PagerDuty: profit up fivefold, but revenue barely moves

On August 27, PagerDuty, Inc. reported results for the second quarter of fiscal 2027, ended July 31, 2026. Revenue rose 0.8% year over year to $124.4 million, EBITDA jumped 96.5% to $13.1 million, while net income fell 18.7% to $7.8 million. The EBITDA surge on nearly flat revenue looks strong, but it was driven by cost cuts rather than business expansion. In our view, the stock looks attractive: the portal model implies 32% upside to fair value, and an EV/EBITDA of 17.8 with a net cash cushion and no debt burden leaves room for re-rating if revenue accelerates.

Key takeaways

— Revenue grew just 0.8% year over year, marking a fourth consecutive quarter of deceleration

— EBITDA jumped 96.5% on lower operating expenses, not on business growth

— Net income fell 18.7% due to a one-off jump in income tax expense

— Free cash flow reached $32.8 million, but capital expenditures rose

— Net debt is negative, and an EV/EBITDA of 17.8 leaves room for upside

— The portal model estimates 32% upside to fair value

Attractiveness

Key figures, USD bn

Revenue grew just 0.8% year over year, marking a fourth consecutive quarter of deceleration

In the second quarter of fiscal 2027, PagerDuty's revenue reached $124.4 million, up 0.8% year over year. This is the slowest growth rate in several years: in the first quarter of fiscal 2026 growth was 1.0%, a quarter earlier 4.7%, and in the second quarter of fiscal 2025 6.4%. The deceleration has now lasted four consecutive quarters, and the company has essentially plateaued.

The main reason is market saturation and a high base. Annual recurring revenue (ARR) reached $501 million, but its growth has also slowed. The number of customers with ARR above $100,000 was 884, while total paid customers stood at 15,506. The dollar-based net retention rate fell to 98%, meaning existing customers are spending less than a year ago.

The company is trying to offset the slowdown with new products, including an autonomous SRE agent and incident management lifecycle integration. However, these efforts have not yet led to revenue acceleration. For investors, the key question is whether PagerDuty can return to growth above 5% in the coming quarters, or whether the plateau will persist.

EBITDA jumped 96.5% on lower operating expenses, not on business growth

EBITDA in the second quarter of fiscal 2027 rose 96.5% year over year to $13.1 million. The EBITDA margin climbed to 10.6% from 5.4% a year earlier. Such a jump with nearly flat revenue is explained solely by cost reductions.

Operating expenses fell 6.6% to $94.2 million. The largest decline was in sales and marketing – down 13.8% to $38.3 million, and in general and administrative expenses – down 2.2% to $24.9 million. Research and development expenses remained flat at $30.9 million. The company also cut stock-based compensation: it fell to $16.5 million from $26.0 million a year earlier.

The cost cuts helped achieve operating income of $10.2 million versus $3.6 million a year earlier. However, the sustainability of this improvement is questionable: further cost reductions could limit the company's ability to invest in growth. If revenue does not accelerate, the effect of savings will be exhausted.

Net income fell 18.7% due to a one-off jump in income tax expense

Net income in the second quarter of fiscal 2027 was $7.8 million, down 18.7% from a year earlier. Operating income more than doubled to $10.2 million. The gap is explained by a sharp increase in income tax expense: the company recorded a tax expense of $4.4 million versus a tax benefit of $1.9 million a year earlier.

This is a one-off factor related to a change in the valuation of deferred tax assets. Without it, net income would have been significantly higher. The net margin fell to 6.3% from 7.8%, but this does not reflect operating dynamics.

It is worth noting that the company has been GAAP profitable for five consecutive quarters. This is an important signal for investors, although one-off tax effects can distort the picture. In the next quarter, the tax burden is likely to normalize, and net income may recover.

Free cash flow reached $32.8 million, but capital expenditures rose

Operating cash flow in the second quarter of fiscal 2027 was $36.9 million, up 8.7% year over year. Free cash flow reached $32.8 million, up 8.5% from a year earlier. The company demonstrates stable cash generation.

However, capital expenditures rose: purchases of property and equipment were $2.2 million versus $0.9 million a year earlier, and capitalized software costs were $1.9 million versus $2.9 million. In total, capital expenditures increased to $4.2 million from $3.8 million. This may indicate investments in new products, but it also reduces free cash flow.

At the end of the quarter, cash and investments stood at $470.0 million. The company repurchased shares for $7.5 million and repaid convertible notes for $57.5 million. The cash cushion remains significant, providing flexibility for further investments or share buybacks.

Net debt is negative, and an EV/EBITDA of 17.8 leaves room for upside

At the end of the second quarter of fiscal 2027, PagerDuty's net debt was $200.8 million, but including cash and investments of $470.0 million, the company has negative net debt. The net debt to EBITDA ratio for the trailing twelve months is 2.49, but this is a nominal figure that does not reflect the actual debt burden, as the debt consists of convertible notes.

The EV/EBITDA multiple for the trailing twelve months is 17.8. For comparison, the three-year average is not provided, but the current level looks moderate for a company with negative net debt and stable cash flow. The P/E for the trailing twelve months is 6.73, which also does not look inflated.

Market capitalization at the time of the report was $1.24 billion. With trailing twelve-month EBITDA of $80.8 million and negative net debt, an EV/EBITDA of 17.8 may seem high, but if the company can accelerate revenue growth, the multiple will decline. For now, it reflects expectations of a growth recovery.

The portal model estimates 32% upside to fair value

According to the portal model, which takes into account EBITDA growth, a target multiple, and market capitalization, the upside to PagerDuty's fair value is 32%. This is our own estimate, not a market consensus. It is based on the assumption that the company can increase EBITDA through further cost optimization and a gradual acceleration in revenue.

Since the report's publication, the stock has risen 11.4% (through September 9, 2026), and on the day of the report it gained 3.6%. The market reacted positively to the growth in profit and cash flow. However, to reach fair value under our model, sustainable revenue growth is needed, which is not yet observed.

If revenue remains at the current level, EBITDA growth will be limited, and the upside may be smaller. Nevertheless, the current valuation looks attractive for investors willing to wait for a growth recovery.

Valuation on the latest reported figures

Bottom line

PagerDuty showed strong growth in EBITDA and free cash flow, but this is the result of cost cuts, not business expansion. Revenue is barely growing, and the deceleration has lasted four consecutive quarters. Net income fell due to a one-off tax expense, but operating income doubled. The company has negative net debt and a significant cash cushion, which reduces financial risks. According to our model, the stock has 32% upside to fair value, making it attractive for investors willing to wait for a revenue growth recovery.