What happened

Shares of PagerDuty (PD 3.34%), the digital operations monitoring company, tumbled in early trading on Tuesday after the company announced a management reshuffle, a 7% reduction in workforce, and...a whole series of updates to its earnings estimates.  

As of 11:50 a.m. ET, the stock is down 5.8%.

So what

The curious thing is that while PagerDuty did give us new numbers today, they didn't seem like really new new numbers, but rather like reiterations of guidance already given. For Q4 2022, management still expects that revenues will range from $98 million to $100 million -- roughly 26% growth year over year. Pro forma profits (non-GAAP accounting) will likewise still be $0.02 or $0.03 per share -- just as previously predicted.

Neither of these results should surprise Wall Street, which has PagerDuty pegged for a $0.02-per-share pro forma profit on $98.8 million in revenue.  

Similarly for the year, PagerDuty reaffirms that revenues are likely to come in between $368 million and $370 million, for a growth rate of 31%. And pro forma, the company may lose $0.01 per share -- with an outside chance at breaking even -- just as previously predicted.

Now what

Taken at the midpoint, that's actually a bit better than Wall Street is looking for with its consensus expectation of a $0.01 loss on sales of $368.7 million. And considering that, it really doesn't seem to make sense that investors would react to today's news by selling off PagerDuty stock by nearly 6%.

Except for one thing.

PagerDuty's pro forma accounting, you see, doesn't account for the costs the company will incur from conducting the 7%-of-workforce layoffs it is promising. And deducting those costs from pro forma profits will cost PagerDuty about $6 million in Q4, and another $15 million in fiscal 2024 (which on PagerDuty's calendar means this year). Divided among 90 million shares outstanding, that means PagerDuty could well lose $0.07 more per share than its pro forma prediction suggests in Q4 -- and as much as $0.17 more per share in fiscal 2024.

For a company that has never earned a profit according to generally accepted accounting principles (GAAP) and that already wasn't expected to earn any such profit before calendar year 2025 at the earliest, this is rather depressing news. Rather than meeting or beating analyst estimates, it means the company will very likely miss -- and this is probably the real reason PagerDuty stock is dropping today.