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PagerDuty: A Software Vendor Poised for Rapid Growth
Stock Analysis & Ideas

PagerDuty: A Software Vendor Poised for Rapid Growth

PagerDuty (NYSE: PD) was founded in 2009 and operates a digital operations management platform. On Thursday, the stock soared 20.9% to close at $32.45 following the company’s better-than-expected results in Q4 FY22. PagerDuty’s revenues jumped 32% year-over-year to $78.5 million, surpassing analysts’ expectations of $76.3 million.

PD’s adjusted net loss per share narrowed to $0.04 in Q4 from $0.06 in the same period last year. Wall Street analysts were estimating an adjusted loss of $0.056 per share in Q4.

Jennifer Tejada, Chairperson, and CEO of PagerDuty commented on the results, “Driven by ongoing market traction for our new products and strong go to market execution, Q4 results capped a fiscal year of accelerating growth for PagerDuty. We delivered revenue of $79 million for the quarter and $281 million for the year, both growing 32% year over year, and gained operating leverage which positions us well for durable growth.”

The company earns revenues primarily from subscription fees through its cloud-hosting platform and from term-license software subscription fees. One of the highlights for PagerDuty was the 594 customers who generated annual recurring revenue over $100,000 as of January 31, 2022, versus 426 a year ago.

Moreover, PD exited the fourth quarter with 14,865 total paid customers as of January 31, 2022, compared to 13,837 last year.

Outlook for Fiscal Q1 and FY23

For the first quarter, PagerDuty anticipates total revenues to range between $81.5 million and $83.5 million, indicating year-over-year growth in the range of 28% to 31%. This is higher than consensus estimates of $80.6 million. An adjusted loss in Q1 is expected to vary from $0.09 per share to $0.08 per share.

When it comes to FY23, the company has projected revenues to vary between $360 million and $366 million, also ahead of analysts’ estimates of $352.7 million. The adjusted loss is expected to range from $0.23 per share to $0.17 per share.

Wall Street’s Take

Monness Crespi Hardt analyst Brian White remained upbeat about the stock following its “excellent” Q4 results. The analyst believes that PD “has a large opportunity in the real-time digital operations market, playing into the digital transformation trend.” But at the same time, the company’s valuation is “modest” compared to other next-generation software vendors.

Despite PagerDuty’s current losses, analyst White is of the opinion that the company can still be profitable over the long term.

White has valued the stock with an enterprise value (EV)-to-revenue ratio of over 10 times his CY23 revenue projections. Giving his rationale for valuing the company on an EV-to-sales basis, White stated that PD is still in the growth stage as it continues to invest aggressively in its business and is expanding its customer base.

As a result, according to the analyst, “traditional P/E metrics or other profit-driven metrics are not applicable, and we value the stock on an enterprise-value-to-revenue ratio.”

White reiterated a Buy rating on the stock following the Q4 results and raised the price target from $40 to $44, implying upside potential of 35.6%.

Analysts on the Street, however, are cautiously optimistic with a Moderate Buy consensus rating based on four Buys and two Holds. The average PagerDuty price forecast of $43.80 implies approximately 35% upside potential to current levels.

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