Running PD through the Antifragile Framework

Greetings Fools,

PagerDuty (PD) has been discussed on this board before. With earnings having just come out last night, I figured now would be a good time to run the company through this framework and share how it stacks up.

Barbell Strategy

Mission Statement
“to connect teams to real-time opportunity and elevate work to the outcomes that matter.”

Simple: No – this is a bit frustrating. I wish it could be boiled down more. Something like: “To help clients give customers a smooth and delightful experience.”
Optionable: This is definitely optionable.
Inspirational: Eh?



High Switching-Costs: Most users start with On-Call Management, and then graduate to Modern Incident Response and/or Event Intelligence. The number of customers has gone up just 15% per year since 2017, but revenue has jumped 47% per year in the same time frame. What does this mean? They are using more and more PD products. The more the use, the higher the switching-costs. Right now revenue retention sits at 132%.
+2.0 points

Network effects: Event Intelligence and PD Analytics both are aided significantly by machine learning and artificial intelligence. The more data these two get, the stronger they become. Thus, each additional customer makes those algorithms that much stronger. This is still in its infancy, though, so just one point.
+1.0 points

Normally, I’d just give 2.0 points. There’s lots of different ways that PD can introduce new products over time that bleed into different areas of a company’s IT department. But the company has been making inroads in lots of industries you might not think of: oil and gas companies, companies that are trying to improve mental health and reduce suicidal ideation. I can’t even say for sure I completely understand how that technology is being used, but the breadth of use-cases are impressive
+2.5 points

Skin in the game

Role of founder: Alex Solomon founded the company and still functions as the Chief Technology Officer.
+1 point

Insider Holdings Solomon and CEO Jennifer Tejada each own roughly 5.8% of shares outstanding.
+1.0 points

Glassdoor: The company has a 4.6 star rating (out of 5). Tejada has a 100% approval rating, and 95% have a positive business outlook. I read through the reviews, even the most thorough and thoughtful paint a flattering picture.
+1.0 point

Financial Fortitude

Financial statements
Cash: $341 million
Debt: $0
Free Cash Flow: ($7 million)

The company was actually FCF positive during the most recent quarter, but management stated this won’t continue, as the company has been hiring its sales force rapidly and plans to expand its offices. For the time being, that makes the company more robust – and less anti-fragile to benefit from a downturn.

+0.0 points

Concentration Risk
0 points

Total Score: 9 points

I’ve run companies through this framework for well over a year, but I do it anew every time (I find that doing so…while laborious…forces me to be more aware of the current situation). This lands PD near the middle-top of the list.

This is tough one for me to crack. There’s lots of concern that with Splunk and Atlassian acquiring some of PD’s competition, customers could go there instead to get it all under one umbrella. That concern makes sense. And with DBNR falling slightly to 132%, it gives me pause.

At the same time, however, the number of customers paying over $100K per year is growing rapidly (54% per year since 2017) and now stands at 274. Deferred revenue is growing even faster, up 59% per year to $76 million today (and that’s with 20% of revenue coming from customers who subscribe on month-to-month basis).

Right now, I’m most worried about what I just can’t understand: how much better is PD’s technology than everyone else’s? That’s why – for the time being – I’m standing pat with my 2% position and waiting to see what happens.

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What is Antifragile framework and how has it performed?

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