PagerDuty delivers strong Q4 as buyers extend use case beyond ITOps

Digital operations management vendor PagerDuty has delivered a solid set of fourth quarter results, and has made strong growth projections for the year ahead. The leadership team at the company has highlighted how the COVID-19 pandemic has accelerated organisations' buying decisions towards proactive monitoring of always-on, digital environments. 

PagerDuty is a vendor to watch over the coming years, as its offering fits well with a number of buyer and macro trends we are seeing in the market. With companies' digital environments becoming increasingly complex and shifting towards DevOps models, the need to understand and respond to changes across the entire technology estate is becoming critical. 

Not only this, but we are seeing PagerDuty's customers adopt a ‘land and expand' approach to the tool - starting with operations management, but then pushing it into areas that include customer service and security. That's typically a good indicator of a vendor that has strong growth prospects. 

The key numbers released this week are: 

• Fourth quarter revenue was up 29.1% year-over-year to $59.3 million 

• GAAP operating loss was $18.4 million, or GAAP operating margin of negative 31.0%, compared to an $11.8 million GAAP operating loss, or GAAP operating margin of negative 25.6%, in the fourth quarter of fiscal 2020.

• Total revenue for the full year was $213.6 million, up 28.4% year-over-year. 

• PagerDuty had over 13,8000 customers as of January 21, 2021 - including new signings of Ally Financial, Ameren Corporation, JetBlue Airways, SK Telecom and WaWa. 

• For the full fiscal year 2022, PagerDuty expects total revenue of $264 million - $270 million, representing a growth rate of 24% - 26% year-over-year. 

Analyst call

PagerDuty CEO Jennifer Tejada took to the analyst call this week to outline how the vendor is taking advantage of "a combination of better macro conditions, secular tailwinds, like digital acceleration, cloud adoption, and DevOps transformation, and improved go-to-market execution". 

Tejada outlined how PagerDuty closed its largest ever multi-year expansion deal in its history in Q4, signed its first $1 million contract in EMEA and expanded its first five-year contract. She said: 

Our results validate our strategic focus and leadership position in the enterprise segment, where dollar-based net retention accelerated above 125%, and overall dollar-based net retention expanded sequentially to 121%, which is in the range we anticipate for fiscal 2022.

Digital operations management accounted for 70% of total net new ARR in Q4 and for the year, uptake of PagerDuty's digital operations management plan doubled, now 20% of the company's total ARR. Tejada added: 

The pandemic accelerated the digitization of most business models from healthcare to telehealth, retail to e-commerce and banking to fintech. The need for businesses to develop the agility to respond to emerging consumer trends, competitive threats and potential disruption is not going away.

While PagerDuty was founded on this premise, it's become increasingly clear that we are unique in our ability to help customers advance their operational maturity. PagerDuty's modern cloud-native operations platform has become the central nervous system for digital modern businesses. It's designed specifically for mission-critical emergent work across distributed teams.

Tejada explained that as customers start to understand the ‘real-time nature of the global digital economy' that their traditional workflow and observability solutions fall short in terms of immediate action and proactive prevention. With this in mind, PagerDuty is beginning to see greater demand outside of DevOps and ITOps. Tejada said: 

Our scope within organizations has expanded as more teams engaged in digital operations, usually beginning with DevOps moving to ITOps and increasingly deploying across enterprises to include customer service, security and beyond. 

Over the course of the year, we saw an increase in transformative work with our customers, where we've become critical infrastructure as teams' increased focus on resilience and expanded to new use cases that address unpredictable, unstructured and urgent opportunities that can make or break the brand experience.

One example, Tejada explained, is of a North American grocery chain, which needed to efficiently notify their customers and employees of food recalls. They rolled out a programme on PagerDuty's platform to immediately inform 50,000 stakeholders, including checkout staff. 

This expansion of PagerDuty within the enterprise has seen customers investing over $1 million in the platform grow by 44%, with 26 large enterprises now spending over $1 million with the vendor. Tejada added: 

The CIO and CTO championed one of the largest expansions in Q4 for a total of 8,000 users in a three-year multimillion-dollar contract as they adopt DevOps and full-service ownership and transitioned to the cloud with a 'you ship it, you own it' mindset. They expect to realize $10 million of annual benefit from PagerDuty, as they retire their homegrown systems and improve efficiencies across the organization.

One of our competitive advantages is the diversity of our customer base and leadership across verticals. During the quarter, we landed and expanded with several energy customers, where PagerDuty is literally keeping the lights on.

During the year, customers adopted PagerDuty beyond incident response to service, to security and customer service, where users grew 56% and 40%, respectively. HashiCorp, LegalZoom, Discovery Communications and Slack use PagerDuty for customer service.

Slack's customer service agents use our platform for full case ownership, escalating customer-facing issues to the right subject matter experts or developers, so that they can be resolved quickly.

During Q4 PagerDuty executed on a number of new releases to the platform, including advanced automation, self-remediation and deeper customer service integrations. It launched change impact mapping, which allows developers to identify code thanes that impact their services and more easily resolve incidents. 

PagerDuty said that it processed 41 billion events and API requests in 2021 and improved customers' average resolution time by 20%. 

Tejada was keen to highlight the opportunity that COVID-19 has presented for PagerDuty going forward. She said: 

The pandemic helped the market, especially business leaders, understand the mission-critical nature of digital operations, driving more strategic engagements across all of our segments. If anything, our total addressable market has grown. And as markets reopen, we expect to benefit from industries like travel, hospitality, entertainment, transportation and from small and medium businesses as they recover.

My take

As noted above, PagerDuty is one to watch. We've been impressed by the customers we have interviewed to date - these include Gousto, Mary's Meals and Monzo. If PagerDuty can successfully make its platform strategic for buyers outside of ITOps in areas such as customer service, it has a real opportunity in the years ahead.