$3.40
$14.70
bear $3.40
base $7.40
bull $14.70
margin of safety $4.40
market price* $61.11
Dynatrace sells a subscription software platform that monitors and analyzes the performance, security and reliability of large companies' applications and cloud infrastructure. Customers sign multi-year contracts and pay for usage of the platform. In the year ended March 31, 2026, revenue grew 19% to $2,018 million and annual recurring revenue reached $2,054 million, up 18%. Contracted revenue not yet recognized was $3,492 million, of which about 53% is expected to be recognized in the year ending March 2027. The dollar-based net retention rate, which measures how much existing customers spend a year later versus a year earlier, was 110%. The company repurchased 11.4 million shares for $479 million in the latest year, which held the diluted share count roughly flat at about 304 million. How we measured earnings. We start from operating cash flow, then remove the swing from working capital (mainly growth in customer prepayments recorded as deferred revenue, which flatters cash flow in a growing subscription business), then deduct share-based compensation in full as a real cost ($300 million in the latest year, about 15% of revenue), then deduct only the capital spending needed to maintain the business (capital spending is small, about 2% of revenue). On that basis earnings per diluted share were $0.65 in FY2026, $0.40 in FY2025, $0.47 in FY2024, $0.34 in FY2023 and $0.29 in FY2022. We anchor on the median of FY2022 to FY2026, $0.40 per share. We exclude FY2020, the IPO year, when share-based compensation of $222 million and negative operating cash flow distorted results. The latest year is well above this anchor; we do not lift the starting level on one strong year. The amortization of acquired intangibles is small and falling ($5.6 million in FY2026 versus $39.4 million in FY2024), so no wasting-asset adjustment was needed. Growth reconciliation. Earnings per share grew 64% in FY2026 versus FY2025, a jump we do not carry forward. The base case assumes only 10% growth in year 1, below that trailing rate. Base case, $7.4 per share. Earnings begin at $0.40 and grow 10% a year for two years, then 9%, 8%, 7%, 6%, 5%, 4%, 3% and 2% through year 10, reaching about $0.74. The growth credited comes from the installed base: customers expanded spending by 10% net of churn (net retention of 110%), and the multi-year contracts already signed are backed by $3.5 billion of remaining obligations. We do not credit new customers, new products, margin expansion or the company's own targets. After year 10 we hold earnings flat for five years, because the contracted subscription base and continuing renewals are what demonstrably persist, then fade them by 15% a year because nothing in the filings shows what replaces the platform beyond that. Discounted at 6%, this gives about $7.4. Bear case, $3.4 per share. Existing customers stop expanding and spending stays at the $0.40 level for five years, then earnings decline 10% a year because nothing in the filings shows what replaces the platform once expansion stops. The support for this is that contracted revenue expected to be recognized in the next twelve months is about $1.85 billion, roughly 92% of the latest year's revenue, so contracts alone cover today's level but not growth; and share-based compensation absorbs a large share of the cash the business generates. Bull case, $14.7 per share. Earnings start at the latest year's $0.65, which the business has already reached, and grow 12%, 12%, 11%, 10%, 9%, 8%, 7%, 6%, 5% and 4% through year 10, reaching about $1.45. This tracks the 18% annual recurring revenue growth and 19% revenue growth already delivered, tapered as the base matures. After year 10 earnings hold flat for five years, then fade 10% a year. What we tried to break. The base case leans on the 110% net retention rate, which is a company-defined measure. The contracted revenue figure shows that contracts already signed cover about 92% of the latest year's revenue, not the growth on top of it, so the base case's 10% growth depends on continued renewal and expansion rather than something locked in. That is why the base case starts at the five-year median and not the latest year, and why the bear case holds growth at zero. Margin-of-safety price $4.40. This is about 40% below the base case, and above the bear case, reflecting a software business with real competitive pressure and heavy share-based pay. What would make this wrong: net retention falling below 100%, or share-based compensation continuing to grow faster than revenue.