PagerDuty stock skyrockets nearly 60% on first trading day after IPO

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PagerDuty Inc. shares rallied hard on their first day of trading Thursday, skyrocketing nearly 60% after the cloud-based digital management platform priced its initial public offering above an already elevated range, but the CEO believes there is much more room to run.

Shares of PagerDuty PD, +59.38%  surged more than 59% to close at $38.25 Thursday, giving the company a valuation of $2.82 billion, according to FactSet data. Late Tuesday, the company priced shares at $24 a piece to raise more than $200 million, after hiking its expected price to a range of $21 to $23 as early as last week; initially, the San Francisco company targeted a price of $19 to $21 for IPO shares. The stock touched an intraday high of $39.61.

PagerDuty offers a subscription service that allows businesses to improve the constant interplay between software developers and operators—so-called DevOps—within their organization and lets them use real-time data to address incidents that occur. Competitors include Atlassian Corp.’s TEAM, +1.51% OpsGenie and Splunk Inc.’s SPLK, +1.09% VictorOps products.

Read: 5 things to know about the PagerDuty IPO

Chief Executive and Chairwoman Jennifer Tejada, who owns a 5.7% stake in the company following the offering, said PagerDuty is looking to serve an estimated $25 billion market made up of about 22 million software developers whose job it is to make sure that every app on our phone or program on our PC is working the way it’s supposed to and cut down on downtime. Tejada said in a telephone interview with MarketWatch from the New York Stock Exchange that about 300,000 developers currently use the platform.

“When something doesn’t work the way it’s supposed to, PagerDuty will signal the right person on the right team to let know there is a problem and start to pull in other subject matter experts,” Tejada told MarketWatch in an interview. “Our customers expect us to be up when everybody else is down.”

So far, Tejada said PagerDuty has been providing reliable service for a decade.

“We’ve never had a maintenance window in our 10-year history, meaning you will never get a note from PagerDuty saying ‘We won’t be available from one to four in the morning on Saturday’ because somewhere we have a customer that’s depending on us,” Tejada said.

See also: Uber officially files for initial public offering

Ethan Kurzweil from Bessemer Venture Partners, one of PagerDuty’s early investors which now owns a 10.8% stake, told MarketWatch in an interview that investors are starting to take more notice of startups that serve the IT needs of businesses.

“It is kind of a new thing that Wall Street is getting excited by these more developer-focused businesses, products for technical buyers,” Kurzweil said, adding that his excitement for PagerDuty started when he saw how popular the product was with developers.

“It was a very sticky product, low churn,” Kurzweil said, adding that the service is very easy to adopt and catches on quickly, or spreads “virally” within an organization.

Bessemer said PagerDuty is the firm’s fifth developer-focused business exit in the past five years, following Shopify Inc. SHOP, +2.17% in 2015, Twilio Inc. TWLO, +0.38%  in 2016, and SendGrid in 2017, which was acquired by Twilio Inc. TWLO, +0.38% in 2018.

PagerDuty recorded a loss of $40.7 million on revenue of $117.8 million in the fiscal year ended Jan. 31, 2019, after a loss of $38.1 million on revenue of $79.6 million in the same period a year ago. The number of customers paying $100,000 or more a year for the service rose to 228 from 144 in the previous year.

PagerDuty planned to sell 8.5 million shares in the IPO, while selling stockholders offered 570,000 shares. Underwriters were offered options for an additional 1.36 million shares.

As PagerDuty shares spiked in their debut Thursday, the S&P 500 index SPX, +0.00%  was flat and the tech-heavy Nasdaq Composite Index COMP, -0.21%  declined 0.2%.