Investing.com -- PagerDuty Inc was downgraded to Market Perform from Outperform by William Blair after the software company reported weaker-than-expected fourth-quarter results and issued a subdued outlook for fiscal 2027.
The brokerage said the quarter showed continued pressure from the company's seat-based pricing model, which has weighed on customer metrics and growth.
PagerDuty reported annual recurring revenue growth of just $2 million sequentially and about 1% year over year, missing market expectations. Net retention also declined to 98%, down two percentage points from the prior quarter.
Management attributed the slowdown to ongoing seat-based headwinds among customers, which the company expects to continue in the near term.
The company's outlook added to concerns. PagerDuty forecast fiscal 2027 revenue growth roughly flat at the midpoint of its guidance, compared with prior expectations for about 4% growth. Operating margins are also expected to remain unchanged from fiscal 2026 levels.
William Blair said the results reinforce concerns that the company's incident management offering may be increasingly pressured by competition from larger software platforms. The brokerage also pointed to seat compression among customers, which may be partly linked to changes in technology spending patterns, including the adoption of artificial intelligence tools.
Customer trends also reflected the pressure. The number of paying customers declined sequentially during the quarter, while the number of customers generating at least $100,000 in annual recurring revenue grew only 1%.
However, larger enterprise accounts showed stronger momentum. Customers generating more than $1 million in annual recurring revenue increased 10% year over year, reflecting the company's focus on larger, longer-term contracts.
PagerDuty has begun shifting toward a usage-based pricing model, known internally as "flex" pricing. Management said early customer feedback has been positive, particularly among enterprise clients, as the model allows companies to adopt additional services with fewer upfront commitments.
William Blair said the new pricing approach remains early in its rollout and will need time to demonstrate whether it can offset the seat-based pressures affecting growth.
The company is also searching for a new chief financial officer after current CFO Howard Wilson announced plans to retire last quarter. Management said the search is progressing and expects to name a successor in the coming quarters.