EU and US could reach trade deal this weekend - Reuters
Baird has adjusted its outlook on PagerDuty (NYSE: NYSE:PD), a global incident response platform, by lowering the price target to $18 from the previous $22 while maintaining a Neutral rating on the company's stock.
The decision came after PagerDuty reported quarterly earnings that did not meet Wall Street's revenue expectations, leading to a reduction in the revenue forecast for the fiscal year 2025.
PagerDuty's second-quarter revenue fell short of analysts' estimates, prompting the company to revise its revenue guidance for FY'25 downwards. The revision reflects the company's adaptation to the typical seasonality of enterprise deal closures, which tend to occur later in the year, and the subsequent delay in Professional Services revenue.
The updated guidance suggests an anticipated revenue increase in the fourth quarter of 2025, a projection that may be met with skepticism by investors.
The firm noted that while recent changes in leadership and sales strategies at PagerDuty have the potential to set the stage for future growth, it is opting for a cautious stance.
The analyst from Baird indicated that they are waiting for more tangible signs of improvement before changing their rating.
PagerDuty's new guidance indicates that the company expects a stronger performance towards the end of the fiscal year, but the lowered revenue forecast for FY'25 has impacted Baird's immediate outlook on the stock.
In other recent news, PagerDuty has experienced a series of adjustments in its stock price target by various firms, following mixed financial results. William Blair, RBC Capital, BofA Securities, JPMorgan, and Goldman Sachs revised their outlooks, reducing the stock's price target while maintaining their respective ratings.
These adjustments were triggered by PagerDuty's announcement of a third consecutive quarter of 10% growth in Annual Recurring Revenue (ARR), coupled with a downward revision of its FY/25 revenue guidance due to delays in closing enterprise deals.
Despite falling short of revenue expectations, PagerDuty surpassed estimates with a solid operating income of $20 million, representing a 17% margin. The company also reported a quarterly revenue of $115.9 million, but posted a stronger-than-anticipated non-GAAP operating income of $20.1 million. Moreover, the company exceeded analyst expectations by posting an adjusted earnings per share of $0.21.
PagerDuty's growth in large customer segments has been notable, with a 20% increase in clients contributing over $500,000 in annual recurring revenue (ARR). Furthermore, the uptake of PagerDuty's AIOps and customer service solutions has been strong, recording year-over-year growth of 20% and 50%, respectively.
However, the company's paid customer base saw a sequential decline, and the recent cybersecurity outage did not lead to a significant near-term sales boost.
Despite these challenges, PagerDuty's management remains steadfast in its goal of achieving more than 10% ARR growth. They have also increased the operating margin guidance for the fiscal year to 14%, signaling confidence in the company's financial management and strategic direction.
InvestingPro Insights
In light of Baird's recent adjustment of PagerDuty's price target, it's worth considering additional insights provided by InvestingPro. PagerDuty's management has been actively buying back shares, a move that often reflects confidence in the company's future (InvestingPro Tip #0). Moreover, the company's strong gross profit margin, which stands at an impressive 81.97% for the last twelve months as of Q1 2025, suggests that PagerDuty is effective at controlling its cost of goods sold and maintaining profitability on its products and services (InvestingPro Data).
However, despite these positive indicators, the company's stock has been trading near its 52-week low, indicating investor caution and a potential undervaluation (InvestingPro Tip #6). This sentiment is echoed by the fact that PagerDuty's stock is trading at a high Price/Book multiple of 10.05, suggesting that the market may be pricing in growth expectations or a premium for intangible assets (InvestingPro Tip #9).
For investors looking for more detailed analysis and additional tips, there are 11 more InvestingPro Tips available, which can offer further guidance on PagerDuty's stock potential. These tips can be accessed through the InvestingPro platform, providing a comprehensive view of the company's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.