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Sumo Logic (NASDAQ:SUMO) Beats Q2 Sales Targets, Stock Soars


Radek Strnad /
2021/09/09 4:06 pm EDT
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Cloud infrastructure analytics maker Sumo Logic (SUMO) reported strong growth in the Q2 FY2022 earnings announcement, with revenue up 19% year on year to $58.8 million. Sumo Logic made a GAAP loss of $32 million, down on its loss of $12.2 million, in the same quarter last year.

Is now the time to buy Sumo Logic? Access our full analysis of the earnings results here, it's free.

Sumo Logic (SUMO) Q2 FY2022 Highlights:

  • Revenue: $58.8 million vs analyst estimates of $56.6 million (3.82% beat)
  • EPS (non-GAAP): -$0.11 vs analyst estimates of -$0.14
  • Revenue guidance for Q3 2022 is $60.8 million at the midpoint, above analyst estimates of $60.1 million
  • The company lifted revenue guidance for the full year, from $234.5 million to $237.8 million at the midpoint, a 1.4% increase
  • Free cash flow was negative $5.59 million, compared to negative free cash flow of -$2.97 million in previous quarter
  • Gross Margin (GAAP): 66.3%, down from 71.6% previous quarter

“This quarter we saw continued momentum in our business as new and current customers adopt our Continuous Intelligence platform for a broad range of Observability and Security use cases,” said Ramin Sayar, president and CEO of Sumo Logic.

Founded in 2010, Sumo Logic is software as a service data analytics platform that helps companies get insight into what is happening in their servers and applications.

Organizations are expected to look towards modern tech platforms such as Sumo Logic to manage the growing complexity of enterprise applications and processes required to power their business.

Sales Growth

As you can see below, Sumo Logic's revenue growth has been solid over the last year, growing from quarterly revenue of $49.4 million, to $58.8 million.

Sumo Logic Total Revenue

This quarter, Sumo Logic's quarterly revenue was once again up 19% year on year. We can see that the company increased revenue by $4.62 million quarter on quarter. That's a solid improvement on the $67 thousand increase in Q1 2022, so shareholders should appreciate the acceleration of growth.

Analysts covering the company are expecting the revenues to grow 18.3% over the next twelve months, although we would expect them to review their estimates once they get to read these results.

There are others doing even better than Sumo Logic. Founded by ex-Google engineers, a small company making software for banks has been growing revenue 90% year on year and is already up more than 400% since the IPO in December. You can find it on our platform for free.

Profitability

What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. 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 66.3% in Q2.

Sumo Logic Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.66 left to spend on developing new products, marketing & sales and the general administrative overhead. This would be considered a low gross margin for a SaaS company and it has dropped significantly from the previous quarter, which is probably the opposite of what shareholders would like it to do.

Key Takeaways from Sumo Logic's Q2 Results

Since it has still been burning cash over the last twelve months it is worth keeping an eye on Sumo Logic’s balance sheet, but we note that with a market capitalization of $2.14 billion and more than $96.5 million in cash, the company has the capacity to continue to prioritise growth over profitability.

It was good to see Sumo Logic outperform Wall St’s revenue expectations this quarter. And we were also glad that the revenue guidance for the next quarter exceeded analysts' expectations. On the other hand, it was less good to see the pretty significant deterioration in gross margin. Zooming out, we think this was still a good quarter, showing the company is staying on target. The company is up 7.85% on the results and currently trades at $21.7 per share.

Should you invest in Sumo Logic right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

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