PagerDuty just reported earnings, and the numbers tell a sobering story. The Captain Obvious lesson and reminder: Growth Remains King. Even if you are profitable.
You just have to grow. And for now at least — PagerDuty just isn’t growing anymore.
Here’s where they are today:
- $497M ARR (up just 3% YoY)
- Market cap hovering around $1.1B — call it roughly ~2x ARR
- Growth has slowed to ~4-5%
- NRR down to 100% — meaning existing customers aren’t expanding at all anymore
- Customer count essentially flat for 3 years — ~15,400 paid customers, roughly the same as 2022
- Now GAAP profitable — second consecutive quarter of positive operating income
And yet the stock is down 75%+ from its 2021 highs. Down nearly 50% from its IPO price of $38.25 back in 2019.
Profitable isn’t enough. You have to grow.
The Math is Tough
PagerDuty has built something real. Almost $500M in ARR. Over 15,000 paying customers. One-third of the Fortune 500. Customers like Cisco, Zoom, Fox, Shopify, and the NYSE. A 28.5% non-GAAP operating margin. Nearly $550M in cash on the balance sheet. 83%+ gross margins.
This is a real business. A profitable business. A business that serves mission-critical use cases — when systems go down at 2am, PagerDuty is the one waking up the right engineer.
And the market values it at 2x ARR.
Meanwhile, companies still growing 30%+ trade at 10-15x ARR or more or higher. That’s a 5-7x difference in multiple.
The lesson: A dollar of ARR growing 30%+ is worth 5-7x more than a dollar of ARR growing 4%.
What Went Wrong? A Textbook Case of Hitting the Ceiling (At Least For Now)
PagerDuty was once a rocketship. At IPO in 2019, they had 139% NRR — truly elite expansion. In 2022, it was still 124-126%. Customers were landing and expanding aggressively.
Today? 100% NRR.
That single metric tells the whole story. At 100% NRR:
- For every dollar that churns, you need to upsell exactly one dollar to break even
- Your existing customer base generates zero organic growth
- ALL growth must come from new logos
- And new logos are expensive
Here’s what the metrics trajectory looks like:
When your NRR drops from 130%+ to 100%, your growth engine fundamentally breaks. You go from a flywheel to a treadmill.
The Customer Count Problem: No Net New Customers For 3+ Years
PagerDuty has had roughly 15,000-16,000 paid customers for three years. Essentially flat.
Yes, they’ve grown the number of $100K+ customers from 825 to 867. That’s good! But it’s only 5% growth. And the overall customer base isn’t expanding.
When your customer count goes flat, it means one of two things:
- You’ve saturated your core market — everyone who needs incident management already has it
- You have a churn problem that new sales is barely covering
Either way, it signals that finding new customers has gotten very, very hard.
Why Profitability Alone Doesn’t Save You
Here’s what founders sometimes miss: Profitability is necessary but not sufficient.
PagerDuty made all the “right” moves for the 2022-2024 efficiency era:
- Cut costs
- Improved margins (28.5% non-GAAP operating margin is solid)
- Generated real free cash flow ($20.9M last quarter)
- Achieved GAAP profitability
The market shrugged.
Why? Because investors aren’t just buying today’s profits — they’re buying future cash flows. And if your ARR is only growing 4%, your future cash flows are capped.
The valuation math:
- At 4% growth and 25% margins, you’re basically a value stock now
- Value stocks trade at low multiples
- 2-3x ARR for a slow-growing, profitable SaaS is actually… fair
The premium multiples go to companies that can compound. 20%+ growth with strong unit economics gets 8-12x ARR. 30%+ gets you 12-18x. 40%+ and you’re looking at 20x+.
PagerDuty’s 4% growth puts them in a different category entirely.
The “Exploring a Sale” Signal
In July 2025, Reuters reported that PagerDuty is exploring a sale with Qatalyst Partners. This is actually the second time they’ve explored selling — a similar effort in late 2023 didn’t produce an acceptable offer.
This tells you everything about where the board’s head is at:
- The public market isn’t rewarding them
- Growth isn’t reaccelerating
- A strategic acquirer (or PE firm) might pay a premium to take it private
The good news? At 2-3x ARR, PagerDuty is actually cheap for what it is. A strategic buyer who could cut costs further, or bundle it with other products, might pay 3-4x+ ARR. That’s a 30-50% premium from here.
But for a company that once traded at 15-20x ARR? That’s a painful outcome for long-term shareholders.
The Competitive Squeeze: Death by a Thousand Cuts
Here’s what makes PagerDuty’s situation even harder: the competitive landscape has fundamentally shifted against them.
Attack from Above: The Platform Giants Are Bundling
The biggest threat isn’t another startup — it’s the observability platforms bundling incident management into their offerings.
In June 2024, Datadog launched Datadog On-Call, bringing paging and incident management directly into their observability platform. Their pitch is devastating for PagerDuty: why switch between tools when you can have monitoring AND on-call in one platform with shared context?
As one analyst noted, Datadog’s On-Call “could directly challenge PagerDuty and Atlassian Opsgenie” by reducing context switching for IT ops teams.
ServiceNow is another threat — they generate more than 20x PagerDuty’s revenue and are expected to grow at 21% CAGR. For large enterprises already in the ServiceNow ecosystem for ITSM, adding incident management is a checkbox, not a new vendor decision.
Cisco acquired Splunk. Atlassian has OpsGenie. The platform consolidation trend is real, and standalone point solutions like PagerDuty are caught in the squeeze.
