- Revenue Growth and Profitability: PagerDuty reported $125M revenue (5% YoY growth) and achieved GAAP profitability for the second consecutive quarter, with non-GAAP operating margin exceeding guidance by 750 basis points.
- Annual Recurring Revenue (ARR): ARR reached $497M, reflecting 3% YoY growth, despite challenges from seat license compression in large enterprises.
- Customer Acquisition and Retention: New customer growth was double-digit YoY, but seat compression and larger customer downgrades led to dollar-based net retention deceleration, though logo retention improved.
- AiOps and Pricing Shift: AI operations revenue grew 50% YoY, and the company is transitioning to usage-based pricing, with 29% of total revenue now from international markets (7% YoY growth).
- Guidance and Strategic Focus: Full-year 2026 revenue guidance narrowed to $494–$497M (5% growth), with a 30% long-term operating margin target, emphasizing margin optimization and AI-driven product adoption.
Revenue and Margin Performance
The company's revenue growth was modest, with a 5% year-on-year increase. However, its non-GAAP operating margin expansion was significant, exceeding guidance by 750 basis points. This achievement is a testament to the company's efforts in optimizing its spend and delivering good results. As Howard Wilson mentioned, "We're proud of our progress, with six consecutive years of improving operating margin."
Annual Recurring Revenue and Customer Growth
ARR grew 3% year over year to $497 million, indicating a slowdown in growth. However, the company is prioritizing customer retention and growth, stabilizing customer low retention through targeted efforts. PagerDuty has seen double-digit year-over-year growth in new customer acquisition and total paid and free customers, which is a positive sign.
Valuation Metrics
PagerDuty's valuation metrics provide insight into what's priced in. The company's P/E Ratio is 9.2, P/S Ratio is 2.84, and EV/EBITDA is 600.79. The high EV/EBITDA ratio suggests that the company's profitability is not fully reflected in its valuation. Analysts estimate next year's revenue growth at 6.4%, which may justify the current valuation to some extent.
Operational Highlights and Future Outlook
The company is making significant progress in its go-to-market transformation, with a refined adoption and value realization program through its customer success team. PagerDuty is also extending its product advantage in end-to-end incident management and AI and agentic operations. The company's guidance for Q4 expects revenue in the range of $122 to $124 million, representing a growth of zero to 2%. For the full fiscal year 2026, the company now expects revenue in the range of $494 to $497 million, representing a growth rate of 5%.