Cloud-based machine data analytics firm Sumo Logic Inc. late today priced an initial public offering of 14.8 million common stock shares at $22 per share, just above the high point of its initial price estimate of between $17 and $21 a share.
The company plans to list on the Nasdaq stock exchange starting Thursday under the ticker symbol “SUMO,” and said it hopes to raise $325.6 million from the sale. It’s also offering an additional 2.22 million shares as an option to its underwriters over the next 30 days. They would be worth $48.8 million, which would bring the total up to $374.4 million.
The offering will leave Sumo Logic with about 98.7 million shares outstanding, giving the company a market value of about $2.2 billion.
The company, which is led by Chief Executive Officer Ramin Sayar (pictured), sells a cloud analytics platform that provides insights into information technology infrastructure issues and cybersecurity threats. It provides services such as log management, Amazon Web Services monitoring, Azure management, Google Cloud Platform management, Kubernetes management, microservices monitoring and cloud security monitoring. The platform also lends itself to more business-oriented use cases such as customer analytics.
Sumo Logic might be seen as a risky bet by some investors, since the company posted a loss of $92.1 million in its fiscal 2019 year, compared with a loss of $47.8 million the year before. But although it hasn’t reached profitability yet, its revenue has increased by more than 50% in the same period, underlining its potential. And investors have been sanguine about money-losing but fast-growing tech companies, especially those in cloud computing.
The company will be hoping to lure Wall Street investors with the promise of good things to come. In its IPO filing, Sumo Logic estimated its total addressable market at around $49.3 billion, though it warned that it faces intense competition from companies that provide similar services.
One of Sumo Logic’s biggest rivals is the data analytics firm Splunk Inc., which was founded in 2003 and has a much bigger slice of the pie, pulling in around $1.93 billion in annual recurring revenue. Secure Octane founder Mahendra Ramsinghani wrote in VentureBeat Monday that Sumo Logic’s main advantage over Splunk is that its software-as-a-service platform was born in the cloud. Splunk, on the other hand, began life as an on-premises software offering, but it has spent the last few years slowly transitioning to a SaaS model, and that move is now accelerating.
In the company’s most recent, second-quarter earnings call, Splunk Chief Executive Doug Merritt revealed that its annual recurring revenue from SaaS subscriptions is growing at more than 50%, and that SaaS accounts for 53% of its total bookings. Splunk also has a big advantage in terms of integrations with third-party applications, Ramsinghani said.
Still, the cloud advantage is not lost on investors. It’s entering a stock market that has a voracious appetite for high-growth, cloud-based software firms, many of which have demonstrated strong growth during the coronavirus pandemic. The Nasdaq index, which is focused on publicly traded technology firms, is up more than 25% this year versus a 4.5% gain for the broader S&P 500.
A number of promising cloud software companies have gone public in recent days, most notably Snowflake Computing Inc., which saw its share price more than double in value to $245 per share on its first day of trading today, raising almost $4 billion and giving it a stunning valuation of $68 billion.
Also on today, JFrog Ltd., which sells a cloud-based application development platform, saw its share price rocket on its first day of trading. The stock closed up 47%, to $64.79 per share, putting the company’s value at $5.7 billion.
Sumo Logic has said it plans to spend the proceeds of its IPO on acquisitions and further investments in technologies, with an eye to accelerating product innovation and expansion. The company’s strategy is to grow its business first in order to grab more of that almost $50 billion addressable market it’s fighting for, before trying to become profitable.
Sumo Logic has raised $340 million in venture capital, with its most recent $110 million funding round in May 2019 valuing it at just over $1 billion.
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