PagerDuty Faces 13% Drop on Revenue Miss and Outlook Cut
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PagerDuty's Revenue Shortfall Disappoints Investors
PagerDuty Inc. (NYSE: PD) recently reported its second-quarter earnings, showcasing an adjusted earnings per share of $0.21, which surpassed analyst expectations of $0.17. Despite this positive earnings report, the company's shares plummeted approximately 13% in premarket trading due to revenue that fell short of expectations and weaker annual guidance.
Detailed Financial Performance
The digital operations management platform revealed a year-over-year revenue increase of 7.7%, totaling $115.9 million. However, this figure was slightly less than the predicted $116.51 million, leading to investor disappointment. PagerDuty's forecast for the upcoming third quarter estimates revenue between $115.5 million and $117.5 million, significantly below the analyst consensus of $120.3 million.
Guidance Revision Raises Concerns
Moreover, PagerDuty revised its full-year revenue guidance, lowering it to a range of $463 million to $467 million, down from the previous estimate of $471 million to $477 million and falling short of the anticipated $473.7 million. This cut has raised concerns among investors about the company’s growth trajectory.
Management's Perspective on Future Growth
Despite the challenges, Jennifer Tejada, Chairperson and CEO of PagerDuty, expressed confidence in the acceleration of annual recurring revenue (ARR) growth, attributing it to increased focus on incident management as a priority for CEOs amid rising global outages. The company maintained profitability, recording a non-GAAP operating income of $20.1 million and a 17.3% operating margin, with a free cash flow of $33.3 million for the quarter.
Customer Metrics and Revenue Insights
At the end of the quarter, PagerDuty had 15,044 paid customers, a minor decrease from 15,146 in the previous year. However, its customer base with annual recurring revenue exceeding $100,000 grew by 6%, reaching 820 customers, indicating a positive trend in enterprise engagement.
Analysts' Take on Stock Valuation
Analysts from Morgan Stanley reported that the slight revenue miss and guidance cut reflect ongoing challenges in the small and medium business (SMB) sector, which they described as worsening. Despite these setbacks, they believe the company's focus on enterprise growth could be underappreciated, noting that PD shares currently appear favorable at around 12 times projected free cash flow for 2025.
Price Target Adjustments
In light of these developments, RBC Capital Markets has lowered its price target for PD stock from $27 to $22, signaling a wait-and-see approach as the company concentrates on its enterprise segment. Analysts pointed out that PagerDuty has reaffirmed its outlook for a growth in ARR exceeding 10% in the latter half of the year and anticipates a dollar-based net revenue retention rate of 107%.
Frequently Asked Questions
What caused PagerDuty's shares to drop significantly?
The drop was primarily due to a revenue miss and lowered annual guidance, despite beating earnings expectations.
How did PagerDuty perform in its recent earnings report?
PagerDuty reported adjusted earnings of $0.21 per share, surpassing expectations, but revenue grew only 7.7% YoY to $115.9 million, falling short of analyst forecasts.
What is the outlook for PagerDuty's future revenue?
The company forecasted third-quarter revenue between $115.5 million and $117.5 million, which is below analyst predictions.
Are there positive indicators for PagerDuty despite recent setbacks?
Yes, there was a growth in customers with annual recurring revenue over $100,000 and a reaffirmation of accelerated ARR growth expectations.
What do analysts say about PagerDuty's stock valuation?
Analysts believe that the stock may be undervalued at around 12 times 2025 free cash flow, despite recent revenue guidance cuts.
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