PagerDuty (NYSE:PD) closed out its fiscal 2027 second quarter with an unusual mix of firsts. The company’s annual recurring revenue crossed $500 million for the first time, landing at $501 million, and customer retention showed its first sign of steadying in a while. But that milestone arrived alongside a 15% workforce reduction and revenue growth of just 1%, a reminder that stability and momentum are not the same thing. The quarter, reported Thursday, Aug. 27, 2026, gave investors plenty to weigh on both sides.
Retention Finally Stops Sliding
The clearest sign of progress showed up in retention. Dollar-based net retention landed at 98%, which management called a sequential inflection after quarters of erosion, and the number of customers paying more than $100,000 a year climbed to 884, up 24 from the prior quarter. Profitability held up too. Non-GAAP operating margin came in at 23.7%, ahead of guidance, and the company posted its fifth consecutive quarter of GAAP profitability with $4.7 million in net income. Free cash flow reached $32.8 million, a 26.3% margin, and non-GAAP earnings per diluted share hit $0.32, also ahead of expectations.
Management leaned into that momentum by raising guidance. The low end of full-year revenue guidance moved up to $491.5 million to $496.5 million, and full-year non-GAAP operating margin guidance rose to 25% to 26%, up from 24% to 25%. New business also picked up: a 36-month, nearly $3 million agreement with a large enterprise software platform, and an $850,000 three-year usage-based deal with a financial services firm. The company’s Operations Cloud, being rebranded as the PD Reliability Platform when it reaches general availability later this quarter, is moving to usage-based pricing, and AI infrastructure names including CoreWeave and Anduril are already building on the platform.
Growth That’s Barely Moving The Needle
The number that undercuts all of this is revenue growth of just 1% year over year, with total revenue of $124.4 million. Third-quarter guidance calls for revenue of $123 million to $125 million, again roughly flat against last year, and trailing 12-month billings grew only 1%. To protect margins against that backdrop, PagerDuty cut about 15% of its workforce this week, concentrated in non-customer-facing roles, for $5.5 million to $7.5 million in restructuring charges. Management was careful not to declare the retention problem solved. CEO John DiLullo said he was “not necessarily signaling that, that work is over at this point,” and flagged a newer risk in the form of autonomous agents that make decisions across systems at machine speed, which he said can multiply operational complexity and magnify the consequences when something breaks.
Wall Street Isn’t Convinced Yet
Hedge fund ownership of PagerDuty fell from 29 funds to 25 in the most recent quarter, a sign that institutional conviction is thinning rather than building. Short interest sits at 13.35% of the float, which points to a meaningful bear camp positioned against the stock. At the same time, shares trade at a forward price-to-earnings ratio of just 9.72 as of August 31, a multiple that assumes little to no growth is coming.
The Next Few Quarters Will Tell
PagerDuty’s second quarter leaves a real tension unresolved. Retention is stabilizing, and margins are expanding, but revenue growth has essentially stalled, and the company just cut 15% of its staff to keep profitability guidance moving in the right direction. For the more optimistic read to hold, the PD Reliability Platform and its usage-based pricing need to translate stabilized retention into faster top-line growth, not just steadier customer counts.
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