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Comment by benjaminwootton | Hacker News Reader

Amazing how a relatively niche product like this can have such a huge valuation. Shows how big the market is.

> Shows how big the market is...

I think the huge valuation has more to do with how absurd startup valuations really are[1], and less to do with showing how big the market for a niche product is.

[1] Behind the gloss of absurdly high startup valuations https://42floors.com/blog/startups/absurdly-high-valuations

Discussed here => https://news.ycombinator.com/item?id=6874838

Investors paid to be a part of what Pagerduty can eventually become. Not to have a piece of what Pagerduty is today.

What Pagerduty can become, is much more than just alerting for IT. That's what the $90mm is for.

They hint a little in the article at what some of that future can include: "PagerDuty has shifted some of its focus to doing more with the data it tracks for customers in the future, an area in which it plans to invest."

10-13x ARR isn't absurdly high at all

It depends entirely on your growth rate. In my experience, a lifestyle business growing 20% YoY with 5% churn and 10% operating margin will sell for around 2.5-3x ARR.

20% YoY is very low relative to most of these large SaaS startups that you see on here. The S-1 for Elastic had it at 75% YoY or so. Most of these companies also have absurdly high negative revenue churn. Gross margins approach 75% which become net margins when they stop growing so fast. See the 40% SaaS rule.

https://saasholic.com/the-rule-of-40-for-saas-and-subscripti...

Exactly! Every time you double your growth rate it also approximately doubles the Price / Revenue ratio.

20% growth will yield a 2-3x ratio. 40% growth 4-6x, and by 80% growth you’re looking at a valuation of 8-12x ARR.

Capital market has strong influx which they don't know what to do with. On the other hand they have liability to create money from money. We usually don't realise but investors needs as much opportunity as startups does.

Youre looking at the wrong market. Pagerduty is working “bottom up” in to the IT support game. The trending and business reporting tools are leading indicators of this. Im genuinely curious how long until they have pro services & billable hours. See ServiceNow as an example, $1.9B revenue & $30B market cap.

Uhm, ServiceNow seems to be in a nearly entirely different game than PagerDuty.

ServiceNow is a pretty generic business process and service management solution, with modules for ERP, software development, HR planning etc. And maybe also a module for alerting and incident management.

I haven't used PagerDuty, but it seems it's a pretty focused and specialized application.

Is there any indication that PagerDuty is trying to be the generic business workflow modeling software that ServiceNow is?

Agree servicenow is bigger than just incident & problem management. But they are very big in that area, as a subset of ITSM. As mentioned upthread I definitely see Pager Dutys move away from alerts & messaging as preliminary steps. A lot of their investments in the last few years are around business metrics, process, and visibility. Theyre explicitely talking about problem management, outside the traditional event engagemnt actions folks in here are focusing on. And if youre doing both problem & event management how long until billable hours come in to “reach the enterprise.” And then its a (shorter) jump to generalized ITSM.

So no, I dont think pager duty is going after hr & payroll functions. But the value/market theyre after is much more than just event engagement.

> Amazing how a relatively niche product like this can have such a huge valuation. Shows how big the market is.

Is PagerDuty exactly "niche"? The core product - providing a third-party system that handles the mechanics of paging people during a production issue - is something that virtually all software companies could use, in theory.

It's hard to think of a SaaS company that's less niche than Pagerduty (again, focusing on the market size of the core product, not the actual market penetration or the current state of the product).

The service may seem niche, but the NEED for the service is universal.

I love pagerduty. (the company, being point, on-call... a bit less)

> The core product - providing a third-party system that handles the mechanics of paging people during a production issue - is something that virtually all software companies could use, in theory.

I think "virtually" is a bit strong. There are still a lot of software companies that build software that doesn't rely on company-controlled production systems.

Also, in practice companies that have large-scale production systems tend to have dedicated 24-hour human monitoring.

Thus, I do think PD is hitting a niche within a niche: small-medium sized companies that rely on always-up servers.

It's because they can charge a huge amount for their service, where there is relatively low costs of operations compared to other enterprise products. It's amazing how they are able to charge as much as a product like slack.

Don’t take for granted that their biggest competitor was just purchased by Atlassian as well.

And Splunk bought VictorOps, the third company in that market

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