It’s been an active couple of weeks for Dynatrace, a leader in unified observability and security. The company beat earnings, announced the acquisition of Rookout, a developer-focused observability start-up, and is bringing new generative AI features to its already-powerful Davis AI engine.
News: Dynatrace Earnings
Dynatrace clearly has the wind at its back. Last week the company delivered its fourth consecutive earnings beat, announcing earnings of $0.27 per share on revenue of $332.9M. Dynatrace’s annual recurring revenue sits at about $1.3B. Despite the continuing challenging macro-economic environment, Dynatrace is projecting revenue growth of 24-25% in the current quarter. Dynatrace has outperformed the market this year, growing nearly 23% in 2023.
Contrast Dynatrace’s performance with its close competitor Datadog, which disappointed analysts with its guidance for the remainder of the year despite solid earnings of the quarter. Datadog gave guidance that its revenue will grow just 15% next quarter, compared to its previously forecasted 23%. While Datadog talked about softer customer demand, it would be wrong to attribute that solely to the growth slow-down. The competitive environment in this space is robust, with players like Dynatrace gaining share quarter-over-quarter.
News: Davis AI Engine Gains Generative AI Features
The core elements of the Dynatrace platform include capabilities for dynamic topology mapping, data lakehouse, and analytics, AI for automation and predictive analytics, and application runtime and automation technologies. Dynatrace AppEngine and AutomationEngine handle application runtime, automation, and security. Dynatrace Smartscape provides topology mapping, while Grail is Dynatrace’s massively parallel data lakehouse. That’s a lot of elements, and at the center of it all sits the Davis AI engine.
Davis is Dynatrace’s feature-rich AI engine, bringing powerful predictive and causal AI features to the Dynatrace platform. For example, Davis AI’s predictive AI features use machine learning to anticipate future behavior based on historical data and collected observations. The causal AI features within Davis AI analyze dependencies across large swaths of observability, security, and business data to deliver fact-based, deterministic answers while enabling intelligent automation capabilities.
Davis CoPilot
Dynatrace isn’t stopping there, recently announcing that it’s adding generative AI to the mix with its new Davis CoPilot features. The new generative AI capabilities will use the power of large language models to allow users to communicate with the system using natural language to explore, solve, and complete tasks.
Davis CoPilot allows users to use natural language to create queries, dashboards, and notebooks. Going further, Davis CoPilot will provide suggestions for code to accelerate workflow automation. Its deep integration with predictive AI and causal AI features ensures that it operates with an awareness of the customer’s environment and situation. That’s powerful.
Adding generative AI features expands the already-rich feature set of Davis AI, making Davis AI the industry’s first hyper-modal AI. The combined predictive AI, causal AI, and generative AI increase productivity across operations, security, DevOps, and business teams.
News: Rookout Acquisition
Dynatrace hasn’t historically pursued a growth-through-acquisition strategy, but sometimes an acquisition is the best way to close a gap in the portfolio or add a new strategic capability. In the case of Dynatrace’s planned acquisition of Israeli tech-company Rookout, Dynatrace is bringing powerful new developer-centric capabilities into its fold.
Rookout delivers code-level observability solutions that allow developers to get real-time data from production environments, reducing customer issues’ fix times by up to 5x. Rookout captures live debugging and logging across various tech stacks and environments, from on-prem to cloud, allowing developers to identify and fix issues where they occur. Rookout does this with the compliance and security features required for enterprise deployment.
Combining Rookout’s capabilities with the already-powerful Dynatrace solution stack will make for a compelling offering. The integrated solution will extend Dynatrace’s full-stack observability capabilities, supplementing its existing application performance monitoring (APM) features with new developer centric capabilities. This will enable development teams to engage more seamlessly with DevOps, IT, and security teams. This unified approach will enhance overall productivity and enables organizations to deliver high-quality software more efficiently.
Dynatrace is acquiring Rookout for $33.4M in an all-cash deal. The deal is expected to close by the end of September.
Analysis
Dynatrace, Inc., founded nearly eighteen years ago, has been in the observability game longer than almost all its closest competitors. The company has grown its business into one generating $1.3B of annual recurring revenue. Its most recent quarterly earnings demonstrated both ARR growth and revenue growth of 25% year-over-year, and Dynatrace delivered solid guidance for the remainder of the year. That’s strong execution in the current austerity-driven IT spending climate.
The acquisition of Rookout will open new revenue opportunities for Dynatrace, extending the reach of its application-centric observability. It’s a great acquisition into a directly adjacent market. Dynatrace will quickly see an upside.
The new generative AI features within Dynatrace’s Davis AI engine are exciting. Davis CoPilot expands the already-rich feature set of Davis AI, making Davis AI the industry’s first hyper-modal AI. This isn’t just hype; the benefit is real. These are still early days for generative AI, and I can’t wait to see where Dynatrace takes Davis AI over time.
Dynatrace continues to deliver value to both its shareholders and its customers. The company’s execution under CEO Rick McConnell has been strong. Its product teams are making good decisions, and the Dynatrace story resonates with the market.
