PagerDuty, Inc. (NYSE:PD), a global leader in digital operations management, stock rose 1.36% (As on January 23, 11:18:07 AM UTC-4, Source: Google Finance) after the company were lifted to Overweight from Equal-Weight, with its price target raised to $36 from $32 by Morgan Stanley analyst Sanjit Singh  who stated that the company is “answering the call to drive better profitability.” The analysts explained that robust unit economics, highly ratable sub-revenue, and market leadership in a vital category provide the backdrop for a strong pivot to profitability.

“Revenue growth has proven durable sustaining a 32% CAGR over the past two years supported by sustained net dollar retention rates that have exceeded 120%+ for eight straight quarters,” they said.

Morgan Stanley acknowledged that, like the vast majority of its coverage universe, PagerDuty will likely see slower growth heading into a tougher spending environment in FY24.

“However, we believe that the company can sustain ~20% growth over the next few years due to: 1) substantial progress moving up-market (only 20% SMB exposure today vs. ~30-35% at time of IPO) where spending trends are more durable, 2) PagerDuty’s key role in responding to and resolving service incidents that can significantly impact business operations which should shield the company from IT budget cuts and 3) a more favorable competitive environment which should translate to continued share gains in the $17 billion IT operations management market,” the analysts argue.

PagerDuty also recently won the AWS Regional Global Partner Award, strengthening its relationship with cloud infrastructure leader Amazon and supporting its long-term growth.

Trading at a price-to-sales ratio of 7, PagerDuty is still cheaper than most other software-as-a-service stocks, and the pivot to profitability should continue, as its adjusted operating margin jumped by 1,000 basis points and it’s seeing strong growth with its highest-spending customers.

In the third quarter, the company beat estimates on the top and bottom lines. Revenue jumped by 31% year over year to $94.2 million, and it posted a surprise adjusted profit of $0.04 per share.

For the fourth quarter of fiscal 2023, PagerDuty currently expects total revenue to be in the range of $98.0 million – $100.0 million, representing a growth rate of 25% – 27% year over year. Non-GAAP net income per diluted share attributable to PagerDuty, Inc. is expected to be in the range of $0.02 – $0.03. For the full fiscal year 2023, PagerDuty currently expects total revenue to be in of $368.0 million – $370.0 million, representing a growth rate of 31% – 31% year over year. Non-GAAP net loss per share attributable to PagerDuty, Inc. is expected to be in the range of $0.01 – $0.00