Nov 3, 2026: A beat and a raise on revenue, a cut on profit
Dynatrace closed Nov 2 at $55.13, after three straight losing sessions that took it down from $62.81 on Oct 28. It reported before the open, with a call at 8:00am ET. Premarket trading began around $55, then the stock fell to $47.90 in the 6:30am five-minute bar and hit $45.03 at 6:40am, down 18%. It traded between about $45 and $49 through the early morning, opened at $46.94, touched a low of $45.52 in the first five minutes, and climbed to a high of $49.20 by 9:40am. It was $47.69 at 9:49am. After the drop, RSI(14) stood at 24, the shares sat 17% below their 50-day average and 22% below their 20-day average but 7% above their 200-day average, and they were 28% below the 52-week high of $66.30. Volume was 3.5 million shares by the time of this writing, about 0.4 times the 20-day average with most of the session left.
What moved the stock:
- Profit guidance fell. Full-year non-GAAP operating income guidance dropped to $653 million to $661 million from $682 million to $690 million, and free cash flow guidance eased to $600 million to $605 million from $610 million to $615 million. The third-quarter operating margin is guided to 26%, against 32% in the second quarter.
- Net new ARR was flat. MarketBeat's call summary says net new ARR was $70 million, flat from a year earlier and below expectations, because large enterprise deals slid into the second half. Chief Executive Rick McConnell put the shortfall at high-single-digit millions. Chief Financial Officer Jim Benson said, "these deals aren't lost," and that several had closed early in the third quarter.
- The second half carries more weight. Management expects second-half net new ARR to lean toward the fourth quarter more than usual, since about 70% of full-year renewals fall in the second half and about 65% of those land in the fourth quarter.
- Peers did not follow. At 9:48am Datadog was up 1.7%, CrowdStrike up 3.4% and Snowflake up 0.6%, while Elastic was down 1.5%, ServiceNow down 0.8% and the iShares software ETF down 0.4%.
The numbers
| Measure | Q2 FY27 | Year earlier | Change |
|---|---|---|---|
| Total revenue | $579.9 million | $493.8 million | +17% |
| Subscription revenue | $553.1 million | $473.1 million | +17% |
| Total ARR | $2,207 million | $1,899 million | +16% |
| Non-GAAP operating margin | 32% | 31% | +1 point |
| Non-GAAP diluted EPS | $0.54 | $0.44 | +23% |
| Adjusted free cash flow | $42.3 million | $27.8 million | +52% |
Full-year guidance moved in opposite directions. Revenue guidance rose to $2.33 billion to $2.34 billion from $2.306 billion to $2.32 billion, and ARR guidance rose to $2.393 billion to $2.413 billion from $2.359 billion to $2.379 billion. Profit guidance fell: the operating margin guide lost about 150 basis points, and the diluted share count guide rose to 306 million to 308 million from 295 million to 297 million. Dynatrace says Arize adds about 200 basis points to ARR growth and takes about 175 basis points off the operating margin. The standalone ARR growth guide, which excludes Arize, stayed at 15.5% to 16.5%. For how to read a split like this, see our guides to guidance changes and reading an earnings release.
The bull case
The core business did what it said it would. Revenue grew 17%, the operating margin rose a point, and free cash flow rose 52% from a small base. The guidance cut is an acquisition and financing effect, and Dynatrace did not lower its standalone ARR growth target.
The company is also buying its own stock. It spent $246 million in the quarter at an average price of $47.38, almost exactly where the shares trade now, and the new authorization brings capacity to about $1.3 billion, roughly 9% of the $14.0 billion market value. Our note on buybacks as catalysts explains why a program at the current price matters more than one at a high. At 21 times forward earnings and 6.7 times sales, the stock is priced well below its 52-week high, and the average analyst target of $64.42 is 35% above the price. Software was not weak today: Datadog reports on Nov 4 and rose in the morning, and ServiceNow fell 18% after its own report and was steady today.
The risks
Flat net new ARR is the part of the report that is hard to wave away. A year of 16% ARR growth needs new business to keep growing, and the company has now said that the second half will lean on a single quarter. If the slipped deals close, the miss looks like timing. If they do not, the 15.5% to 16.5% standalone guide is the next number at risk.
The profit story is also less clean than the headline. Third-quarter earnings guidance is 7% below consensus, free cash flow guidance fell even though revenue guidance rose, and the larger share count means each dollar of profit is spread across about 11 million more shares. Our explainer on dilution covers why that matters. Short interest is 6.25% of the float, so the stock has room to move either way, and the Arize price was not disclosed, so the return on that deal cannot be checked yet.
What comes next
The next dated catalyst is the Investor Day on February 16, 2027, in Las Vegas, where management plans to set multi-year targets, a capital allocation framework and a fiscal 2029 profile where growth and margin add to 50. The third-quarter results will come first and will show whether the slipped deals closed. Until then the stock sits between its 200-day average at about $44.61 and its 50-day average at about $57.68. Other large moves in software and technology are tracked on today's biggest stock moves, and our earnings estimate revisions note covers how analysts will reset numbers after a cut like this. Dombey's published research applies the same checks to event-driven setups; see the research archive.