Sumo Logic is a popular choice for organizations looking for cloud-based log management. The company, which went public in September at $22 per share, has seen its stock price rise to more than $40 per share. This growth is consistent but quick. Yet, there are some considerations you need to make before investing in the company. For example, Sumo Logic's competitors are taking away the company's market shares. This piece will look at Sumo Logic stock and its pros and cons. It further explains why it's an attractive investment option and the risks of investing in it.
What is SUMO Logic?
Sumo Logic (NASDAQ: SUMO) is a data analytics company. It provides monitoring and logs management solutions for DevOps and IT operations. The company's Artificial Intelligence (AI) and machine learning techniques allow for real-time monitoring. It primarily deals with applications and logs data from cloud infrastructure services such as Amazon Web Services (AWS) . Sumo Logic was founded in 2010 and went public on the Nasdaq stock exchange in September 2019. The company had a successful IPO, with shares more than doubling during the first day of trading.
What Makes Sumo Logic Stock Attractive?
For many years, Sumo Logic has been a top name in the cloud-based log management space. The company is developing, and it has recently added data warehouse capabilities. As a result of these factors, Sumo Logic stock is currently trading at a P/S ratio of 11x. This is much lower than some of its main competitors, such as Splunk (NASDAQ: SPLK), which trades at a P/S ratio of 23x. Yet, Sumo Logic stock is still more overpriced than some other cloud-based businesses.
Sumo Logic Is an Innovative Technology Leader
Sumo Logic is an innovative technology leader disrupting the $30B+ market opportunity. So, it influences the Cloud SIEM space with an industry-leading SaaS platform.Customers can obtain excellent business insights across their IT, Security, and DevOps environments. Thus, it's a ground-breaking approach to cloud-based log management and analytics. They have grown from a small team of entrepreneurs to over 500 employees worldwide in just a decade. Their mission from the Silicon Valley headquarters to their offices worldwide is to empower everyone to Turn Data into Doing with machine data. The clients enjoy extensive knowledge of big data technology and security best practices. The team commit to client satisfaction. In addition, they have a cutting-edge approach to software pricing and delivery. They are passionate about helping customers realize their vision for digital transformation. Such is a reality with their agility, speed of innovation and flexibility.
Sumo Logic’s Growing Revenue Numbers Are Promising
Recently, Sumo Logic has made significant progress in the industry. It attributes its growth to cloud-based log management and analytics software. The company surpassed a $100 million annual sales run rate, more than double the prior year. Sumo Logic is an American company that was founded in 2010. It is headquartered in Redwood City, California. There are two additional U.S. offices in Seattle and San Mateo and an EMEA office in London. It serves both enterprises and SMBs through Log Management and Analytics platforms. Sumo Logic offers subscription plans billed on a monthly or annual basis. In addition, there are custom pricing plans for larger organizations. The company also offers a free plan to users. So, its provisions are 500 MB of logs per day with up to seven days of data retention. Free users can also access features like customizable dashboards with preconfigured searches. Also, alerts log file analyzes tools; DevOps monitoring tools, metrics monitoring capabilities, and mobile access through web browsers or mobile apps for iOS or Android devices.
Sumo Logic’s Overall Performance
Sumo Logic provides real-time operational intelligence, applications and infrastructure on the cloud. It collects and analyzes machine data of log files and metrics from web-based applications. The final solution is boosting functioning in the cloud and on-premises. This document contains forward-looking statements regarding Sumo Logic and its overall business performance. The growth rates during its history aren't indicative of the future growth rate. They are a relatively new company with a limited operating history. So, you should not rely upon their past results as a sign of future performance. They continue to make significant investments in research and development, sales, and marketing. Hence, there are general and administrative activities to support their growth. As they attempt to grow their activities, a rise is forseen in absolute terms of investments. But, they may decrease as a percentage of the revenue if they are successful in increasing revenue. The operating expenses may, therefore, grow at a faster rate than their revenues.
The Stock's Performance
Sumo Logic (NASDAQ: SUMO) has been a top-performing stock over the last three years. For instance, it has had a 521% gain, compared to an 83.6% gain for the S&P 500. While its financial track record is unimpressive, Sumo Logic's growth strategy is promising. Thus, it expands its addressable market from $1 billion to $35 billion over the next decade. Sumo's customer base and revenue are growing rapidly, but the company remains unprofitable. It posted non-GAAP losses of $1.47 per share in 2018. Fortunately, it narrowed that loss to $0.94 per share in 2019 and expected that figure to improve again this year. Analysts expect its revenue and losses to rise 36% and 20% respectively. Sumo also faces tougher competition from Splunk (NASDAQ: SPLK). Splunk's a market leader that collects and analyzes server data logs. Splunk has bought Thousand Eyes, enhancing its growing AIOps sector. It uses software-defined sensors to check cloud services and digital networks. Sumo Logic has faster growth, broader stronger partnerships with cloud providers.
