What Happened:

Shares of IT incident response platform PagerDuty (NYSE:PD) fell 9.48% in the pre-market session after it announced plans to raise $350 million in convertible senior notes via a private placement to qualified institutional buyers. PagerDuty intends to use the proceeds to buy back some of its existing convertible notes, common stock, and for general corporate needs. 

Convertible senior notes can be converted into company shares at a predetermined price, potentially leading to an increase in the number of shares outstanding and dilution of existing shareholders' ownership.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy PagerDuty? Access our full analysis report here, it's free.

What is the market telling us:

PagerDuty's shares are very volatile and over the last year have had 24 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. 

The biggest move we wrote about over the last year was four months ago, when the stock dropped 17.1% on the news that the company reported first quarter revenue that narrowly beat analysts' revenue estimates. Earnings per share, gross margin, and free cash flow were ahead of Consensus. However, the revenue guidance was weak. Next quarter revenue guidance came in below Consensus, and the full year revenue guidance also missed and was lowered. It is always a worrisome sign when a company reduces revenue guidance, and in this case, the nearly 5% reduction in full year revenue outlook is a key reason for the stock's move. 

Profitability outlook was better as the full year EPS guidance came in ahead and was raised to $0.60 - $0.65 (up from $0.45 and $0.50), showing that at least with weaker revenue prospects, the company is prioritizing expense efficiency. It sounds like the macro weighed on results, with cost-conscious customers resulting in longer sales cycles, smaller deal sizes, and lower conversion rates. Overall it was a mixed quarter, and it seemed the market was laser-focused on the revenue outlook.

PagerDuty is down 19.5% since the beginning of the year, and at $20.84 per share it is trading 40.4% below its 52-week high of $34.98 from March 2023. Investors who bought $1,000 worth of PagerDuty's shares at the IPO in April 2019 would now be looking at an investment worth $544.71.

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