Starboard makes large investment in Dynatrace, sees strategic value

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April 28 : Activist investor Starboard Value said on Tuesday it has made a "substantial investment" in software monitoring firm Dynatrace, arguing the company is undervalued and urging it to accelerate margin expansion and aggressively buy back shares.

Dynatrace shares rose more than 4 per cent in early trading.

The company's stock has slumped about 18 per cent so far this year, part of a broader trend where investors have turned cautious toward software companies over concerns that rapid advances in artificial intelligence could automate tasks that have long powered industry cash flows.

Starboard, in a letter to the company's top management and board, said investors have "incorrectly bucketed" Dynatrace with those exposed to AI-related risks, and that the company had significant strategic value.

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"Enterprise adoption of AI should ultimately result in accelerating revenue growth for Dynatrace," the fund said, citing the rising complexity of cloud, application and AI agent workloads.

The hedge fund said it has already become one of Dynatrace's top five shareholders and has been engaging privately with the company's leadership in recent months. Starboard did not disclose how large a stake it had acquired in Dynatrace.

Starboard said Dynatrace shares have significantly underperformed peers and the broader market over the past five years and now trade at nearly half the valuation multiple of comparable infrastructure software and cybersecurity companies, despite revenue growth close to peer medians.

The investor said Dynatrace could lift adjusted operating margins by at least 500 basis points by fiscal 2029 through improved sales efficiency, tighter cost discipline and stronger operating leverage.

It estimated the company could cut around $75 million a year from sales and marketing spending while sustaining growth.

On capital allocation, Starboard urged Dynatrace to move quickly on its $1 billion buyback authorization and said the company could repurchase more than $2.5 billion of shares over three years – about a quarter of its market value of $10.62 billion.

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