Sumo Logic Inc. shares dropped Friday after two Wall Street analysts downgraded the data-analysis company’s stock on concerns about customer retention rates.
shares fell as much as 15% in Friday trading to an intraday low of $17.16, and were last down 10% at $18.08 in afternoon trading.
Late Thursday, Sumo announced quarterly results that exceeded Wall Street expectations, but other analysts pointed to concerns in the report. The company first reported results as a public company back in December, following its initial public offering a year ago.
Piper Sandler analyst Rob Owens downgraded Sumo to a neutral rating from overweight and cut his price target to $20 from $24 citing Sumo’s trouble in retaining customers.
“In an environment where software ‘beats and raises’ have become the norm, we are modestly lowering our forward expectations for core SUMO revenue for the second time in the past three quarters despite a revenue beat, with extended (North America) sales cycles and pressured net retention rates weighing on results,” Owens said.
“While top-line performance beat in the Q and discussions around international momentum and customer adds were positive, weaker [net retention rate] and lowered guidance tell more of a mixed story,” Owens said.
BTIG analyst Gray Powell similarly downgraded Sumo to a neutral rating from a previous buy and stopped providing a price target, which had been $27 before the downgrade, in a note titled “A Decent FQ2 Print That Should Have Been Better.”
Powell said Sumo’s results and business for the second quarter had “a few too many moving parts,” citing the company’s overreliance on its largest customer and declining gross margins amid a “decent” quarter.
“But given that we are potentially in the best security spending environment we have seen in 6+ years, and with the company’s closest peers beating and raising forecasts, we simply expected more,” Powell said. “This, combined with commentary on elongated sales cycles in North America and a few other moving parts in the report, are hard to overlook.”
Of the 10 analysts who cover Sumo, five now have buy ratings on the stock, while the other five have hold ratings, according to FactSet. Of those, three lowered their price targets, resulting in an average price target of $24.13, down from a previous $25.22, according to FactSet data.
Shares of Sumo Logic have fallen more than 36% so far this year, contrasting with gains of around 19% for the S&P 500 index.