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Dynatrace (DT) to Post Q3 Earnings: What's in the Offing?

Zacks Equity Research

Dynatrace DT is set to report third-quarter fiscal 2020 results on Jan 29.

For third-quarter fiscal 2020, the company projects revenues of $137-$138 million, indicating year-over-year growth of 19-20%. The Zacks Consensus Estimate for revenues is pegged at $137.5 million.

The company also projects non-GAAP earnings between 6 cents and 7 cents per share. The consensus mark for earnings, which stands at 6 cents per share, has been unchanged over the past 30 days. The estimate suggests no earnings growth sequentially.

Dynatrace, Inc. Price and EPS Surprise

Dynatrace, Inc. Price and EPS Surprise

Dynatrace, Inc. price-eps-surprise | Dynatrace, Inc. Quote

Notably, the company’s earnings beat the Zacks Consensus Estimate in the trailing two quarters, the average positive surprise being 41.67%.

Let’s see how things are shaping up for the upcoming announcement.

Factors at Play

The company’s new Dynatrace Software Intelligence Platform continues to gain adoption. This is expected to have been a tailwind for the quarter under review.

The company’s growing popularity, primarily owing to the free-trial of the Dynatrace platform, is making way for more adoptions. For instance, in November last year, Porsche Informatik leveraged the Dynatrace Software Intelligence Platform to expedite software innovation and enhance user experience.

Moreover, the company’s efforts to enhance the Software Intelligence Platform continued throughout its December quarter. Notably, it added Digital Business Analytics to the platform in October to incorporate AI to enhance user experience.

Additionally, in November, the company doubled the capacity of a Dynatrace cluster to scale 50,000 hosts while maintaining system performance. These efforts are likely to have boosted the adoption of the platform in the quarter under review.

Dynatrace’s quarterly results are also likely to reflect an expanding enterprise customer base.

Moreover, the enhanced focus on subscription and services offerings is expected to reflect on the top-line performance of the company in the quarter to be reported. The Zacks Consensus Estimate for subscription revenues stands at $124 million, suggesting a 6.9% sequential growth. The consensus mark for services revenues stands at $11.4 million, indicating a sequential growth of 5.3%.

However, lower revenues from Classic License due to the company’s gradual wind-down of the segment is expected to have been an overhang. The consensus mark for this segment’s revenues stands at $2.1 million, indicating a 22.2% sequential decline.

What Our Model Says

The proven Zacks model does not conclusively predict an earnings beat for Dynatrace this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of beating estimates. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Dynatrace has a Zacks Rank #3 and an Earnings ESP of 0.00%.

Stocks to Consider

Here are some stocks you may consider, as our model shows that these have the right combination of elements to beat on earnings in their upcoming releases:

Apple Inc. AAPL has an Earnings ESP of +4.08% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Palo Alto Networks PANW has an Earnings ESP of +1.18% and a Zacks Rank #3.

Check Point Software Technologies CHKP has an Earnings ESP of +0.90% and a Zacks Rank of 3.

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Palo Alto Networks, Inc. (PANW) : Free Stock Analysis Report
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Dynatrace, Inc. (DT) : Free Stock Analysis Report
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