PagerDuty Stock Plummets 17% on Slashed Revenue Forecast
The digital operations management firm's lowered full-year outlook overshadows a quarterly earnings beat, signaling concerns over slowing growth.
Shares of PagerDuty Inc. (PD) plunged more than 17% in Tuesday trading after the software company cut its full-year revenue forecast, sparking investor concerns about slowing growth that overshadowed an otherwise solid quarterly earnings report.
The San Francisco-based digital operations management firm saw its stock fall to $12.49, wiping out a significant portion of its market value. The sell-off was a direct reaction to the company's revised guidance for its 2026 fiscal year. PagerDuty now expects full-year revenue to land between $490 million and $492 million, a reduction from its previous forecast of $493 million to $497 million, according to its latest financial release.
The cautious outlook spoiled what was a better-than-expected third quarter. PagerDuty reported a non-GAAP net income of $0.33 per diluted share, comfortably beating analyst consensus estimates of $0.24. The company also posted its second consecutive quarter of GAAP profitability, with a GAAP operating income of $8 million. However, quarterly revenue of $124.5 million, while up 4.7% year-over-year, fell slightly short of Wall Street expectations.
Beneath the headline numbers, other metrics pointed to growing headwinds. The company’s dollar-based net retention rate, a key indicator of customer expansion and spending, fell to 100% from 102% in the prior quarter. A rate of 100% indicates that the company is not generating any net growth from its existing customer base.
During the company's earnings call, executives attributed the tempered forecast to challenges including customer "seat compression"—where clients reduce the number of paid users—and an ongoing transition in its go-to-market strategy. This suggests the company is facing difficulty in both retaining and expanding its footprint within existing accounts amid a challenging macroeconomic environment.
The market's sharp rebuke highlights a persistent investor focus on future growth prospects over past performance, especially for technology companies trading at high multiples. "While the EPS beat is positive, the guidance cut is the headline that matters," noted one technology analyst. "It raises questions about demand and competitive positioning."
Wall Street's reaction has been mixed, with a consensus rating leaning towards a 'Hold.' Following the report, analysts are re-evaluating their models to account for the slower growth trajectory. Current price targets from various firms reflect this uncertainty, with targets from Baird sitting at $16 while Truist Securities holds a $20 target, as reported by MarketWatch.
PagerDuty operates in an increasingly crowded and competitive incident management space. The company faces pressure from established players like Atlassian's Opsgenie and Splunk On-Call, as well as a new wave of competitors focused on integrating AIOps and offering more cost-effective solutions. The broader market trend is shifting towards full-stack observability and automation, putting pressure on standalone platforms to innovate and demonstrate clear value.
Looking ahead, investors will be closely monitoring PagerDuty's ability to navigate its strategic adjustments and reinvigorate growth. The company's performance in the fourth quarter will be critical to proving it can stabilize its customer base and effectively compete in a market that is rapidly evolving.