PagerDuty Story Remains On Track, Says KeyBanc

While the market may compare PagerDuty Inc’s PD second-quarter beat with that delivered in the previous quarter, the company’s story remains well on track, with positive signs of margin expansion and strong top-line growth, according to KeyBanc Capital Markets.

The Analyst

KeyBanc’s Rob Owens maintained a Sector Weight rating on PagerDuty while raising the fiscal 2020 revenue estimate.

The Thesis

The magnitude of PagerDuty’s second-quarter beat could weigh on shares, Owens said in the note.

The company reported its quarterly revenue at $40.4 million, representing solid growth of 45.5% and beating the Street estimate of $39.1 million. The analyst mentioned that bearish investors could focus on the marginal deceleration in revenue growth from the previous quarter’s 49.1%.

Such investors may also consider PagerDuty’s margin expansion as a short-term change, given management's expectations of increased spending, Owen said. He highlighted that PagerDuty achieved record expansion in customer deals, with 32 net additions taking the figure to 274 deals in the quarter.

Although PagerDuty’s net retention rate of 132% in the second quarter was below previous results, “it's worth noting competitors churned off PD technology, which did have an undisclosed impact on this metric,” the analyst wrote.

Management’s guidance for the back half of the year could prove conservative, Owens added. He raised the revenue estimate for fiscal 2020 from $163.0 million to $164.0 million.

Price Action

Shares of PagerDuty had plummeted almost 7.83% to $34.01 at the time of publishing on Friday.

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