William Blair has lowered its rating on PagerDuty Inc, moving the stock from Outperform to Market Perform after the cloud incident-management specialist reported fourth-quarter results that the brokerage characterized as weaker than expected and provided a subdued outlook for fiscal 2027.
The firm pointed to continued strain from PagerDuty’s seat-based pricing approach, which it said has hurt customer metrics and overall growth. Those dynamics were evident in the company’s reported revenue trends for the quarter.
PagerDuty posted annual recurring revenue growth of just $2 million sequentially, amounting to roughly 1% year-over-year growth, a result that missed market expectations. Net revenue retention eased to 98%, down two percentage points from the prior quarter, underscoring pressure on existing account spend.
Company management attributed the slowdown to persistent seat-based headwinds among customers and signaled that those pressures are likely to continue in the near term.
Concerns deepened with the company’s guidance for fiscal 2027. At the midpoint of its outlook, PagerDuty is forecasting revenue growth that is roughly flat year over year, a notable step down from previous expectations of about 4% growth. The firm also expects operating margins to remain at levels similar to fiscal 2026, indicating limited near-term margin expansion.
William Blair said the quarter’s results reinforced worries that PagerDuty’s incident management product may be facing mounting competition from larger software platforms. The brokerage also highlighted seat compression across customers as a concerning trend, and suggested that this compression may be partly tied to changing technology spending patterns, including adoption of new tools that alter how seats are allocated.
Customer-level metrics in the quarter reflected these headwinds. The total number of paying customers fell sequentially. Among mid-sized accounts, the number of customers contributing at least $100,000 in annual recurring revenue rose by only 1%. That muted growth in the middle market stood in contrast to the performance at the top end of the customer base.
Large enterprise accounts showed more positive momentum. The count of customers generating more than $1 million in annual recurring revenue climbed 10% year over year, a development the company attributed to its ongoing focus on securing larger, longer-term contracts.
In response to the challenges associated with seat-based pricing, PagerDuty has begun introducing a usage-based pricing option internally called "flex." Management reported that initial feedback from customers has been favorable, particularly among enterprise clients. The company said the flex approach can enable customers to adopt additional services with fewer upfront commitments.
William Blair noted that the flex pricing model is still early in its rollout and that it will require time to determine whether it can meaningfully counteract the seat-based pressures that have weighed on growth.
Separately, PagerDuty is conducting a search for a new chief financial officer following the retirement announcement last quarter by current CFO Howard Wilson. Management said the search process is underway and that it expects to appoint a successor within the coming quarters.
The combination of softer growth, lingering seat-compression dynamics, and a cautious fiscal 2027 guide prompted William Blair to reduce its view on the stock. The brokerage highlighted competitive risks to the company’s core incident management offering and flagged the need for the new pricing approach to demonstrate it can offset current customer-level headwinds.
Investors and market participants will be watching whether the company’s pivot toward usage-based pricing gains traction and whether the enterprise focus continues to lift larger contracts enough to offset softness across smaller accounts.