Cloud infrastructure analytics maker Sumo Logic (SUMO) reported Q4 FY2022 results topping analyst expectations, with revenue up 23.8% year on year to $67 million. Guidance for the full year also exceeded estimates, however the guidance for the next quarter was less impressive, coming in at $66 million, 0.1% below analyst estimates. Sumo Logic made a GAAP loss of $33.5 million, down on its loss of $20.5 million, in the same quarter last year.
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Sumo Logic (SUMO) Q4 FY2022 Highlights:
- Revenue: $67 million vs analyst estimates of $64.3 million (4.23% beat)
- EPS (non-GAAP): -$0.13 vs analyst estimates of -$0.17
- Revenue guidance for Q1 2023 is $66 million at the midpoint, roughly in line with what analysts were expecting
- Management's revenue guidance for upcoming financial year 2023 is $290 million at the midpoint, beating analyst estimates by 1.7% and predicting 19.7% growth (vs 19.3% in FY2022)
- Free cash flow was negative $11.1 million, compared to negative free cash flow of $13.1 million in previous quarter
- Gross Margin (GAAP): 66%, down from 73.4% same quarter last year
“We delivered 24% growth in the fourth quarter and were able to execute on our plan to reaccelerate revenue growth in the back half of fiscal 2022. Across the markets we serve, digital transformation and cloud migration initiatives remain high priority, and were key drivers of the strength and contribution we saw across our customer base this quarter,” 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.
As you can see below, Sumo Logic's revenue growth has been solid over the last year, growing from quarterly revenue of $54.1 million, to $67 million.
This quarter, Sumo Logic's quarterly revenue was once again up a very solid 23.8% year on year. On top of that, revenue increased $5.03 million quarter on quarter, a very strong improvement on the $3.17 million increase in Q3 2022, which shows acceleration of growth, and is great to see.
Guidance for the next quarter indicates Sumo Logic is expecting revenue to grow 21.7% year on year to $66 million, improving on the 14.8% year-over-year increase in revenue the company had recorded in the same quarter last year. For the upcoming financial year management expects revenue to be $290 million at the midpoint, growing 19.7% compared to 19.3% increase in FY2022.
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 150% since the IPO last December. You can find it on our platform for free.
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 66% in Q4.
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 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 Q4 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 $1.2 billion and more than $290.6 million in cash, the company has the capacity to continue to prioritise growth over profitability.
We liked to see that Sumo Logic guided for revenue growth next year to continue. And we were also excited to see that it outperformed Wall St’s revenue expectations. On the other hand, there was a deterioration in gross margin and the revenue guidance for the next quarter missed analysts' expectations. Overall, this quarter's results still seemed reasonably positive, showing the company is staying on track. The company is up 0.83% on the results and currently trades at $10.83 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.
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The author has no position in any of the stocks mentioned.