PagerDuty (NYSE:PD) Reports Q1 In Line With Expectations But Stock Drops 15.7%

Full Report / June 01, 2023
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IT incident response platform PagerDuty (NYSE:PD) reported results in line with analyst expectations in Q1 FY2024 quarter, with revenue up 20.9% year on year to $103.2 million. However, guidance for the next quarter was less impressive, coming in at $104.5 million at the midpoint, being 3.78% below analyst estimates. PagerDuty made a GAAP loss of $12.8 million, improving on its loss of $32.8 million, in the same quarter last year.

PagerDuty (PD) Q1 FY2024 Highlights:

  • Revenue: $103.2 million vs analyst estimates of $102.9 million (small beat)
  • EPS (non-GAAP): $0.20 vs analyst estimates of $0.09 ($0.11 beat)
  • Revenue guidance for Q2 2024 is $104.5 million at the midpoint, below analyst estimates of $108.6 million
  • The company dropped revenue guidance for the full year, from $449 million to $427.5 million at the midpoint, a 4.79% decrease
  • Free cash flow of $20.8 million, up 33.8% from previous quarter
  • Customers: 15,089, down from 15,244 in previous quarter
  • Gross Margin (GAAP): 82.6%, up from 81.6% same quarter last year

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.

What started as a plan to build a bootstrapped software company, retire early and sip drinks on the beach has very quickly outgrown the wildest dreams of the three ex-Amazon founders.

The name PagerDuty comes from a software engineering practice which used to literally involve a pager on your belt that went off when the piece of the software you were responsible for broke and you were on-call to fix it, even in the middle of the night.

Today the methods of communication have changed but the principle stays the same. If a part of a website goes down, PagerDuty helps teams identify the source of the problem, alerts the engineers who are on-call to fix it, informs relevant stakeholders and provides collaborative space to work on the issue. This ensures that there is a clear accountability for incident response and that any issues are fixed fast.

The on-call incident response practice is something that pretty much every large engineering team has to establish and they either build the tools for it internally or use a third party tool like PagerDuty.

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.

As PagerDuty invests in gaining more market share, we expect it to come up against competition from Splunk (NASDAQ:SPLK), Dynatrace (NYSE:DT), Datadog (NASDAQ:DDOG) and Atlassian (NASDAQ:TEAM).

Sales Growth

As you can see below, PagerDuty's revenue growth has been very strong over the last two years, growing from quarterly revenue of $63.6 million in Q1 FY2022, to $103.2 million.

PagerDuty Total Revenue

This quarter, PagerDuty's quarterly revenue was once again up a very solid 20.9% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $2.28 million in Q1, compared to $6.76 million in Q4 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 15.8% year on year to $104.5 million, slowing down from the 33.6% 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 21.3% over the next twelve months.

Customer Growth

You can see below that PagerDuty reported 15,089 customers at the end of the quarter, a decrease of 155 on last quarter. That is slower customer growth than what we are used to seeing lately, suggesting that the customer acquisition momentum is slowing down.

PagerDuty Customers


What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. PagerDuty's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 82.6% in Q1.

PagerDuty Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.83 left to spend on developing new products, marketing & sales and the general administrative overhead. This is a great gross margin, that allows companies like PagerDuty to fund large investments in product and sales during periods of rapid growth and be profitable when they reach maturity. It is good to see that the gross margin is staying stable which indicates that PagerDuty is doing a good job controlling costs and is not under pressure from competition to lower prices.

Cash Is King

If you have followed StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. PagerDuty's free cash flow came in at $20.8 million in Q1, turning positive year on year.

PagerDuty Free Cash Flow

PagerDuty has generated $35.2 million in free cash flow over the last twelve months, a solid 9.05% of revenues. This strong FCF margin is a result of PagerDuty asset lite business model and provides it plenty of cash to invest in the business.

Key Takeaways from PagerDuty's Q1 Results

With a market capitalization of $2.51 billion PagerDuty is among smaller companies, but its more than $495.1 million in cash and positive free cash flow over the last twelve months give us confidence that PagerDuty has the resources it needs to pursue a high growth business strategy.

We struggled to find many strong positives in these results. It was unfortunate to see that PagerDuty's revenue guidance for the full year missed analysts' expectations and the revenue guidance for the next quarter missed analysts' expectations. Overall, this quarter's results could have been better. The company is down 15.7% on the results and currently trades at $23.41 per share.

Is Now The Time?

PagerDuty may have had a bad quarter, but investors should also consider its valuation and business qualities, when assessing the investment opportunity. We think PagerDuty is a solid business. We would expect growth rates to moderate from here, but its revenue growth has been strong, over the last two years. On top of that, its impressive gross margins are indicative of excellent business economics, and its strong free cash flow generation gives it re-investment options.

The market is certainly expecting long term growth from PagerDuty given its price to sales ratio based on the next twelve months is 5.4x. There are definitely things to like about PagerDuty and looking at the tech landscape right now, it seems that the company trades at a pretty interesting price point.

The Wall St analysts covering the company had a one year price target of $34.5 per share right before these results, implying that they saw upside in buying PagerDuty even in the short term.

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