4074

Sumo Logic (NASDAQ:SUMO) Reports Bullish Q3, Stock Jumps 11.8%


Radek Strnad /
2022/12/05 4:08 pm EST
Add to Watchlist

Cloud infrastructure analytics maker Sumo Logic (SUMO) reported results ahead of analyst expectations in the Q3 FY2023 quarter, with revenue up 27.3% year on year to $78.9 million. Guidance for next quarter's revenue was $77.5 million at the midpoint, 2.76% above the average of analyst estimates. Sumo Logic made a GAAP loss of $26.2 million, improving on its loss of $30.8 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) Q3 FY2023 Highlights:

  • Revenue: $78.9 million vs analyst estimates of $74.1 million (6.4% beat)
  • EPS (non-GAAP): -$0.04 vs analyst estimates of -$0.15
  • Revenue guidance for Q4 2023 is $77.5 million at the midpoint, above analyst estimates of $75.4 million
  • Free cash flow was negative $9.1 million, compared to negative free cash flow of $12.4 million in previous quarter
  • Gross Margin (GAAP): 68.1%, up from 67.2% same quarter last year

“We delivered revenue growth of 27% year-over-year in the third quarter while also driving better operating efficiencies, and will continue to emphasize efficient growth as we drive towards future cash flow break even and profitability,” said Ramin Sayar, President and CEO of Sumo Logic.

Founded in 2010 by Christian Beegden who went from driving a cab in Germany to landing an internship at Amazon, Sumo Logic (NASDAQ:SUMO) is software as a service data analytics platform that helps companies get insight into what is happening in their servers and applications.

Software is eating the world, increasing organizations’ reliance on digital-only solutions. As more workloads and applications move to the cloud, the reliability of the underlying cloud infrastructure becomes ever more critical, and ever more complex. To solve the challenge, companies and their engineering teams have turned to a range of cloud monitoring tools that provide them with visibility to troubleshoot the issues in real time.

Sales Growth

As you can see below, Sumo Logic's revenue growth has been strong over the last two years, growing from quarterly revenue of $51.8 million in Q3 FY2021, to $78.9 million.

Sumo Logic Total Revenue

This quarter, Sumo Logic's quarterly revenue was once again up a very solid 27.3% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $4.84 million in Q3, compared to $6.25 million in Q2 2023. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Guidance for the next quarter indicates Sumo Logic is expecting revenue to grow 15.5% year on year to $77.5 million, slowing down from the 23.8% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 14.9% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. 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, licenses, technical support and other necessary running expenses was at 68.1% in Q3.

Sumo Logic Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.68 left to spend on developing new products, marketing & sales and the general administrative overhead. While it improved significantly from the previous quarter this would still be considered a low gross margin for a SaaS company and we would like to see the improvements continue.

Key Takeaways from Sumo Logic's Q3 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 $922.2 million and more than $322.1 million in cash, the company has the capacity to continue to prioritise growth over profitability.

We were very impressed by the strong improvements in Sumo Logic’s gross margin this quarter. And we were also excited to see that it outperformed Wall St’s revenue expectations. Zooming out, we think this was a great quarter and shareholders will likely feel excited about the results. The company is up 11.8% on the results and currently trades at $8.05 per share.

Sumo Logic may have had a good quarter, so should you invest 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.