Cloud visibility platform Sumo Logic filed their S-1 this past week and thus began the clock on their IPO. The streak of hot tech IPOs seems poised to continue but if we dig into the S-1, what do the numbers tell us about Sumo Logic’s long term staying power?
The first metric that jumps out of their S-1 is their last 12 month’s net revenue retention (you can see the data here), which sits at 128% which is a phenomenal level and is in the top quartile of publicly traded SaaS companies. This number indicates that the Sumo Logic team is able to grow revenue from within their own customer base which is a powerful avenue for revenue growth and typically indicates low customer churn and a sticky product.
Second is their revenue growth which quite often can be directly impacted by net revenue retention. Sumo Logic’s revenue grew 48% year-over-year which is also in the top quartile of publicly traded SaaS companies and an indicator that they are still poised for growth even as they achieve scale and head into the public markets.
Now it isn’t all peaches and roses for Sumo Logic, there are some operational and growth metrics that they will need to work on as they debut on the public market. While their retention and growth numbers are great, over the last 12 months their GAAP operating margin was at -60% which is far below average for public SaaS companies (see the benchmark data here). Being operationally unprofitable at IPO certainly isn’t outside the norm for most SaaS businesses, however in the case of Sumo Logic it is of note that their climb up to profitability is a big one and over the next 24-36 months investors and other will be watching their financials to see how they are progressing towards being operationally profitable.
In summation the Sumo Logic IPO will be highly anticipated as their growth and retention metrics are on par with some of the top publicly traded SaaS companies and they are just about to set foot on the public stage. The profitability gap is a slight concern and we will need to watch their financials closely over the next few years to make sure that they are starting to close that gap especially if growth starts to plateau which can happen as a certain point in the growth cycle for SaaS companies after they go public.