The Breadcrumb Trail (DT Q4 FY3/24 Earnings Review)

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Some Dominos Still Left To Fall

DynaTrace ($DT) is one of the few remaining independent observability software companies. ‘Observability’ means, software that watches other software and hardware, and snitches on it when it’s doing something the watcher deems unacceptable. Think of it as Datacenter Stasi. The players in this segment have been gradually acquired over time, from BMC 100 years ago to NewRelic recently and AppDynamics in between. That leaves DynaTrace, DataDog ($DDOG) and, if you squint and think laterally about its positioning, PagerDuty $PD, as the remaining independents. I suspect there are more acquisitions in the offing in this segment, because (1) the recurring revenue in DT and DDOG is a gift that keeps on giving - once you start using this stuff, good luck getting rid of it, because just like the real Stasi, they get embedded in the walls and years later folks are still finding devices that continue to operate, and (2) none of these names has ever really succeeded in expanding beyond what used to be called the sysops function into anything more valuable. And since in enterprise software, you either land, expand, grow and acquire, or else you wither slowly in your niche, such narrow plays tend to become acquisition fodder for bigger fish. I suspect this will be $DT’s fate in the end; I think market bigs know that is possible; and I think the stock is likely once more under accumulation at present, in anticipation of just such a sale.

Let’s take a look at the detail.

Fundamental Financial Analysis