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Sumo Logic joins the enterprise software IPO parade, raising $326M to watch over the cloud

Modern cloud infrastructure is extremely complicated, and keeping track of all the moving pieces requires tools like Sumo Logic's that monitor cloud application performance and security.

Sumo Logic CEO and President Ramin Sayar

After listing at $22 a share Wednesday evening, shares of Sumo Logic opened at $26.64 Thursday during its initial public offering on the Nasdaq.

Photo: Sumo Logic

It's almost impossible to understate the complexity of managing a modern cloud infrastructure deployment, even at huge companies with hundreds of expert engineers. Sumo Logic wants to be the alarm system for the cloud, and just raised $326 million to further its monitoring efforts.

After listing at $22 a share Wednesday evening, shares of Sumo Logic opened at $26.64 Thursday during its initial public offering on the Nasdaq. The shares closed at $26.88, valuing the 10-year-old company around $2.6 billion.

"There's a huge tailwind for the general way that we're thinking about things," said Christian Beedgen, co-founder and CTO, in an interview with Protocol on Thursday. As we saw Wednesday with Snowflake and JFrog's well-received IPOs, investors are very attracted to companies attacking modern tech infrastructure problems with software services.

The numbers vary across industries, but according to a report released by Okta earlier this year, customers of its access management service have an average of 88 software applications running various parts of their businesses. The top 10% of its customers are running more than 200 applications across their network, and that is a lot of data and activity to track, measure, and evaluate.

Sumo Logic's services help companies monitor application performance as well as security incidents, and like many other vendors working with vast amounts of data, it uses machine-learning algorithms to tease out insights from that data. The hope is to prevent outages or breaches before they happen, and to give customers a better picture of how their applications are actually working across cloud platforms.

Monitoring, and its newer companion category, observability, are "a means to an end," Beedgen said. "The end is reliability, the end is for your apps to be reliable so your business can run on top of them."

Companies like Splunk rose to prominence providing similar services for on-premises data centers, but almost everyone in the monitoring business has shifted their efforts to the cloud. Last year, Datadog, which provides similar cloud-monitoring services to Sumo Logic, raised $648 million in an IPO, and its stock price has doubled over the last 12 months.

Sumo Logic provides its services across multiple clouds as well as hybrid cloud setups that involve some degree of self-managed servers, but it runs its own operation entirely on AWS. That might seem like a bit of a head-scratcher, especially given AWS' intent to provide similar monitoring services to its clients as part of large package deals designed to woo cloud newbies onto its platform.

But in reality, the relationship is more complicated, Beedgen said. Sumo Logic competes with AWS to some extent, but the two companies are also partners, and as Sumo Logic's customer base grows, that actually generates more revenue for AWS as well.

"Every innovator needs to live in fear of being disrupted," Beedgen said. "If they manage to build a better product than us, then that's on us."

 Tom Krazit

Tom Krazit ( @tomkrazit) is Protocol's enterprise editor, covering cloud computing and enterprise technology out of the Pacific Northwest. He has written and edited stories about the technology industry for almost two decades for publications such as IDG, CNET, paidContent, and GeekWire, and served as executive editor of Gigaom and Structure.

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Protocol | China

Everything you need to know about the Yuanxin Technology IPO

Image: Yuanxin

Yuanxin Technology doesn't hide its ambition. In the first line of its prospectus, the company says its mission is to be the "first choice for patients' healthcare and medication needs in China." But the road to winning the crowded China health tech race is a long one for this Tencent- and Sequoia-backed startup, even with a recent valuation of $4 billion, according to Chinese publication Lieyunwang. Here's everything you need to know about Yuanxin Technology's forthcoming IPO on the Hong Kong Stock Exchange.

What does Yuanxin do?

There are many ways startups can crack open the health care market in China, and Yuanxin has focused on one: prescription drugs. According to its prospectus, sales of prescription drugs outside hospitals account for only 23% of the total healthcare market in China, whereas that number is 70.2% in the United States.

Yuanxin started with physical stores. Since 2015, it has opened 217 pharmacies immediately outside Chinese hospitals. "A pharmacy has to be on the main road where a patient exits the hospital. It needs to be highly accessible," Yuanxin founder He Tao told Chinese media in August. Then, patients are encouraged to refill their prescriptions on Yuanxin's online platforms and to follow up with telehealth services instead of returning to a hospital.

From there, Yuanxin has built a large product portfolio that offers online doctor visits, pharmacies and private insurance plans. It also works with enterprise clients, designing office automation and prescription management systems for hospitals and selling digital ads for big pharma.

