Dynatrace fueled by AI

Published: 2025-07-14 01:35:45 ET DT

Published on 07/14/2025 at 01:35

By Grégoire Legrand

Dynatrace, founded in 2005 in Linz, started as a performance monitoring tool and has since become a major player in cloud observability and security. After launching its AI engine Davis and going public in 2019, the company expanded into SaaS and application security, reaching $1B in sales by 2022. Its platform helps businesses streamline digital performance across complex systems.

Enterprise IT is under growing complexity where most companies run across a dozen cloud platforms, yet their monitoring tools still miss over 90% of app activity. Kubernetes adds even more complexity, and rising log storage costs often outweigh the value they deliver. Nearly 90% of leaders say this fragmentation is hurting performance and security, and over 80% are now looking to bring observability and security together on a single platform.

Banks are layering new digital services onto aging systems spread across a dozen cloud platforms, and 88% say the data load is already unmanageable. Retailers are stretched trying to deliver smooth online and in-store experiences, with complexity dragging down performance for most. Government agencies are drowning in disconnected tools, prompting 80% to consolidate just to keep up. In transportation, nearly all providers say multicloud setups are hurting service reliability, while even software companies - despite being cloud-native - are overwhelmed by tool sprawl. Across industries, unified platforms are becoming the only viable path forward and Dynatrace is trying to capture global 15,000 customers across Strategic, Enterprise, and Commercial industries.

Dynatrace operates in this fast-growing $65B total addressable market, split between $51B in observability and $14B in security. It seems well-positioned to capture share thanks to its unified and automated solution.

Dynatrace proposes a SaaS platform combining observability, security, and analytics, powered by proprietary technologies like Grail, Davis AI, and OneAgent. Grail enables fast, cost-efficient analysis of massive data volumes without re-indexing or storage limits.

Davis AI integrates causal, predictive, and generative AI to automate detection, remediation, and insights.

Tools like AppEngine and AutomationEngine allow teams to build custom apps and workflows, helping businesses move faster and smarter across development, security, and operations.

Dynatrace stands out with near-instant data collection, real-time system mapping via Smartscape, and seamless integration with public cloud and on-prem infrastructure. Its flexible subscription model (DPS) aligns pricing with usage, supporting easy scaling without penalties. Most customers use the platform via SaaS for rapid deployment and automatic updates, while Dynatrace Managed offers control over data residency.

Dynatrace Platform Subscription (DPS)

Dynatrace competes in a crowded observability market alongside Datadog, New Relic, and AppDynamics. Datadog is its closest rival, with strong momentum in the cloud-native space, reporting $2.68B in 2024 revenue, rapid growth among $1M+ ARR customers, and recently added to the S&P500. Its developer-friendly tools and broad security offerings, like Cloud SIEM, contrast with Dynatrace’s focus on AI-driven automation and enterprise-scale environments. New Relic, while once a leader, is growing more slowly and facing pressure as it shifts toward full observability. AppDynamics remains strong in legacy enterprise accounts but lags in SaaS agility. Beyond these, open-source stacks like Grafana and Prometheus offer flexible, engineer-led alternatives, while Elastic provides integrated logging and search. Newer players like Honeycomb and Chronosphere focus on high-scale, cloud-native observability with event-driven or time-series backends. Even cloud providers - AWS (CloudWatch), Azure Monitor, and Google Cloud Operations - are gaining ground with native monitoring tools. Despite this tough competition, Dynatrace has room to lead in unified, automation-first platforms.

As of March 31, 2025, the group had approximately 4,100 customers (no end-customers who represented more than 10% of total revenue) in over 105 countries in diverse industries such as banking and financial services, government, insurance, retail and wholesale, transportation, and software.

In 2025, Dynatrace’s total revenue reached $1.70 billion, up $268 million or 19% YoY, and expected to reach $2.6B by 2028. The growth was largely fueled by a $262.8 million increase in subscription revenue, which rose 19% to $1.62 billion, reflecting continued expansion across both new customer acquisitions and deeper platform adoption within existing accounts. Service revenue also rose 8% to $76.5 million, a $5.3 million increase from the prior year, primarily due to the timing of service engagements. Subscription represents 95% of total sales while Service only represents 5%.

Dynatrace’s total ARR grew from $1.29B in Q1 2024 to $1.73B in Q4 2025, despite a gradual slowdown in growth rates - from 25% to 15% YoY. Growth peaked mid-2024 and gradually decelerated, reflecting a more mature revenue base while still maintaining consistent top-line expansion across quarters.

Dynatrace’s total revenue grew from $333M in Q1 2024 to $445M in Q4 2025, with subscription revenue making up the vast majority - rising from $316M to $424M over the same period. While growth remained steady, YoY increases slowed from 25% to 19% for total revenue and from 27% to 20% for subscription revenue (in constant currency).

The group's strength lies in its ability to generate strong cash flow performance: $431M in 2025 up from $346M in 2024 and $333M in 2023, which represents a 25% free cash flow margin, with pre-tax free cash flow reaching $549M.

The company also saw its net income jump by 212% in 2025 to $483 million, up from $154 million in 2024, driven by strong adoption of its platform. At the same time, EBITDA reached $512 million in 2025, with projections of $828 million by 2027, representing a targeted 30% margin.

Strong results and AI momentum have pushed investor expectations high, reflected in Dynatrace’s five-year average P/E ratio of 136.2x, compared to 69.1x in 2026 and 55.5x in 2027 - still well below Datadog, which trades at much higher multiples (up to 1399x in 2025). In 2025, Dynatrace’s EPS surged to $1.59 from $0.52 in 2024, though analysts expect it to drop to $0.81 in 2026.

Dynatrace has established itself as a leading observability platform, delivering strong results and sustained ARR growth. Its AI-powered, enterprise-focused approach positions it well to benefit from rising demand for cloud-native observability, automated remediation, and security analytics amid global digital transformation. However, aggressive competition from players like Datadog and hyperscalers, combined with rapid tech shifts and growing commoditization, creates pricing pressure and demands constant innovation - leaving little room for execution missteps.

Grégoire Legrand