Dynatrace shares drop 16.7% premarket despite Q2 profit beat

Dynatrace (DT) said on Nov. 3 that adjusted earnings per share for its fiscal second quarter topped the $0.51 consensus estimate, coming in at $0.54.

Shares fell 16.7% in premarket trading as of 9:18 a.m. ET, from a regular-session close of $55.13.

Revenue of $579.92 million, up 17% from a year earlier, was in line with the $584.84 million consensus estimate. Dynatrace sells AI-powered observability software that helps organizations analyze, automate and innovate faster.

Annual recurring revenue reached $2.21 billion, up 16% from a year earlier. Revenue has risen in each of the last three quarters, from $493.8 million in the second quarter of fiscal 2026 to $554.5 million in the first quarter of fiscal 2027, according to its SEC filings.

Here's how the company did:

• Adjusted EPS: $0.54 vs. $0.44 a year earlier, against the $0.51 estimate
• GAAP diluted EPS: $0.23 vs. $0.19 a year earlier
• Revenue: $579.92 million vs. $493.85 million a year earlier
• Non-GAAP income from operations: $184.28 million vs. $152.82 million a year earlier

Updated fiscal 2027 guidance

The company updated its fiscal 2027 guidance. It now expects ARR of $2.39 billion to $2.41 billion, up from the $2.36 billion to $2.38 billion range it gave on Aug. 5.

Total revenue is now expected at $2.33 billion to $2.34 billion, up from $2.31 billion to $2.32 billion. Non-GAAP operating income is expected at $653 million to $661 million, down from $682 million to $690 million.

Non-GAAP earnings per share are now expected at $1.88 to $1.90, down from $1.97 to $1.99. The company said the guidance reflects the expected contribution from the Arize acquisition, including about 200 basis points of ARR growth accretion and 175 basis points of dilution to non-GAAP operating margin.

For the third quarter, the company expects revenue of $591 million to $596 million and non-GAAP earnings of 44 cents to 45 cents per diluted share. It also expects a foreign exchange headwind of about $20 million on ARR and $6 million on revenue for fiscal 2027.

The company will hold an Investor Day on Feb. 16, 2027, in Las Vegas, alongside its Perform user conference. Management plans to set out a “Rule of 50” profile target for fiscal 2029, which the company defines as the sum of constant-currency ARR growth and non-GAAP operating margin.

Share repurchase authorization

The board authorized an additional $1 billion of share repurchases. Chief Financial Officer Jim Benson said: “Our robust cash generation enables us to fund our strategic growth priorities while returning substantial capital to shareholders.”

Including the new authorization, the company has about $1.3 billion of total remaining buyback capacity. In the second quarter it spent $246 million to repurchase 5.2 million shares at an average price of $47.38.

The new program has no time limit and may be suspended, modified or terminated at any time. Its purchases may begin once the company has fully used its share repurchase authorization that started on Feb. 11, 2026, and will be funded from existing cash balances and future cash flow.

Arize and partnerships

Dynatrace completed its acquisition of Arize on Oct. 1, 2026. The company said the deal combines AI evaluation and large language model monitoring with its platform.

Chief Executive Officer Rick McConnell said: “As organizations increasingly deploy AI agents into production, the need for enterprise-grade observability and governance has never been greater.”

The company also announced a strategic partnership with CrowdStrike that combines AI-native cybersecurity and observability. It closed 14 deals with annual contract value above $1 million during the quarter.

Dynatrace also achieved FedRAMP Class D (High) “Initial Implementation” status and was named a leader in the Forrester Wave: AIOps Platforms, Q4 2026 report.