectors, positioning Dynatrace advantageously within the technology market.
Key Performance Indicators
Revenue
436.17M
QoQ: 4.31% | YoY:19.47%
Gross Profit
353.61M
81.07% margin
QoQ: 3.90% | YoY:18.97%
Operating Income
47.46M
QoQ: 0.93% | YoY:32.88%
Net Income
361.75M
QoQ: 722.01% | YoY:747.37%
EPS
1.21
QoQ: 706.67% | YoY:764.29%
Revenue Trend
Margin Analysis
Key Insights
Total Revenue: $436 million (+20% YoY, +4.31% QoQ)
Gross Profit: $353.61 million (Gross Margin: 81.07%)
Operating Income: $47.46 million (Operating Margin: 10.88%)
Net Income: $361.75 million (+747.37% YoY)
EPS: $1.21 (+764.29% YoY)
Financial Highlights
- Total Revenue: $436 million (+20% YoY, +4.31% QoQ)
- Gross Profit: $353.61 million (Gross Margin: 81.07%)
- Operating Income: $47.46 million (Operating Margin: 10.88%)
- Net Income: $361.75 million (+747.37% YoY)
- EPS: $1.21 (+764.29% YoY)
- Annual Recurring Revenue (ARR): $1.65 billion (+18% YoY)
- Subscription Revenue: $417 million (+21% YoY)
- Customer Retention: Gross retention in the mid-90s, Net retention rate of 111%
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
436.17M
19.47%
4.31%
Gross Profit
353.61M
18.97%
3.90%
Operating Income
47.46M
32.88%
0.93%
Net Income
361.75M
747.37%
722.01%
EPS
1.21
764.29%
706.67%
Key Financial Ratios
currentRatio
1.5
grossProfitMargin
81.1%
operatingProfitMargin
10.9%
netProfitMargin
82.9%
returnOnAssets
9.69%
returnOnEquity
14.2%
debtEquityRatio
0.03
operatingCashFlowPerShare
$0.14
freeCashFlowPerShare
$0.13
priceToBookRatio
6.36
priceEarningsRatio
11.22
Net Income vs. Revenue
Expense Breakdown
Management Commentary
- Management Focus on AI and Observability: CEO Rick McConnell emphasized, "We’re proud that Dynatrace once again outperformed our guidance across all top line and profitability metrics. It is a testament to the team's disciplined execution and the strength of our AI-powered observability platform."
- Market Demand: McConnell noted, "The need for comprehensive end-to-end observability has become mandatory, especially for larger organizations."
- Growth Drivers: CFO Jim Benson highlighted, "Our DPS licensing model continues to gain traction. Customers on DPS consume at twice the rate of those on our previous model, indicating robust platform adoption and expansion."
- Customer Engagement: With over 1,500 customers on the DPS model, Benson stated, "On average, the rate of consumption growth for DPS customers is nearly double the rate of our non-DPS customers."
"We believe that an AI-powered observability platform with sophisticated analytic and automation capabilities is vital in providing the visibility needed for software to work perfectly."
— Rick McConnell
"We’re seeing that customers that are on DPS consume at two times the rate of customers that are on the SKU-based platform."
— Jim Benson
Forward Guidance
Dynatrace has raised its full-year guidance across several key metrics, projecting ARR growth to reach between $1.705 billion and $1.715 billion (16% to 16.5% growth YoY), with total revenue expected to be between $1.686 billion and $1.691 billion (19% growth YoY). The company anticipates ongoing momentum in subscription revenue driven by the DPS model and an expected uptick in on-demand consumption. However, management retains a cautious stance on the macroeconomic environment that may impact client spending.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
DT Focus
81.07%
10.90%
14.20%
11.22%
TTD
80.50%
17.30%
3.59%
143.13%
NOW
79.10%
14.90%
4.65%
106.71%
TEAM
83.80%
-0.92%
16.50%
61.84%
SNOW
67.20%
-38.90%
-11.10%
-29.49%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Given Dynatrace's strong quarterly performance and strategic positioning in a high-growth sector, the outlook remains positive. Investors should monitor the adoption of the DPS model and how effectively the company can convert on-demand consumption into stable ARR growth. Moreover, the continuous development of differentiated AI offerings is expected to further enhance competitive advantages. While short-term fluctuations may arise from macroeconomic factors, the long-term trajectory for Dynatrace appears promising, supported by robust fundamentals and market demand.
Key Investment Factors
Growth Potential
Dynatrace's substantial investment in AI-driven observability positions it favorably for continued growth in the expanding cloud services market, projected to exceed $220 billion annually. The adoption of DPS models is anticipated to accelerate revenue growth as customer consumption patterns evolve.
Profitability Risk
Potential risks include macroeconomic uncertainties that could lead to reduced tech spending from enterprises, currency fluctuations affecting revenue, and the challenges of maintaining high net retention rates amidst increased competition.
Financial Position
Dynatrace showcases a robust financial position marked by a strong gross margin of 81.07%, low current debt levels (current ratio at 1.502), and significant cash reserves of $907.48 million. The company's free cash flow margin stands at 25%, providing a solid buffer for future investments and shareholder returns.
SWOT Analysis
Strengths
Strong revenue growth with total revenue up by 20% YoY
High gross margin of 81.07% facilitating robust profitability
Growing customer demand for AI-powered observability solutions
Established market presence with a diverse customer base across industries
Weaknesses
Dependence on ongoing fiscal investments in R&D for innovation and competitiveness
Recent declines in new logo ads indicating potential stagnation in market penetration
Opportunities
Expansion into cloud modernization and log management sectors
Growing awareness and adoption of AI in observability creating new market segments
Increased customer interest in integrated observability solutions, positioning Dynatrace favorably for enhancements
Threats
Intensifying competition from rivals such as Datadog, Snowflake, and New Relic
Market volatility due to economic influences impacting technology spending
Potential disruptions from external factors, like geopolitical instability affecting global customers