Sumo Logic's Outlook
Usually, an organization's data is the best business intelligence and insights source. Because of this, there will be a massive shift in IT budgets away. Hence, company legacy infrastructure and analytics. Thus, it enables the generation of insights around security and compliance.This is a massive opportunity since enterprises struggle to realize returns from investments. For instance, cloud services have grown to over $200 billion annually. Sumo Logic’s unique approach to collecting, analyzing, and visualizing data in real-time. Customers can get actionable insights into their data using its public clouds. Furthermore, consumers can access on-premise settings. Thus, Sumo Logic is a relief at a time when the risks of operating a business technologies skyrocket.
Sumo Logic's Valuation
In 2010, Sumo Logic's goal was to help consumers understand their expanding digital data. In its early days, the startup handled machine-generated data. But over time, it has evolved into a broader platform. It's thus an eponymous big data analytics component and integrated security services.
Why Consider Sumo Logic as an Investment
There are reasons why an investor would consider Sumo logic as an attractive venture:
Great For Profitability
Sumo Logic has had challenges, such as the pandemic that has affected businesses. Therefore, it would be wrong to rate its performance in the stock market as unprofitable. To some long-term investors, there is room for revenue growth. Investors can therefore consider it an unexploited gold mine.
Attractive Data Retention Architecture
Sumo logic addresses the current technical needs of most companies. It is built on a globally distributed data retention architecture. That maintains all log data available for fast analysis or removing the cost. Furthermore, it entails the complexity of data archiving backups. The service is cloud-based and requires no ongoing maintenance.
Great Problem Resolution
Most companies are unable to address the root causes of their operational malfunctions. Fortunately, Sumo Logic can centralize and generate rapid log data solutions. Through its inbuilt abilities, cloud environments can address production issues for their customers.
The Stock of Sumo Logic Could Double in Value
After the Q4 results report, the long-term model on Sumo Logic remains unaltered. In general, Sumo Logic may grow revenues at a 10%-plus rate over the next decade given to Intelligence Economy tailwinds and Long-term competitive advantages of Sumo Logic in this hypergrowth area. There is also a prospective gross margin increase to 80%. Also, Sumo Logics' operating margins increased to 30%. Hence, both reflect a type of application software companies of this type.
Sumo Logic Has Yet to Turn An Annual Profit.
The primary con of Sumo Logic as a long-term investment is that it's not profitable. This is common for tech companies getting started. Sumo Logic lost $79 million on $115 million in revenue in fiscal 2019. Also, it lost another $36 million on revenue of $124 million in fiscal 2020.
The Company Is Facing Increased Competition in Its Industry.
But, Sumo Logic has plenty of competition in the log management market. Splunk (NASDAQ: SPLK) has a 25% share of the market and an enterprise value of $22.8 billion. Elastic (NYSE: ESTC) has a 16% share of that market with an enterprise value of $7.4 billion. These two companies have deeper pockets than Sumo Logic. No wonder they're more willing to subsidize their offerings with advertising dollars. To survive, Sumo Logic has been slashing prices to compete. However, those price cuts could eventually impact its margins and profitability. Sumo Logic also faces threats from smaller companies like Datadog and LogRhythm. These companies are narrowing the gap between their products and Sumo Logic's offerings. But, Sumo Logic claims no one can match its AI-powered machine data analytics platform. Unfortunately, this is not the popular belief amongst its customers disagree. Finally, the CEOs, or chief security officers, are Sumo Logic's direct customers. So, its largest customers lack influence in purchasing decisions outside their departments. The company still relies heavily on partnerships with system integrators. Such partners include Accenture to sell its products.
Sumo Logic stock is trading at sky-high levels compared to its historical averages.
Sumo Logic stock hit an all-time high of $52.86 on March 10. That's more than double the company's initial public offering (IPO) price of $22 per share. This was more than four times Sumo Logic's IPO reference price of $11 per share. Sumo Logic's shares performed well because the company has posted solid earnings reports. So, investors got updated feedback over the past few quarters. Sumo Logic reported a net loss of $0.09 per share in January. Closely following is a revenue of $90 million for its fiscal third-quarter of 2021. Both statistics exceeded Wall Street's expectations, propelling the stock higher.
The company's stock price could fall significantly. Yet, this depends on whether there are any issues with hitting the growth forecasts. The cloud-based data Sumo Logic stock price fell during the two days of trading. Initially, it priced its shares at $17 and then rebounded to a peak of $32 per share. But Sumo Logic stock has given back all those gains, falling to less than $15 per share. Even after a recent bounce, it's fallen about 20% from its initial public offering (IPO) price. Sumo Logic stock's price performance reflects the current market cycle tech IPO volatility. All this volatility has made Sumo Logic stock unappealing to investors. But, with its large price swings, it may be worth keeping an eye on for investors looking to buy tech companies on the drop. If you're thinking about buying Sumo Logic stock, you should know that it could fall. That is only dependent on hitting the growth forecasts that underpin its valuation. In conclusion, Sumo Logic appears to be an attractive stock right now. Yet, the pandemic and its economic consequences could create headwinds for the company. Sumo may stabilize according to a price prediction of around $40 for SUMO stock in 2021. Investors tap into its data processing abilities despite its invisibility in stocks performance. Finally, the above Sumo Logics assumptions shouldn't hinder investing amid the pandemic uncertainties.
Written by Allen Lee
Read more posts by Allen Lee