Following a recent jump that came after a strong April quarter report, PagerDuty's (PD) shares are up over 130% from their $24 April IPO price and 50% from an opening trade of $36.75.
PagerDuty has been fond of calling its software the "central nervous system" for a company's digital operations. Its core cloud software platform, which is sold via four subscription plans, is used by teams of on-call IT workers in fields such as IT operations, security operations, DevOps and customer support to be notified about and address various types of unexpected incidents and events. The company also sells add-on subscriptions that cover fields such as incident response, event intelligence and real-time incident visibility.
The company claims over 11,000 customers including over half of the Fortune 100 and one-third of the Fortune 500. Revenue rose 49% annually last quarter to $37.3 million, and has been guided by the company to grow 37% to 38% in fiscal 2020 (its ends in Jan. 2020) to a range of $161 million to $163 million. Splunk (SPLK) and Atlassian (TEAM) are long-time competitors.
Following PagerDuty's earnings report, I had a chance to talk with Jenn Tejada, who has been the company's CEO for the last three years. Here's a look at some notable comments she made during the talk.
- PagerDuty's subscription mix has been shifting towards costlier Enterprise plans. Tejada attributes this both to the strength of the solution and broader enterprise IT trends (cloud migrations, IT modernization projects, etc.) that are driving a greater push to orchestrate mission-critical work in real-time.
- When asked about particular industry verticals that PagerDuty has recently seen strength in, Tejada stressed that PagerDuty's sales aren't highly dependent on any particular vertical, but did add that the company is excited by its recent momentum in financial services, and pointed to earnings call comments about having landed a 7-figure deal last quarter with a "Fortune 100 global investment bank." Large banks, she noted, can be a "harder segment to crack" for cloud software firms.
- Tejada indicated it's still early days for the add-on subscriptions sold with PagerDuty's core on-call management software. However, she added the company is encouraged by the recent momentum it has seen for those products, and suggested their ability to deliver more "proactive" capabilities for clients -- that is, the ability to detect an incident in advance, rather than simply improving a company's ability to respond to one -- are a key selling point.
- Regarding international sales, Tejada said PagerDuty is excited about its recent momentum in continental Europe, after having previously seen strong growth in the U.K. The company's international revenue rose 63% annually last quarter, but was only 21% of total revenue.
- On the subject of competition from Splunk and Atlassian, both of which made acquisitions in 2018 that increased their competitive challenge to PagerDuty, Tejada suggested PagerDuty has long dealt with attempts by Splunk and Atlassian to take business by leading with price, and that its recent results show that it's still competing well.
- Tejada argued the scalability of PagerDuty's platform remains a competitive strength relative to rival offerings, as does its large ecosystem of software integrations and its ability to leverage AI/machine learning for event intelligence and analytics. Also cited as a strength: PagerDuty's long track record of being up and running and able to help when customers have major incidents.
- When asked about PagerDuty's R&D priorities, Tejada said that continuing to improve the usability of its platform is an "overarching priority," and one that grows in importance as new features are added. Greater interoperability with third-party products was also deemed a priority -- "We don't just see integrations as connectivity, we view integrations as a product," she said. -- as was investing in machine learning to automate activities and cut down on repetitive tasks. Anaplan (PLAN) CEO Frank Calderoni also suggested in a recent interview that improving the machine learning capabilities of his firm's software is a key priority.
- Tejada insisted PagerDuty, which like many growth-stage cloud software companies currently has negative free cash flow, sees a "path to profitability" and expects to see operating leverage as revenue continues growing. However, she declined to share a target date. Currently, analysts polled by FactSet expect PagerDuty to improve its FCF to negative $3.9 million in fiscal 2021 from negative $23 million in fiscal 2020, and to become cash-flow positive in fiscal 2022.
