Digital operations platform PagerDuty (NYSE: PD) met Wall Street’s revenue expectations in Q2 CY2025, with sales up 6.4% year on year to $123.4 million. The company expects next quarter’s revenue to be around $125 million, close to analysts’ estimates. Its non-GAAP profit of $0.30 per share was 49.3% above analysts’ consensus estimates.

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StockStory’s Take

PagerDuty’s second quarter results reflected ongoing operational discipline, but the market reacted negatively due to continued headwinds in annual recurring revenue and subdued billings growth. Management cited elevated customer seat optimization and cost containment as major factors, resulting in increased churn and downgrades. CEO Jennifer Tejada pointed to a sequential uptick in new and expansion bookings and strong international performance, but acknowledged that North American sales execution remained inconsistent, prompting leadership changes and organizational restructuring in that region.

Looking forward, PagerDuty’s guidance is built on increased momentum in enterprise customer acquisition, a growing pipeline of usage-based AI products, and a transition to flexible licensing models aimed at better aligning revenue with customer value. Management expects higher net new annual recurring revenue in the second half of the year, driven by a maturing sales force and expanded adoption of AI-driven automation. CFO Howard Wilson noted, “We remain focused on the path to accelerating ARR growth, confident in continuing to expand margins, and achieve GAAP profitability next year.”

Key Insights from Management’s Remarks

Management attributed the quarter’s performance to rising platform utilization, ongoing customer optimization efforts, and a strategic shift toward usage-based pricing, all while navigating sales force transitions and product innovation.

• Platform usage growth: PagerDuty saw over 25% year-over-year growth in platform usage, even as revenue growth lagged, highlighting increased automation and complexity in enterprise operations.
• Transition to usage-based pricing: Management emphasized the shift from seat-based to usage-based pricing, especially for AI and automation products, which grew over 60% and are expected to drive better revenue alignment with customer value realization.
• Sales force transformation: With more than 60% of enterprise sales representatives now tenured for at least a year, management anticipates improved account coverage and higher-quality pipeline, though North American sales required a new leader to address inconsistent performance.
• AI-native customer traction: PagerDuty reported rapid growth among AI-native companies, now comprising 2% of total ARR. These customers are leveraging the platform’s automation and resilience as their operational complexity increases.
• Product innovation and ecosystem integration: The launch of four new AI agents and strategic integrations (including Amazon Q and Azure SRE) have broadened PagerDuty’s use cases, with early customer feedback described as encouraging and adoption of AI-driven features supporting further product expansion.

Drivers of Future Performance

PagerDuty’s outlook centers on expanding usage-based pricing, accelerated enterprise sales momentum, and continued AI product adoption to offset ongoing customer seat optimization pressures.

• Enterprise sales maturation: Management believes that a more seasoned sales organization will enable stronger account coverage, higher-quality deals, and improved conversion rates, particularly in the back half of the year as large renewals and multiyear contracts come into focus.
• Shift to usage-based models: The gradual migration toward usage-based pricing is expected to reduce volatility from seat downgrades and better capture platform value, though the transition will unfold over several renewal cycles and requires ongoing customer education.
• AI-driven product adoption: New AI agents and automation features are expected to deepen platform engagement and cross-sell opportunities, especially as enterprise customers seek to automate incident management and reduce operational risk. However, management cautioned that the full revenue impact from these products will build gradually as adoption increases.

Catalysts in Upcoming Quarters

In the coming quarters, our team will closely monitor (1) the pace of adoption and monetization of PagerDuty’s new AI and automation products, (2) the effectiveness of the sales organization’s transformation—especially in North America, and (3) the progress of the shift to usage-based pricing and its impact on retention and revenue growth. Execution on expanding the enterprise customer base and successfully navigating large renewals will also be key indicators of sustained momentum.

PagerDuty currently trades at $15.72, in line with $15.62 just before the earnings. Is the company at an inflection point that warrants a buy or sell? The answer lies in our full research report (it’s free).

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