Dynatrace Reports Strong Earnings. Why the Stock Is Falling Sharply.

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Shares of

Dynatrace

fell sharply after the software intelligence company posted earnings that beat expectations, but issued guidance that disappointed investors.

Dynatrace (ticker: DT) report earnings of 18 cents a share on revenue of $241 million. Analysts surveyed by FactSet were expecting earnings of 16 cents a share on revenue of $235 million.

“Having completed my first quarter as CEO, I am very pleased with our third-quarter performance, beating the high end of guidance across our key operating metrics driven by new logo additions and continued net expansion rate above 120%,” said Rick McConnell, chief executive officer.

Despite the strong earnings, investors were pulling back Wednesday, scared off by a slight deceleration in annual recurring revenue and management’s fourth-quarter outlook.

Annual recurring revenue was $930 million for the quarter, an increase of 29% year over year, but a deceleration from last quarter’s 34% growth. The company’s annual recurring revenue has grown at or over 32% for the last four quarters, RBC Capital Markets analyst Matthew Hedberg said in a research note.

“The stock is currently down in pre-market trading due to the slight ARR deceleration,” Hedberg said in his note that was released before the stock market opened Wednesday.

Despite the dip, Hedberg believes the company remains “well-positioned for trends in digital transformation.”

For the fourth quarter, Dynatrace predicted revenue will come in between $245 million and $247 million, compared to consensus estimates of $246.6 million. Earnings are now estimated to range between 15 cents and 16 cents a share, compared to consensus for 15 cents.

The company raised its full-year revenue guidance to a range of between $922 million and $924 million, up from $913 million to $919 million.

The stock was down 23.2% to $44.31.

Write to Sabrina Escobar at [email protected]