Attack from Below: Hungry Startups Eating Their Lunch
Meanwhile, a new wave of Slack-native incident management startups has emerged:
- incident.io raised $29M and is growing fast with companies like Ramp, Loom, and Linear
- Rootly raised $12M and counts Canva, Nvidia, and TripAdvisor as customers, claiming 400% revenue growth
- FireHydrant raised $23M to accelerate go-to-market
These startups are purpose-built for modern engineering teams. They’re Slack-native (where engineers actually live), more affordable, and laser-focused on the incident response workflow. As one industry survey noted, “PagerDuty and OpsGenie remain the most-used solutions, but young startups like incident.io, Rootly, and FireHydrant are challenging them.”
The startups explicitly position against PagerDuty’s complexity and cost. Rootly’s marketing literally says “Migrate from PagerDuty faster than you can write fair pricing.”
The Market Has Changed
When PagerDuty went public in 2019, they were the clear category leader with 139% NRR. The “incident management” category was theirs.
But the market fragmented:
- Observability vendors (Datadog, Splunk, Dynatrace) started adding incident management
- ITSM platforms (ServiceNow) bundled it into enterprise deals
- Modern startups (incident.io, Rootly, FireHydrant) attacked the mid-market with better UX and lower prices
- Open source alternatives emerged for teams with engineering resources
PagerDuty tried to expand into AIOps, automation, and business operations to grow the TAM. But as one analyst observed, they “operate in a crowded market filled with bigger competitors like Cisco’s Splunk and ServiceNow.”
The result? A category leader that’s being squeezed from above by bundlers and from below by insurgents — while the core market matures.
The Deeper Lesson: Category Dynamics Matter
PagerDuty pioneered on-call incident management. They defined the category. And they won it.
But here’s the problem: Categories have natural sizes.
The “core” incident management market isn’t infinite. Most companies that need sophisticated on-call rotation and alerting already have a solution. PagerDuty got most of the big ones.
They tried to expand the TAM with:
- AIOps
- Process Automation
- Business Operations visibility
- Event Intelligence
But these adjacencies haven’t moved the needle enough. The $36B TAM they cite in investor decks isn’t converting to $36B of real demand for PagerDuty specifically.
When you dominate a category but the category stops growing, you have three options:
- Find a new S-curve — easier said than done
- Become a platform — PagerDuty has tried this
- Accept being a profitable, slow-growth company — which is where they are
What B2B Founders Should Take From This
1. NRR is destiny. When NRR drops below 110%, alarm bells should go off. Below 100%, you’re in serious trouble. Monitor this metric religiously.
2. Customer count growth matters. Flat customer counts for 3 years isn’t a plateau — it’s a warning sign that your market may be saturated or your GTM motion is broken.
3. Profitability buys you time, not valuation. Getting to profitability is essential for survival. But don’t expect the market to reward efficiency alone. You still need growth.
4. Category size is a ceiling. If you’re dominating a $500M category, you’re going to be a ~$500M ARR company. Expanding the category is possible but brutally hard.
5. The “rule of 40” isn’t a multiple accelerator at low growth. 4% growth + 28% margins = 32, which is below 40. But even if it were above 40, a 4% grower trades very differently than a 30% grower with similar efficiency.
The Bottom Line
PagerDuty built a great product. They serve real customers with real pain. They’re profitable and have a fortress balance sheet.
And the market values them at 2-3x ARR because growth has stalled.
This is the new reality of B2B and SaaS. Profitability is table stakes now. Efficiency is expected. What commands premium multiples is durable growth.
If you can’t grow, you can still build a great business. But you won’t build a great stock. And you may end up selling for far less than you once dreamed.
Profitable is not enough. You have to grow.
5 More Learning
Digging into PagerDuty’s Q3 FY26 investor presentation reveals a few more fascinating data points:
1. The Quarter-by-Quarter NRR Collapse is Stark
The presentation shows the sequential decline in painful detail:
- FY25 Q3: 107%
- FY25 Q4: 106%
- FY26 Q1: 104%
- FY26 Q2: 102%
- FY26 Q3: 100%
Five straight quarters of decline. That’s not noise — that’s a trend. And it’s not bottoming out; it’s hitting the floor.
2. They Slashed Sales & Marketing from 53% to 30% of Revenue
This is the real story behind the margin expansion. In FY20, PagerDuty spent 53% of revenue on sales and marketing. Today? Just 30%.
That’s 23 percentage points cut from GTM investment. Yes, it helped margins. But it also helps explain why growth collapsed. You can’t cut your way to growth.
3. R&D Spend Dropped from 26% to 16%
Similarly, R&D went from 26% of revenue in FY20 to just 16% today. When you’re being attacked by nimble startups and platform giants, cutting R&D by 10 points feels dangerous.
PagerDuty is leaner, but is it still innovating fast enough?
4. They Claim a $50B TAM with Only ~1% Penetration
The investor deck cites 87 million potential users across developers (30M), infrastructure ops (23M), customer service (28M), and SecOps (6M) — and claims only ~1% penetration.
If true, that’s massive upside. But if you’re only penetrating 1% of a $50B market after 15 years and you’re growing 5%… something doesn’t add up. Either the TAM is overstated or the go-to-market isn’t working.
5. They’ve Tried to Buy Growth — Rundeck (2020), Catalytic (2022), Jeli (2023)
The innovation timeline reveals a string of acquisitions: Rundeck for automation in 2020, Catalytic for no-code workflows in 2022, and Jeli for post-incident learning in 2023.
These were bets on expanding beyond core incident management. But three years later, growth is still stalling. Acquisitions alone can’t fix a slowing core business — they have to be integrated and monetized. The jury is still out.
Lessons:
- NRR of 100% = zero organic growth from existing customers
- Flat customer count for 3 years = market saturation or GTM challenges
- Profitability without growth = value stock multiples (2-4x ARR)
- Category leadership doesn’t guarantee endless expansion
- At ~$1B market cap on $500M ARR, PagerDuty may be a buy… for a strategic acquirer
