What happened
Shares of PagerDuty (PD -1.38%) were bucking the broader trend in the market last month as the cloud software company that specializes in observability and monitoring tools posted strong third-quarter results in the beginning of the month; the stock continued to move higher from there.
According to data from S&P Global Market Intelligence, PagerDuty finished December 19% higher. As you can see from the chart below, the stock rallied in the middle of the month after a brief bump at the start of December.
So what
PagerDuty jumped 5.1% on Dec. 2 after the company, whose software helps companies to be aware of outages in their tech stack, beat estimates in its third-quarter earnings report and raised its guidance.
Revenue in the third quarter rose 31.3% to $94.2 million, which was ahead of analyst estimates of $92.9 million. The company grew its paid customer total by 779 from the year-ago quarter to 15,265. More importantly, customers with annual recurring revenue above $100,000 jumped from 543 to 710, showing businesses are scaling up their usage of PagerDuty -- and it's attracting larger customers.
Dollar-based net retention rate was 123%, meaning existing customers increased their spending by 23% over the last year.
Management was especially pleased with its bottom-line performance as adjusted operating margin jumped 10 percentage points from the year-ago quarter to 3%, as operating expense growth outside of share-based compensation was slow.
On the bottom line, the company finished the quarter with adjusted earnings per share (EPS) of $0.04, better than expectations of a loss of $0.04 per share.
In the wake of the earnings report, two analysts lowered their price targets slightly on PagerDuty to reflect its decline last year, but also reaffirmed their buy ratings, crediting the company's consistent revenue growth and that it reached profitability a quarter ahead of schedule.
PagerDuty's performance last month was also notable because the stock resisted the broader plunge in the market after the Federal Reserve raised interest rates on Dec. 14. On the earnings call, CEO Jennifer Tejada said that in spite of macro headwinds, it's seen strong growth in incident response and customers see it as essential infrastructure.
That seems to make the company more resistant to a recession than some of its SaaS peers.
Now what
PagerDuty also offered strong guidance for the fourth quarter, calling for 25% to 27% revenue growth in the fourth quarter to $98 million-$100 million, and seeing adjusted EPS of $0.02 to $0.03, compared to break-even estimates.
The stock has given back some of those gains to start the new year, but given its recent performance and that its product provides essential infrastructure, the company looks well positioned to grow through a potential recession.
