By Michael Elkins
Stifel initiated coverage of Dynatrace (NYSE:DT) with a Buy rating and a $45.00 price target as the company has quickly established itself as a leader in the global technology space.
Stifel analysts wrote in a note, “Over the last several years, the company — with its modern, cloud-based, enterprise focused Observability platform that customers can use to effectively monitor on-prem and cloud workloads — has quickly established itself as a leader in the space. Looking forward, we view Dynatrace as a compelling long-term investment opportunity, given the secular growth within the Observability space; the company's very healthy mix of revenue growth and profitability; the stability that comes from its enterprise focus; and its significant runway to continue to gain share through new customer acquisition as well as growth (expanding usage split between existing and new workloads and new product adoption) within existing clients. The net result is that Dynatrace should sustain mid-teens revenue growth with steadily increasing levels of profitability and free cash flow in the coming years.”
The average ARR for customers in this segment is ~$300,000 with a significant uplift amongst three-plus modules users who average nearly $500,000 ARR per customer. Stifel believes that Dynatrace has ample opportunity to grow ARR per customer through broadening use of the suite, growth of app requirements and companies moving more of their apps and infrastructure onto the platform. Management believes ARR per Enterprise Customer can grow to greater than $1 million over time.
The company already boasts a solid 25% Operating Margin with a highly efficient, majority international, R&D org and growing partner involvement in their GTM motion. And with just over 3,500 customers, Dynatrace has significant runway to continue growth of new-customer adds into their target market of the largest 15,000 global accounts. Net new customer growth should average about 10% annually, and account for approximately a third of annual revenue growth.
Shares of DT are up 1.81% in premarket trading on Thursday.