The bear market in stocks during 2022 has hit investors hard, and the damage has been particularly evident among tech stocks in the Nasdaq Composite (^IXIC -1.15%). After several years of outperforming other major market indexes, the Nasdaq has had to deal with many of its stock listings seeing steep share-price declines of 50% or more this year.
On Tuesday morning, however, it looked as though the Nasdaq would get some relief from Monday's sizable drop, with futures contracts posting gains of about a quarter percent in premarket trading early Tuesday. Among the bright spots on the Nasdaq were substantial gains for software-as-a-service (SaaS) stocks Gitlab (GTLB -0.65%) and Sumo Logic (SUMO), both of which announced quarterly financial results that gave investors confidence in their ability to bounce back in 2023.
Gitlab sees continuing demand
Shares of Gitlab jumped 18% in premarket trading Tuesday morning. The provider of development, security, and operations software released third-quarter results for the period ending Oct. 31 that showed that its enterprise customers continued to pursue their digital transformation efforts even in a slowing macroeconomic environment.
Gitlab's financial numbers were strong. Revenue jumped 69% year over year to $113 million, all of which came from organic growth. Dollar-based net retention rates remained above 130%, and the company reported significant improvement in its adjusted operating margins. Gitlab still lost money, but adjusted net losses of $0.10 per share were significantly narrower than the $0.34-per-share loss the company reported in the year-ago quarter.
Gitlab also saw a big uptick in the number of large customers it serves. The number of clients paying $100,000 or more annually on its SaaS services rose by nearly half to 638 over the past 12 months, with key tools like its Cloud Seed migration tool helping its customers adopt cloud computing more efficiently through Gitlab's collaboration with Alphabet business unit Google Cloud. Increasingly, big companies are adopting DevOps platforms to improve IT performance and bolster security of their network assets.
Investors liked Gitlab's guidance as well, as the company projected fourth-quarter sales of $119 million to $120 million and adjusted net losses of between $0.14 and $0.15 per share. Even without current profits, Gitlab is demonstrating that companies still need its software even as they look to cut back on spending in other areas.
Sumo Logic fights back
Shares of Sumo Logic also moved higher early Tuesday, picking up 9% in the premarket session. The SaaS analytics platform provider's third-quarter results for the period ending Oct. 31 indicated Sumo's ongoing progress toward becoming profitable and generating consistent positive cash flow.
Sumo's growth rate wasn't as fast as Gitlab's, but it was good enough to make investors happy. Revenue climbed 27% year over year to $79 million, with annual recurring revenue weighing in at $299 million, up 22% from the year-ago period. Losses narrowed from year-ago levels, with Sumo posting an adjusted loss of just $0.04 per share thanks largely to its operating efficiency improvement efforts.
Investors were also comfortable with Sumo's fourth-quarter guidance. The company expects sales of $77 million to $78 million in the coming quarter, which would be 15% to 16% higher than in the year-earlier period. Losses of $0.08 to $0.09 per share for the quarter would also finish the fiscal year on an encouraging note.
Sumo Logic shares remain 80% below their early 2021 highs, as shareholders have increasingly wanted to see immediate profitability from the companies in which they invest. Yet from current levels, Sumo has considerable potential to post attractive returns in 2023 and beyond.
