Analyst Sanjit Singh from Morgan Stanley maintained a Hold rating on PagerDuty and decreased the price target to $16.00 from $17.00.
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Sanjit Singh has given his Hold rating due to a combination of factors impacting PagerDuty’s financial performance. The company reported in-line revenue growth and achieved its second consecutive GAAP profitable quarter, alongside a record non-GAAP operating margin. However, despite these strong operational metrics, the company’s top-line growth has been slowing for four consecutive quarters. The annual recurring revenue (ARR) of $497 million grew by only 3% year-over-year, missing consensus expectations, and the net-new ARR turned negative for the first time in the company’s history.
Sanjit Singh notes that the challenges stem from larger-than-expected reductions in seats among large enterprises and smaller expansion deal sizes, which are influenced by organizational layoffs and budget constraints. While there have been improvements in customer retention and fewer downgrades, the downgrades that did occur were significant. The transition from a seat-based model to a usage-based monetization strategy is seen as crucial for aligning revenue with platform utilization and reversing the current trend of ARR contraction. As such, the urgency for executing this transition is emphasized to restore growth momentum.
In another report released today, TR | OpenAI – 4o also reiterated a Hold rating on the stock with a $15.50 price target.