No Surprises In Sumo Logic's (NASDAQ:SUMO) Q1 Numbers, But Gross Margin Drops

Jabin Bastian /
2021/06/03 4:23 pm EDT

Cloud infrastructure analytics maker Sumo Logic (NASDAQ:SUMO) reported results in line with analyst expectations in Q1 FY2022 quarter, with revenue up 14.8% year on year to $54.2 million. Sumo Logic made a GAAP loss of $26.9 million, down on its loss of $23.5 million, in the same quarter last year.

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Sumo Logic (NASDAQ:SUMO) Q1 FY2022 Highlights:

  • Revenue: $54.2 million vs analyst estimates of $53.8 million (small beat)
  • EPS (non-GAAP): -$0.11 vs analyst estimates of -$0.12
  • Revenue guidance for Q2 2022 is $56.6 million at the midpoint, roughly in line with what analysts were expecting
  • The company reconfirmed revenue guidance for the full year, at $234.5 million at the midpoint
  • Free cash flow was negative -$2.97 million, compared to negative free cash flow of -$1.76 million in previous quarter
  • Customers: 2,100, same as in previous quarter
  • Gross Margin (GAAP): 71.6%, down from 73.4% previous quarter
  • Updated valuation: Sumo Logic is down at $17.91 and accounting for the revenue added in Q1 it now trades at 9.3x price-to-sales (LTM), compared to 9.4x just before the results.

“Our year is off to a strong start driven by demand from our global enterprise and mid market customers for Sumo Logic’s Continuous Intelligence platform,” said Ramin Sayar, president and CEO of Sumo Logic.

Watching The Clouds

When the founders were starting SumoLogic in 2010, the first investment from the famous VC firm Greylock came so fast they didn’t even have a name for the company yet, and so they chose the name of one of their dogs “Sumo” as a placeholder. As is often the case, it stuck.

SumoLogic (NASDAQ:SUMO) is software as a service data analytics platform that helps companies get insight into what is happening in their servers and applications. Sumo plugs into their cloud customers services and gathers logs about how are they being used, analyses the data and then makes them accessible through collaborative dashboards. It helps their customers reduce downtime by alerting them about performance issues of their applications and mitigates security risks by flagging suspicious traffic and visitor behaviour.

SumoLogic along with its competitors like Datadog (DDOG) or Elastic (ESTC) belong to the type of tech infrastructure companies that are benefiting from the growing digital economy and overall migration to cloud-based services, regardless of the industry.

As you can see below, Sumo Logic's revenue growth has been solid over the last twelve months, growing from $47.2 million to $54.2 million.

Sumo Logic Total Revenue

This quarter, Sumo Logic's quarterly revenue was once again up 14.8% year on year. We can see that revenue increased by just $67 thousand in Q1, down from $2.28 million in Q4 2021. So while Sumo Logic's growth rates are not bad generally, we have no doubt shareholders would like to see the company add more than that when it reports next.

There are others doing even better. Founded by ex-Google engineers, a small company making software for banks has been growing revenue 80% year on year and is already up more than 400% since the IPO in December. You can find it on our platform for free.

Sumo Logic Gross Margin (GAAP)

Sumo Logic's gross profit margin, an important metric measuring how much money there is left after paying for servers, licences, technical support and other necessary running expenses was at 71.6% in Q1. That means that for every $1 in revenue the company had $0.71 left to spend on developing new products, marketing & sales and the general administrative overhead. Despite the recent drop this is still around the lower average of what we typically see in SaaS businesses. Gross margin has a major impact on a company’s ability to invest in developing new products and sales & marketing, which may ultimately determine the winner in a competitive market so it is important to track.

Key Takeaways from Sumo Logic's Q1 Results

Since it is still burning cash it is worth keeping an eye on Sumo Logic’s balance sheet, but we note that with market capitalisation of $2.02 billion and more than $408.5 million in cash, the company has the capacity to continue to prioritise growth over profitability.

Zooming out, we think this was still a decent, albeit mixed, quarter. We don't view Sumo Logic as a standout growth stock, and nothing we've seen today has changed that.

PS. If you found this analysis useful, you will love our earnings alerts! We publish so fast, you often have the opportunity to buy or sell before the market has fully absorbed the information. Never miss out on the right time to invest again. Signup here for free early access.

The author has no position in any of the stocks mentioned.