PagerDuty, Another Unprofitable Tech Name That Is Not In Fact Unprofitable
When the New Cloud Generation breaks cover, many will be surprised. But not you, because you read our work. So you know already. And you're ready. Right?
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Woodstocks. Can’t Live With ‘Em, Can’t Live With ‘Em.
This is the motto of the Boomer or wannabe-Boomer (which is a Zoomer who thinks s/he looks smart by being miserable about the future). Bah humbug! declares the naysayer. Anything that was hot in 2020? It must be gambling, or a scam, or something only those pesky over stimmylated kids could ever get excited about. And lookit, goes this line, these stocks have been destroyed since good sense returned and somebody started to try to get inflation under control. So let’s stop talking about them and start looking for opportunities to DRIP our way to a slightly less miserable retirement.
Man.
Here’s the thing. Growth stocks are volatile. It’s a feature, not a bug. The life-changing upside that is available from companies with a business model able to deliver huge rates of recognized revenue growth, high cashflow margins, and substantial revenue visibility courtesy of the prepaid long-run contract model? That kind of upside doesn’t come for free, and the cost of the upside is the occasional ulcer-inducing selloffs of the kind we’ve seen from 2021 through to the middle of 2022 when most of these names entered a sideways rangebound action.
What now? Haven’t these things dumped all thru last year?
No. If you look at the chart of most such stocks - the better ones anyway - by around May, June last year they had entered a sideways channel, bounded to the upside, bounded to the downside, with steady volume building up to a crescendo of buying. And it wasn’t Chad doing the buying, because Chad is now (1) terrified of his brokerage account (2) a vol crush macro trading and regional bank default expert and also (3) plain out of margin capacity particularly since everyone started charging him actual money to borrow actual money and lose it on stonks. Rather, the buying of these names since the middle of last year has been none other than Big Money.
Big Money missed the Woodstock boom in 2020-21. Too old and dismissive and run by misery-loving Boomers for the most part. So now, since the JPM Collar Trade - a brilliant wrecking ball method that smashed 401(k) accounts to pieces all last year, the better for Big Money to be picking up the pieces and re-assembling them into bright shiny dollars all for themselves - since that trade humbled all retail into submission, only Big Money dares go back into the water to start buying up these Woodstocks. Heck, there’s even a name for them now, one that isn’t derogatory to the Ark Invest managers. “Unprofitable Tech” is the polite name. “Trash” you may also see. And depending on your choice of forum, the term “[-]hitcos” may also be found in use. All of which has neurolinguistically programmed Chad and his prime broker / Mom to stay away from these names.
We have news. The best of them aren’t unprofitable. Well they might be EPS unprofitable due to stock based comp, so if your run a Yahoo Finance (if you be a Boomer) or Robinhood (Zoomer) screener, they won’t show up as profitable. But if you actually, you know, do the work, (or subscribe to our stuff where we do the work for you), you’ll find that many of these names are CASH FLOW POSITIVE. Which means, who cares about EPS, because you can’t pay for anything with EPS.
The latest such name to turn the corner from money-burning scary totem to ZIRPery to responsible recurring-revenue cash generation machine, is PagerDuty ( PD 0.00%↑ ). PagerDuty is a pretty boring business. If your IT stack at work breaks, it calls an IT guy and says come fix it. The company dresses it up a lot fancier than that, but that's basically what it does. Sits alongside observability applications like DataDog DDOG 0.00%↑ or Dynatrace DT 0.00%↑ . Boring, but essential. Once you buy it, you won't swap it out unless it breaks a lot or the company ramps pricing 5 years straight.
PD reported its Q4 of FY1/23 yesterday after the bell, and it was a doozy. For our Premium and Pro subscribers we now lay out the numbers, valuation, and our stock chart including price target and risk management ideas. If you’re yet to become a Pro or a Premium member, it’s a great time to do so. You get 20% off the rack rate if you sign up in March.