Dynatrace stock downgraded by Needham amid 'top-line deceleration'

On Monday, Dynatrace Inc. (NYSE:DT) received a rating downgrade from Buy to Hold by Needham, reflecting concerns over the company's growth trajectory. The firm cited a sustained top-line deceleration and delays in go-to-market and product initiatives as reasons for the revised outlook.

Dynatrace, known for its software intelligence solutions, has been experiencing a slowdown in its financial performance. Needham pointed out that the company's annual recurring revenue (ARR) growth in constant currency is expected to be between 18%-19% for FY24, a decrease from the 28% growth rate in FY23. This deceleration is anticipated to continue into FY25, with growth projections further slowing to approximately 16%-17%.

The firm also noted that Dynatrace's new product contributions and broader market initiatives might not significantly impact the financial model until FY26. This delay in expected contributions has led to the belief that shares of Dynatrace may not perform as well as other stocks covered by Needham.

The analyst's outlook suggests that both FY25 and FY26 consensus estimates could pose risks and may act as a deterrent to the appreciation of the company's share price. The report implies that without significant changes to Net Retention or a quicker ramp-up of market initiatives and new products, the stock might not see substantial gains in the near term.

Investors are advised to consider these factors as Dynatrace navigates through its current financial landscape and works towards achieving its growth targets in the coming years.

As investors digest the rating downgrade from Needham, it's worth considering additional insights from InvestingPro. Dynatrace Inc. (NYSE:DT) is currently trading at a high earnings multiple, with a P/E ratio of 68.77, signaling that investors are expecting high earnings growth in the future. This aligns with one of the InvestingPro Tips, which highlights that the company's net income is expected to grow this year. Moreover, Dynatrace holds an impressive gross profit margin of 82.54% for the last twelve months as of Q1 2023, suggesting strong operational efficiency.

For those considering the long-term potential of Dynatrace, the company's robust balance sheet, which holds more cash than debt, is a critical factor to take into account. This financial stability could provide the company with the flexibility to navigate its current growth challenges and invest in future opportunities. Additionally, the company has been profitable over the last twelve months, a positive sign for potential investors.

InvestingPro also offers a wealth of additional tips for Dynatrace, with PRONEWS24 providing an extra 10% off a yearly or biyearly Pro and Pro+ subscription. For those seeking deeper analysis and more comprehensive data, there are 9 additional InvestingPro Tips available for Dynatrace at https://www.investing.com/pro/DT.

Get The App

Join the millions of people who stay on top of global financial markets with Investing.com.

Download Now

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.