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Sumo Logic (NASDAQ:SUMO) Surprises With Q1 Sales, Stock Soars


Radek Strnad /
2022/05/26 4:23 pm EDT
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Cloud infrastructure analytics maker Sumo Logic (SUMO) reported results ahead of analyst expectations in the Q1 FY2023 quarter, with revenue up 25.1% year on year to $67.8 million. Guidance for the full year was in line with analyst expectations with revenues guided to $290.5 million at the midpoint. Sumo Logic made a GAAP loss of $34.7 million, down on its loss of $26.9 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) Q1 FY2023 Highlights:

  • Revenue: $67.8 million vs analyst estimates (2.67% beat)
  • EPS (non-GAAP): -$0.13 vs analyst estimates of -$0.17
  • Revenue guidance for Q2 2023 is $71.5 million at the midpoint, above analyst estimates of $70.4 million
  • The company reconfirmed revenue guidance for the full year, at $290.5 million at the midpoint
  • Free cash flow was negative $1.99 million, compared to negative free cash flow of $11.1 million in previous quarter
  • Gross Margin (GAAP): 64.4%, down from 71.6% same quarter last year

“We started our fiscal year strong as we delivered 25% revenue growth in the first quarter. Escalating security threats are driving a healthy demand environment, and we remain well positioned with a unified platform that delivers both observability and security,” 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 year, growing from quarterly revenue of $54.2 million, to $67.8 million.

Sumo Logic Total Revenue

This quarter, Sumo Logic's quarterly revenue was once again up a very solid 25.1% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $806 thousand in Q1, compared to $5.03 million in Q4 2022. 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 21.5% year on year to $71.5 million, improving on the 19% 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 19.2% 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 64.4% in Q1.

Sumo Logic Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.64 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 been going down over the last year, which is probably the opposite direction shareholders would like to see it go.

Key Takeaways from Sumo Logic's Q1 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 $860.2 million and more than $308.1 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, there was a deterioration in gross margin. Zooming out, we think this was still a decent, albeit mixed, quarter, showing the company is staying on target. The company is up 6.49% on the results and currently trades at $8.2 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.