TSP Weekly Tech Stock Update—Jan 27, 2024
This Week: ServiceNow Q4 review, CRWD/PANW new record highs, PagerDuty is one to watch, DDOG volatile ahead of Q4 report, Monday ups prices, Zscaler debuts SD-WAN, MSFT/GOOGL earnings previews & more.
Hello from Rob…
—One to Watch: PagerDuty (PD, $23.79) shares earlier this month jumped 16% in one session after a Bloomberg article said the incident management software platform provider was considering its options after private-equity firms had expressed interest in an acquisition. The report said negotiations were at an early stage, with no guarantee of a deal.
After trading up to a high of $26.70 in the middle of January, PagerDuty shares have fallen back into the low $20s. The 52-week low of $19.18 (down 46% from the March 2023 high of $35.33) was reached on November 1.
At recent prices, PagerDuty’s enterprise value is 4.8 times the FY’24 (Jan.) consensus revenue estimate of $430 million and just 4.3x the FY’25 consensus of $480.6 million. While the valuation looks inexpensive, growth is slowing. In FQ3 (Oct.), PagerDuty’s total revenue rose 15.4% to $108.7 million. For FQ4, the company’s outlook calls for top-line growth of just 8% to 10%. The FY’25 consensus growth estimate of 11.8% represents a sharp deceleration from expected growth of 16% in the current fiscal year.
PagerDuty’s SMB customer cohort has been particularly challenging. In FQ3, the number of total paid customers fell 1% year over year to 15,049, while dollar-based net retention dropped to 110% from 123% in the year-ago quarter. PagerDuty does have 778 customers with ARR over $100k, up 10% year over year.
This week, Morgan Stanley downgraded PagerDuty to ‘Equal Weight’ with a price target of $30, calling out the slowing growth and saying a recovery is likely to lag cloud infrastructure peers because of the company’s seat-based subscription model. On the bullish side, BofA in December started coverage of PagerDuty at ‘Buy’ with a target of $30, saying macro-related challenges are weighing on near-term expansion, but that the company has the ability to improve execution and reaccelerate growth, aided by recent AI enhancements to the platform.
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