Software intelligence company Dynatrace (DT) provides application performance management tools, artificial intelligence for operations, cloud monitoring, and digital experience management solutions.
As of its last reported quarter (Q1 fiscal 2022), the company had $387 million of cash and cash equivalents compared with $362 million of long-term debt, leaving it in a net-cash position, enabling it to pursue growth initiatives like acquisitions.
That’s exactly what it did. On Tuesday, Dynatrace acquired query parser engine provider SpectX for an undisclosed amount. Essentially, SpectX’s engine throws unorganized views of log files and applies schemas on read, so that security analysts can conduct real-time monitoring of data and investigation of incidents.
This acquisition boosts the growth prospects of Dynatrace, and that keeps me bullish on the stock. (See Dynatrace stock charts on TipRanks)
Needham analyst Jack Andrews ran an assessment of the implications of the acquisition on the company’s prospects. He was encouraged by the acquisition’s potential to accelerate Dynatrace’s efforts to further automate IT service delivery.
“Combined, the solutions aim to accelerate the convergence of observability and security for modern hybrid, multi-cloud environments. These workloads are defined by continuous change and exponentially expanding volume of observability and security data that must be analyzed in context and in real-time for autonomous IT operations,” observed Andrews.
Importantly, the analyst believes that Dynatrace’s acquisition of SpectX will bolster its competitive position against SumoLogic (SUMO), DataDog (DDOG), and Splunk (SPLK).
The acquisition is not expected to have material impact on the company’s financials any time soon, but is poised to be an important growth driver over the long-term.
Andrews is also positive about Dynatrace’s sales transition from conversion to cross-selling, which has proven to boost expansion rates.
The above observations prompted Andrews to reiterate a Buy rating on the stock, with a price target of $72.
Wall Street also seems to be optimistic, with a consensus rating of Strong Buy on Dynatrace, based on 12 Buys and one Hold. The average Dynatrace price target of $69.67 indicates a downside potential of 1.9%.
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Disclosure: At the time of publication, Chandrima Sanyal did not have a position in any of the securities mentioned in this article.
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