PagerDuty Showed Non-GAAP Profitability Ahead Of Plan, Robust Guidance Despite Difficult Environment: Analyst

RBC Capital analyst Matthew Hedberg maintains PagerDuty Inc PD with an Outperform and raises the price target from $32 to $34.
Amidst a complex IT spending environment, PagerDuty delivered strong growth with better profitability and a solid initial FY24 guide.
The Q4 revenue growth was +29% vs. +26% consensus, with FY23 revenue growth of +32% that showed no deceleration vs. FY22.
Billings grew +23% or +21% after normalizing for $3 million in multi-year prepay, which was still ahead of the +20% consensus estimate.
Additionally, the company achieved non-GAAP profitability a year ahead of plan, driven by strong cost discipline and aided by the recent ~7% reduction in the workforce as management remains focused on moving towards a Rule of 40.
Hedberg is impressed with the platform's durability, with management again noting a record number of enterprise and mid-market transactions in the quarter.
However, the macro challenges persisted, including longer sales cycles, decreasing transaction sizes, difficulty adding new logos, and elevated SMB churn (<20% of the ARR).
Despite the assumption that macro challenges continue in FY24 with no recovery, Q1 billings growth guidance of +20% vs. +15% consensus and FY24 revenue growth of +21% was better than buy-side expectations.
Importantly, FY24 OM guidance was impressive as the analyst thinks an upward bias to margins could aid valuation.
Price Action: PD shares traded higher by 18.9% at $33.06 on the last check Thursday.

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