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Taking Stock of Sumo Logic’s Risk Factors

Sumo Logic, Inc. (SUMO) provides Sumo Logic Continuous Intelligence software platform. Its solutions help organizations address data challenges and opportunities presented by digital transformation, modern applications and cloud computing. Despite a steady uptick in sales, shares of the company have dropped 28.4% so far this year.

Against this backdrop, let’s take a look at Sumo’s Q2 2022 performance and understand what has changed in its key risk factors that investors should know.

Its Q2 revenue grew 19% year-over-year to $58.8 million, beating analysts’ estimates by $2.17 million. The company increased its customer base and also witnessed higher international revenue (making up 17% of the top line) during this period.

The President and CEO of Sumo, Ramin Sayar, remarked, “This quarter we saw continued momentum in our business as new and current customers adopt our Continuous Intelligence platform for a broad range of Observability and Security use cases.

We will continue to invest in platform expansion and expanded routes to market to position us to capture the significant opportunity created by digital transformation and cloud migration.”

Sumo’s Q2 net loss per share of $0.11 was narrower than analysts’ estimates by $0.03. The company had incurred a net loss per share of $0.31 in the year-ago period. (See Sumo Logic stock chart on TipRanks)

Looking ahead, Sumo expects to post Q3 revenue in the range of $60.3 million and $61.3 million. Net loss per share is estimated at $0.14.

On September 10, Rosenblatt Securities analyst Blair Abernethy reiterated a Buy rating on the stock with a price target of $35. Abernethy said, “Sumo made progress in Q2 adding to its large customer count, increasing Security and Observability use case adoption, and increased Current RPO by 31% year-over-year.”

Based on 5 Buys and 3 Holds, consensus on the Street is a Moderate Buy for Sumo Logic. The average Sumo Logic price target of $25 implies 31.6% upside potential.

Now, let’s look at what’s changed in the company’s key risk factors.

According to the new Tipranks’ Risk Factors tool, Sumo Logic’s main risk category is Finance & Corporate, which accounts for 42% of the total 66 risks identified. Since July, the company has added one key risk factor under the Tech & Innovation risk category.

Sumo Logic acknowledges that it licenses certain editions of its offerings (Sensu Go) under an open-source licensing model. This may limit the company’s ability to monetize the product.

Sumo Logic is employing a business strategy called the open-core licensing model under which the open-source version of Sensu will be complemented by paid versions. Open source editions generally have very low conversion rates to paid editions. Additionally, the risk also remains that a competitor may fork the project and create a competing one, which may divert potential customers.

Finally, if Sumo Logic ever decides to stop support to the open-source editions then such a decision may draw criticism and negatively impact public relations.

The Finance & Corporate risk factor’s sector average is at 38%, compared to Sumo Logic’s 42%.

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