What Happened?

Shares of application performance monitoring software provider Dynatrace (NYSE: DT) jumped 6.2% in the afternoon session after peer, Elastic, reported third-quarter results which exceeded analysts' expectations for sales and earnings. Additionally, Elastic observed improved demand in key mid-to-large enterprise markets, a promising indicator for other players in the broader observability and SaaS sectors. Adding to the improved growth trend, Elastic also raised full-year guidance for sales and earnings. Overall, these results are highly encouraging and contribute to the growing list of enterprise SaaS companies that delivered impressive performance during the earnings season.

Shares closed at $55.46.

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What The Market Is Telling Us

Dynatrace’s shares are not very volatile and have only had 2 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business.

The biggest move we wrote about over the last year was 10 months ago when the stock dropped 15% on the news that the company reported third-quarter results with billings falling below Wall Street's expectations. And while full-year revenue guidance came in higher than Wall Street's estimates, full-year ARR (annual recurring revenue) came in below expectations. Also, its gross margin fell.

Zooming out, this was a mixed quarter, but with software stocks that are often expensive from a valuation perspective, small misses can lead to big disappointments.

Dynatrace is up 5% since the beginning of the year, and at $55.46 per share, it is trading close to its 52-week high of $60.70 from February 2024. Investors who bought $1,000 worth of Dynatrace’s shares 5 years ago would now be looking at an investment worth $2,293.

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