Dynatrace Q3 2025: Unpacking Contradictions in Net Retention, Sales Strategy, and AI Adoption

These are the key contradictions discussed in Dynatrace's latest 2025 Q3 earnings call, specifically including: Net Retention Rate Dynamics and Impact of DPS Contract Overages, Sales Strategy and Partner Ecosystem, Net Retention Rate Impact, and AI Adoption and Traction:



Revenue and ARR Growth:
- Dynatrace reported total revenue of $436 million for Q3, up 20% year-over-year, and Annual Recurring Revenue (ARR) ended the quarter at $1.65 billion, up 18% year-over-year.
- The growth was driven by disciplined execution, AI-powered observability platform, and strong demand for observability and cloud modernization solutions.

Observability Market Tailwinds:
- The observability market has been driven by cloud modernization, leading to an increase in tool sprawl and operational inefficiency.
- This has created a need for unified, AI-powered solutions, such as Dynatrace's platform, to manage the explosion of data and its complexity.

AI-Observability and Log Management:
- Dynatrace is positioned to observe and manage AI workloads, with 100 customers now using AI observability solutions.
- The company's innovative approach to log management, which integrates logs with other observability data types, has led to an increase in customers using log solutions, with over 1,000 customers leveraging the platform, a 17% increase from the previous quarter.

DPS Subscription Model and On-Demand Consumption:
- The Dynatrace Platform Subscription (DPS) model has seen rapid adoption, with roughly 1,500 customers globally, representing 55% of ARR.
- On-demand consumption of DPS has contributed to subscription revenue growth, with $7 million in the third quarter, translating to 150 basis points of subscription revenue growth.