William Blair & Company initiated research coverage of Sumo Logic, Inc. (SUMO $24.20). Sumo Logic is a next-generation provider of observability, monitoring, and security solutions through its Continuous Intelligence Platform.
Analyst Bhavan Suri estimated Sumo Logic would achieve revenue growth of 27% in fiscal 2021, 17% in fiscal 2022, and 22% in fiscal 2023, with growth hampered in part by temporary factors such as lower demand related to COVID-19 and lower sales-and-marketing investments. He expects increased investments in the business and a normalization of demand to drive acceleration in outer years.
Suri said, “The success of enterprises is increasingly tied to the quality and performance of their software. At the same time, emerging technology and operational paradigms are presenting new challenges to software delivery. These factors are driving strong secular demand for monitoring solutions that provide visibility into the performance and business impact of modern applications. We peg the total addressable market at about $40 billion, implying less than 0.5% penetration for Sumo Logic. A large portion of this TAM is still greenfield, where the customer’s existing observability solution is legacy, internally built, or nonexistent. We believe this greenfield opportunity, combined with an expected TAM growth rate of at least midteens, leaves Sumo Logic significant opportunity to continue to grow before it will be meaningfully impacted by competitive pressures. In addition, in fiscal 2020, Sumo Logic introduced a new credit based pricing model that has the potential to increase the company’s net dollar expansion rate and increased its international sales headcount by about 75%. While the COVID-19 pandemic affected initial progress with international expansion efforts, we are optimistic that new geographies will accelerate over the next few years.”
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