Sumo Logic - Modest Valuations As There Are Some Concerns

Summary

• Sumo Logic has seen a relatively modest welcome on the stock market, as its opening day jump trails that of other tech IPOs.
• Very modest sales multiples look compelling, although growth is underwhelming while quite some work needs to be done on the margin front.
• Low expectations do create a setup for potential valuation multiple expansion if growth can accelerate, meaning that I will keep a close eye on the shares.
• Looking for a helping hand in the market? Members of Value In Corporate Events get exclusive ideas and guidance to navigate any climate. Get started today »

Sumo Logic (SUMO) went public this week and while this technology offering ticks many boxes, and momentum in IPO land has been strong (while established technology names saw a bit of a sell-off), shares of Sumo did not see a big opening day jump as some might have been expecting. Truth is that pro-forma sales multiples look very reasonable, yet perhaps explainable given the extent of the losses and revenue slowdown. Nonetheless, this is an interesting set-up to keep a close eye on in the coming quarters, as significant multiple expansion might be in the works if growth can be prolonged.

Continuous Intelligence

Sumo Logic claims to be the pioneer of Continuous Intelligence which the company claims is a new category of software, enabling organizations to address challenges and opportunities offered by digital transformation and cloud computing.

With the Sumo Continuous Intelligence Platform, companies and organizations can automate collection, ingestion and analysis of applications, security, infrastructure in a rapid fashion. All the right buzz words are here as the Continuous Intelligence Platform makes use of artificial intelligence and machine learning, allowing for rapid and secure continued business process at all times.

For companies, it is imperative nowadays to know what is happening real-time in terms of intelligence not just for their business decisions, but furthermore for security and compliance purposes, among others. The combination of modern application architecture, cloud-adoption (providing flexibility and agility), data intelligence, potential for huge data sets to be analyzed, and all of this on a real-time basis, provides great benefits to prominent customers.

IPO & Valuation Thoughts

Initially, Sumo Logic and underwriters aimed to sell 14.8 million shares in a range between $17 and $21 per share as solid demand meant that pricing was set at $22 per share. At this level, the company will generate gross proceeds of $325

Analyst’s Disclosure:I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.