PagerDuty (NYSE:PD) Exceeds Q2 Expectations, Stock Soars

Jabin Bastian /
2022/09/01 4:15 pm EDT

IT incident response platform PagerDuty (NYSE:PD) announced better-than-expected results in the Q2 FY2023 quarter, with revenue up 33.6% year on year to $90.2 million. The company expects that next quarter's revenue would be around $93 million, which is the midpoint of the guidance range. That was in roughly line with analyst expectations. PagerDuty made a GAAP loss of $38.5 million, down on its loss of $29.6 million, in the same quarter last year.

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PagerDuty (PD) Q2 FY2023 Highlights:

  • Revenue: $90.2 million vs analyst estimates of $88.2 million (2.3% beat)
  • EPS (non-GAAP): -$0.04 vs analyst estimates of -$0.08
  • Revenue guidance for Q3 2023 is $93 million at the midpoint, above analyst estimates of $92.5 million
  • The company reconfirmed revenue guidance for the full year, at $367.5 million at the midpoint
  • Free cash flow of $1.01 million, up from negative free cash flow of $5.83 million in previous quarter
  • Customers: 15,174, up from 15,040 in previous quarter
  • Gross Margin (GAAP): 79.6%, down from 82.2% same quarter last year

“In the second quarter, we again exceeded our guidance ranges while extending our lead through innovations across PagerDuty's Operations Cloud,” said Jennifer Tejada, Chairperson and CEO at PagerDuty.

Started by three former Amazon engineers, PagerDuty (NYSE:PD) is a software as a service platform that helps companies respond to IT incidents fast and make sure that any downtime is minimized.

Software is eating the world, increasing organizations’ reliance on digital-only solutions. As more workloads and applications move to the cloud, the reliability of the underlying cloud infrastructure becomes ever more critical, and ever more complex. To solve the challenge, companies and their engineering teams have turned to a range of cloud monitoring tools that provide them with visibility to troubleshoot the issues in real time.

Sales Growth

As you can see below, PagerDuty's revenue growth has been very strong over the last year, growing from quarterly revenue of $67.5 million, to $90.2 million.

PagerDuty Total Revenue

And unsurprisingly, this was another great quarter for PagerDuty with revenue up 33.6% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $4.88 million in Q2, compared to $6.86 million in Q1 2023. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Guidance for the next quarter indicates PagerDuty is expecting revenue to grow 29.5% year on year to $93 million, slowing down from the 33.4% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 26.3% over the next twelve months.

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Customer Growth

You can see below that PagerDuty reported 15,174 customers at the end of the quarter, an increase of 134 on last quarter. That is a little slower customer growth than what we are used to seeing lately, suggesting that the customer acquisition momentum is slowing a little bit.

PagerDuty Customers

Key Takeaways from PagerDuty's Q2 Results

With a market capitalization of $2.28 billion PagerDuty is among smaller companies, but its more than $278.3 million in cash and the fact it is operating close to free cash flow break-even put it in a robust financial position to invest in growth.

It was good to see PagerDuty deliver strong revenue growth this quarter. And we were also excited to see that it outperformed analysts' revenue expectations. On the other hand, there was a deterioration in gross margin and there was a slowdown in customer growth. Zooming out, we think this was still a decent, albeit mixed, quarter, showing the company is staying on target. The company is up 5.45% on the results and currently trades at $25.5 per share.

Should you invest in PagerDuty right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.