Why PagerDuty (PD) Shares Are Getting Obliterated Today
What Happened:
Shares of IT incident response platform PagerDuty (NYSE:PD) fell 15% in the morning session after the company reported fourth-quarter results and provided full-year revenue guidance below expectations, suggesting a slowdown in demand. In addition, billings 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 model 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.
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What is the market telling us:
PagerDuty's shares are very volatile and over the last year have had 11 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 10 months ago, when the stock dropped 17.1% on the news that the company reported first quarter revenue that narrowly beat analysts' revenue estimates. Earnings per share, gross margin, and free cash flow were ahead of Consensus. However, the revenue guidance was weak. Next quarter revenue guidance came in below Consensus, and the full year revenue guidance also missed and was lowered. It is always a worrisome sign when a company reduces revenue guidance, and in this case, the nearly 5% reduction in full year revenue outlook is a key reason for the stock's move.
Profitability outlook was better as the full year EPS guidance came in ahead and was raised to $0.60 - $0.65 (up from $0.45 and $0.50), showing that at least with weaker revenue prospects, the company is prioritizing expense efficiency. It sounds like the macro weighed on results, with cost-conscious customers resulting in longer sales cycles, smaller deal sizes, and lower conversion rates. Overall it was a mixed quarter and it seemed the market was laser-focused on the revenue outlook.
PagerDuty is down 4.1% since the beginning of the year, and at $21.02 per share it is trading 39.9% below its 52-week high of $34.98 from March 2023. Investors who bought $1,000 worth of PagerDuty's shares at the IPO in April 2019 would now be looking at an investment worth $549.41.
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