PagerDuty beats Street with strong revenue growth but its stock falls on lower guidance
Incident response platform company PagerDuty Inc. suffered an after-hours beating today as its stock fell despite some encouraging financial results.
The company reported a fiscal first-quarter loss before certain costs such as stock compensation of eight cents per share on revenue of $63.6 million, up 28% from a year earlier. That was better than expected, since Wall Street was looking at a nine-cent-per-share loss on revenue of $62 million.
PagerDuty is in the so-called observability business, selling a cloud monitoring platform that’s used to notify developers and engineers of any technical issues with their applications and the infrastructure they run on. The company’s toolbox can be used to troubleshoot any issues that are found as quickly as possible, helping companies avoid any downtime.
PagerDuty Chief Executive Jennifer Tejada (pictured) said the company’s tools were proving to be invaluable for its customers as they slowly move forward to a post-pandemic world. “PagerDuty’s business is benefiting from recovery, as both the macro trends and market landscape continue to move in our favor,” she insisted.
The CEO rattled off a bunch of promising numbers, citing the revenue growth and saying that the company had a total dollar-based net retention of 121% and an enterprise dollar-based net retention of more than 125%.
Net dollar retention is an important metric used by software-as-a-service companies that represents revenue growth from their existing customers over time. It takes into account upgrades, downgrades and churn, showing the growth the business generates without adding any new customers. By extension, it also shows the satisfaction of existing customers and reflects the stickiness of the company’s products.
In any case, PagerDuty fully expects to keep adding new users to its base. During the quarter, its total number of customers that spend more than a million dollars on its products annually grew by 55% year-over-year, to 16,800.
Tejada also identified several emerging enterprise trends that she said will likely benefit the company. “Digital operations are now business operations, while digital acceleration, cloud migration and DevOps transformation are central business strategies that will drive PagerDuty’s success going forward,” she said.
But for all of the promise its business shows, PagerDuty came unstuck when it offered some less-than-stellar guidance for the second quarter. It projected a loss of between 15 and 16 cents per share, quite a bit more than Wall Street’s forecast of a nine-cent-per-share loss.
PagerDuty’s stock sank quickly as investors took notice, losing 7% of its value at one stage in the after-hours trading session. The stock recovered slightly to sit at 5% below today’s regular-session closing price.
PagerDuty’s revenue forecast was a bit better, at least. Officials said the company expects second-quarter sales of $64.5 million to $66.5 million, ahead of Wall Street’s $63.8 million projection.
For the full fiscal 2022 year, PagerDuty raised its revenue guidance. It now sees total sales of $267 million to $272 million for the year, up from an earlier range of $264 million to $270 million. Wall Street is sticking to its guns with its $267.75 million revenue forecast.
Constellation Research Inc. analyst Andy Thurai told SiliconANGLE that PagerDuty showed strong growth because companies are scrambling to improve their digital operations to survive through the COVID-19 pandemic. He noted that last year was an historic one for almost everyone in the digital operations management companies. “Almost every company in the AIOps, Incident Management, Observability, CloudOps area grew rapidly,” he said.
However, he warned that it will be difficult for firms like PagerDuty to continue growing at the same level in future.
“The growth of customers who pay over a million grew by 55% which shows a lot of them are moving from the experimentation phase to the adoption phase,” Thurai said. “Given their commanding market share, combined with their portfolio expansion, and their expansive integration with a lot of cloud operations companies it puts them in a decent position to compete. Unfortunately, competition is also heating up in this space. I am currently tracking over 20 companies, most of them are new but have a better cloud-native positioning than Pager Duty and a lot cheaper, for market share in this sector. Next year will tell the story about who is winning in this space.”
Thurai’s colleague at Constellation Research, Holger Mueller, said investors might also be concerned about the company’s cost management after delving deeper into its finances.
“PagerDuty is growing well because enterprises need to instrument their next-generation applications for better customer experiences and outcomes,” Mueller said. “The growth is all to the good but it doubled its loss on the bottom line too. PagerDuty’s management is likely following the land and expand strategy, but that’s a gamble that it needs to pay off. It needs to manage expectations appropriately too.”
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