What Happened:

Shares of IT incident response platform PagerDuty (NYSE:PD) jumped 6.3% in the morning session after Bloomberg reported that the company is in talks with advisers amid growing speculation about potential acquisition interest from private equity firms. According to the report, "Talks are at an early stage, and there's no certainty that any deal will happen." Typically, acquisitions result in a premium to the prevailing stock price upon closure.

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What is the market telling us:

PagerDuty's shares are not very volatile than the market average and over the last year have had only 12 moves greater than 5%. 

The biggest move we wrote about over the last year was 7 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 up 19.5% since the beginning of the year, but at $26.20 per share it is still trading 25.1% 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 $684.71.

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