2023-06-02 04:10:21 ET
Summary
- PagerDuty reported Q1 revenue growth of 21% YoY but provided weak revenue guidance for Q2.
- The company's customer data figures showed a sequential decrease in total paid customers for the second consecutive quarter.
- Shares dropped more than 11% in after-hours trading following the reduction of the fiscal year revenue forecast.
After the bell on Thursday, digital operations management company PagerDuty ( PD ) saw its shares drop after the company announced fiscal first quarter results . The company did report top and bottom line beats for the period, but it also provided weak guidance for the current quarter and slashed its revenue forecast for the fiscal year. With growth prospects not looking good in the near term, investors shouldn't expect tremendous upside from here.
For fiscal Q1 that ended in April, PagerDuty reported revenues of $103.2 million. This was growth of about 21% over the prior year period, and it beat street estimates by about $0.3 million. However, this was a bit of a growth slowdown, partially due to higher year ago comparison numbers. In the company's prior 16 fiscal quarters, revenue growth was over 25% in each period. The sequential increase in the top line was also the lowest amount in dollar terms in almost three years.
The revenue problem likely can be attributed to the company's customer data figures. As the chart below shows, PagerDuty has now reported two quarters in a row with a sequential decrease in total paid customers. In fact, the year over year customer count increase is now less than 50, whereas a year ago that number stood at well over 1,100.
Customers with annual recurring revenue over $100,000 also showed its lowest sequential increase in multiple years, with the year over year increase slowing quite considerably as well. Just 12 of these customers were added on a net basis in the most recent quarter, after the company averaged 40 per quarter in the prior fiscal year. The Dollar-based net retention rate of 116% was down 4 percentage points sequentially and 10 points in the last year.
On the bottom line, the company reported non-GAAP EPS of $0.20, beating street estimates by 11 cents. PagerDuty has beaten all but once since going public. On a GAAP basis, the operating loss was more than halved to just under $16 million, while the company swung to positive free cash flow from a small cash burn in the prior year period.
Unfortunately for investors, guidance was where things turned really south. For fiscal Q2, management is calling for total revenue of $103.5 million to $105.5 million, representing a growth rate of 15% to 17% year over year. However, the average street estimate was for more than $108.6 million, or growth of more than 20%. Additionally, the average Q2 revenue estimate has come down by about $3 million in the past year, and yet guidance was still well below expectations.
For the fiscal year, guidance is now calling for total revenue of $425.0 million to $430.0 million. This is down from prior guidance of $446.0 million to $452.0 million, with the new forecast representing a growth rate of 15% to 16% year over year. The street was at $448.5 million or 21% growth for the year, so like the Q2 forecast, this revenue projection is quite disappointing, with this average also down a few million in the last twelve months.
PD stock dropped more than 11% in the after-hours session, even after coming well off their afternoon lows, to trade below $25. The stock could set a calendar 2023 low on Friday. Going into the report, the average street price target of $34.54 represented almost 25% upside from the day's close, but the weak guidance is likely to send that number a bit lower. The analyst average had ticked up a few bucks so far this year, but is still down quite considerably from its $57 peak reached roughly 18 months ago.
I'll be watching to see how one notable investor reacts to this quarterly report tomorrow. Cathie Wood and her team at ARK Invest have been a big supporter of PagerDuty in recent years. As of Wednesday, the flagship ARK Innovation ETF ( ARKK ) and ARK Next Generation Internet ETF ( ARKW ) combined to own more than 8.57 million shares of PagerDuty. That figure represents nearly 9.8% of the stock's reported float .
In the end, PagerDuty shares sunk after the company's fiscal Q1 report. While the company announced top and bottom line beats for the quarter, revenue guidance for Q2 was disappointing and the yearly forecast was cut quite a bit. Right now, the number of paid customers is dropping, with many other key metrics showing weakening trends. While the street was positive on the name going into this report, Thursday's news may be a bit of a wakeup call. Unless the growth story gets back on track in the coming quarters, I don't think a lot of upside will be coming here.
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PagerDuty Drops On Guidance Cut