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Why PagerDuty Stock Dropped 13% This Morning

Rich Smith, The Motley Fool

What happened

Shares of PagerDuty (NYSE: PD) stock sank as much as 13% in early trading Friday but are recovering -- down only about 7.3% as of 12:45 p.m. EDT. PagerDuty stock is, however, now trading back down below the company's IPO-day close after the automated-alert software maker reported strong sales growth but heavy losses in its fiscal Q2 2020 report last night.

Expected to lose $0.10 per share pro forma on sales of $39.1 million in the quarter, PagerDuty seems to have actually exceeded expectations, losing "only" $0.07 per share and reporting sales of $40.4 million.

Chalkboard sketch of stock arrow going up being erased and pointing back down.

Image source: Getty Images.

So what

PagerDuty also reported positive free cash flow for the quarter -- $1.3 million, as compared to cash burn of $5 million in the year-ago quarter.

And yet the news still wasn't all great. Sales grew 45% year over year. On earnings, however, as PagerDuty made clear in its earnings statement, $0.07 was only the pro forma loss. When calculated according to generally accepted accounting principles (GAAP), PagerDuty actually lost more like $0.17 per share. The company's pro forma gross margin also ticked down about 50 basis points year over year, falling to 85.7%.

Now what

Guidance for the future was pretty much in line with expectations, however. In fiscal Q3, PagerDuty expects to report pro forma losses of $0.09 or $0.10 per share, a bit worse than consensus, but sales of roughly $42 million -- ahead of expectations, and up in the low- to mid-30% range. And for the whole of fiscal 2020, management says that while its per-share loss could be the $0.37 per share that Wall Street has predicted, it could also be less -- perhaps only $0.36 per share.

Sales for the year, as for Q3 and for Q2, for that matter, should be a better-than-expected $163 million or so -- about 38% better than last year.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends PagerDuty, Inc. The Motley Fool has a disclosure policy.

This article was originally published on Fool.com