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Why PagerDuty Stock Was Soaring Today

By Jeremy Bowman - Dec 4, 2020 at 2:04PM

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Shares of the digital monitoring specialist rose on a better-than-expected earnings report.

What happened

Shares of PagerDuty ( PD -5.20% ) were climbing higher today after the cloud-based provider of digital infrastructure monitoring services topped expectations in its third-quarter earnings report and raised its guidance for the full year.

As of 12:40 p.m. EST, the stock was up 24.3%.

The PagerDuty logo on a green background

Image source: PagerDuty.

So what

Revenue rose 25.8% to $53.8 million, outpacing estimates at $52.5 million. The company added 389 customers in the quarter, bringing its grand total to 13,725, and the number of customers with annual recurring revenue above $500,000 jumped 40%, showing it's gaining traction with large enterprises.

Profitability also improved as gross margin rose from 84.5% to 85.7%, and its adjusted operating loss narrowed from $9.3 million to $6.3 million. On the bottom line, it finished with an adjusted loss per share of $0.09, ahead of both a $0.10 per-share loss in the quarter a year ago and the analyst consensus also at $0.10.

CEO Jennifer Tejada said, "We are proud of our third quarter results, which exceeded both our guidance and consensus, as we hit an important inflection point, with our key leading indicators trending positively." The company also said it had a record quarter for channel partner sell-through, showing how its relationships with other cloud platforms are becoming stronger, which should help drive growth and lower its own customer acquisition costs. It also formed a strategic alliance with a Tata Consultancy Services, one of the top five global systems integrators. 

A number of analysts responded to the report by raising price targets on the stock, cheering the results.

Now what

PagerDuty now expects full-year revenue growth of 27%, up from a prior range of 24% to 27%. It also sees solid momentum into the fourth quarter, calling for revenue growth of $57 million to $58 million, up 24% to 26%.

After a disappointing 2019, its debut year on the market, PagerDuty's shares are now up 70% year to date. The SaaS stock trades a discount to many of its peers, but that seems fair given its slower growth rate. Tejada's comments on the company's reaching an inflection point seem to bode well, as does the growth of its high-value customers. If the company can keep topping its guidance, the stock should continue moving higher.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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