After recent pullback, PagerDuty (PD) stock looks more attractive

PagerDuty, Inc. (NYSE: PD) has remained a loss-making company during the pandemic so far, unlike some of its peers that took advantage of the strong demand created by the rapid cloud migration. While the tech firm is yet to generate profit, after going public around two years ago, its bottom-line performance mostly surpassed the market’s projection in the past.

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Read management/analysts’ comments on PagerDuty’s Q4 2021 results

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Shares of the incident-response platform suffered a selloff last week after its management issued guidance with a pessimistic tone, despite posting better-than-expected fourth-quarter results. But experts are of the view that the downtrend is temporary as they see PagerDuty’s market value growing by a third in the next twelve months. So, the recent dip in price creates a buying opportunity investors wouldn’t want to miss.

Road Ahead

The optimism can be linked to the virus-driven digital shift that is gathering pace, which also signals that enterprise spending on technology is going to increase in the coming days. The prevalence of cloud-based applications adds to the importance of PagerDuty’s services. In the final months of the last fiscal year, a number of customers upped the use of the platform and there was a marked increase in retention revenue.

Also, cash flow moved to the positive territory from last year’s loss. While PagerDuty can look forward to taking a bigger slice of the digital transformation pie, it might not be a cakewalk since the company is still in the process of expanding market share outside the domestic market. The steady uptick in revenues in the past several quarters is a testament to the sustainability of the business model and brightens the company’s turnaround prospects.

Mixed Q4

In the January-quarter, a sharp increase in operating expenses weighed on profitability, and the company posted a wider loss of $0.07 per share than $0.03 per share last year, on an adjusted basis. On the other hand, there was a 29% increase in revenues to $59.3 million. The numbers came in above the consensus forecast but the outlook for the current fiscal year – adjusted loss per share of $0.43-$0.36 – fell short of expectations.

The main reason behind the cautious outlook could be the uncertainty surrounding market-reopening and an estimated increase in investments. The management is planning to bring more innovation to the product portfolio and sales. What makes the business relevant in the current scenario is its unique technology that offers an effective alert system for clients so that they can keep track of glitches and outages in the digital space and take timely action.

From PagerDuty’s Q4 2021 earnings conference call:

“We are both confident and optimistic about FY 2022, as we see the acceleration in secular tailwinds, cloud migration, DevOps transformation, and digital acceleration continuing over the long term. IDC predicts investment in digital transformation will be $2.3 trillion by 2023, almost double today’s spend. The pandemic helped the market, especially business leaders, understand the mission-critical nature of digital operations, driving more strategic engagements across all of our segments.”

At the Bourses

PagerDuty’s stock climbed to a two-year high early this year, after gaining steadily over the past twelve months. It retreated since then and closed the last session at the levels seen at the beginning of the year. Its value more than doubled since last year.