Why PagerDuty (PD) Shares Are Trading Lower Today
What Happened:
Shares of IT incident response platform PagerDuty (NYSE:PD) fell 17.3% in the afternoon session after the company reported second-quarter earnings results. PD dropped its full-year revenue guidance, which is never a good sign. In addition, revenue missed by a narrow margin during the quarter, indicating that sales might be under pressure.
During the earnings call, management called out challenges in the SMB segment, which led to high churn rates and downgrades. As a result, the sales strategy is increasingly focused on large enterprise deals that involve multiple products and span a longer duration. On the other hand, EPS came in well ahead of consensus estimates. Overall, this was a mediocre quarter.
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What is the market telling us:
PagerDuty’s shares are very volatile and over the last year have had 12 moves greater than 5%. But moves this big are very rare even for PagerDuty and that is indicating to us that this news had a significant impact on the market’s perception of the business.
The biggest move we wrote about over the last year was 6 months ago, when the stock dropped 15% on the news that the company reported fourth-quarter results and provided full-year revenue guidance below expectations, suggesting a slowdown in demand. In addition, billing came in below expectations during the quarter, while revenue was narrowly ahead.
On the other hand, PagerDuty recorded strong growth in customers this quarter. However, there were weaknesses in the SMB segment (drove 16% of ARR at the end of FY '24) as the company observed a decline in net new customers and dollar-based net retention. In addition, the company expects the transition from a monthly to daily revenue recognition to impact revenue growth in the first quarter of the year, with the expectation for an acceleration in the rest of the year. Overall, this was a mixed quarter for PagerDuty, with the guidance weighing on shares.
PagerDuty is down 18.1% since the beginning of the year, and at $17.94 per share it is trading 32.3% below its 52-week high of $26.50 from January 2024. Investors who bought $1,000 worth of PagerDuty’s shares 5 years ago would now be looking at an investment worth $471.61.
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