Yuanxin's Financials

Yuanxin's annual revenues have been steadily growing from $127 million in 2018 to $365 million in 2019 and $561 million in 2020. In each of those three years, over 97% of revenue came from "out-of-hospital comprehensive patient services," which include the company's physical pharmacies and telehealth services. More specifically, approximately 83% of its retail sales derived from prescription drugs.

But the company hasn't made a profit. Yuanxin's annual losses grew from $17 million in 2018 to $26 million in 2019 and $48 million in 2020. The losses are moderate considering the ever-growing revenues, but cast doubt on whether the company can become profitable any time soon. Apart from the cost of drug supplies, the biggest spend is marketing and sales.

What's next for Yuanxin

There are still abundant opportunities in the prescription drug market. In 2020, China's National Medical Products Administration started to explore lifting the ban on selling prescription drugs online. Although it's unclear when the change will take place, it looks like more purely-online platforms will be able to write prescriptions in the future. With its established market presence, Yuanxin is likely one of the players that can benefit greatly from such a policy change.

The enterprise and health insurance businesses of Yuanxin are still fairly small (accounting for less than 3% of annual revenue), but this is where the company sees an opportunity for future growth. Yuanxin is particularly hoping to power its growth with data and artificial intelligence. It boasts a database of 14 million prescriptions accumulated over years, and the company says the data can be used in many ways: designing private insurance plans, training doctors and offering chronic disease management services. The company says it currently employs 509 people on its R&D team, including 437 software engineers and 22 data engineers and scientists.

What Could Go Wrong?

The COVID-19 pandemic has helped sell the story of digital health care, but Yuanxin isn't the only company benefiting from this opportunity. 2020 has seen a slew of Chinese health tech companies rise. They either completed their IPO process before Yuanxin (like JD, Alibaba and Ping An's healthcare subsidiaries) or are close to it (WeDoctor and DXY). In this crowded sector, Yuanxin faces competition from both companies with Big Tech parent companies behind them and startups that have their own specialized advantages.

Like each of its competitors, Yuanxin needs to be careful with how it processes patient data — some of the most sensitive personal data online. Recent Chinese legislation around personal data has made it clear that it will be increasingly difficult to monetize user data. In the prospectus, Yuanxin elaborately explained how it anonymizes data and prevents data from being leaked or hacked, but it also admitted that it cannot foresee what future policies will be introduced.

Who Gets Rich

  • Yuanxin's founder and CEO He Tao and SVP He Weizhuang own 29.82% of the company's shares through a jointly controlled company. (It's unclear whether He Tao and He Weizhuang are related.)
  • Tencent owns 19.55% of the shares.
  • Sequoia owns 16.21% of the shares.
  • Other major investors include Qiming, Starquest Capital and Kunling, which respectively own 7.12%, 6.51% and 5.32% of the shares.

What People Are Saying

  • "The demands of patients, hospitals, insurance companies, pharmacies and pharmaceutical companies are all different. How to meet each individual demand and find a core profit model is the key to Yuanxin Technology's future growth." — Xu Yuchen, insurance industry analyst and member of China Association of Actuaries, in Chinese publication Lanjinger.
  • "The window of opportunity caused by the pandemic, as well as the high valuations of those companies that have gone public, brings hope to other medical services companies…[But] the window of opportunity is closing and the potential of Internet healthcare is yet to be explored with new ideas. Therefore, traditional, asset-heavy healthcare companies need to take this opportunity and go public as soon as possible." —Wang Hang, founder and CEO of online healthcare platform Haodf, in state media China.com.

Zeyi Yang
Zeyi Yang is a reporter with Protocol | China. Previously, he worked as a reporting fellow for the digital magazine Rest of World, covering the intersection of technology and culture in China and neighboring countries. He has also contributed to the South China Morning Post, Nikkei Asia, Columbia Journalism Review, among other publications. In his spare time, Zeyi co-founded a Mandarin podcast that tells LGBTQ stories in China. He has been playing Pokemon for 14 years and has a weird favorite pick.
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Protocol | Workplace

How to make remote work work

Hofy made an early bet that COVID-19 would have a long-term impact on workplaces. The company recently raised $15.2 million for its remote workforce equipment management solution.

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Protocol | Policy

Tech giants want to hire Afghan refugees. The system’s in the way.

Amazon, Facebook and Uber have all committed to hiring and training Afghan evacuees. But executing on that promise is another story.

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Photo: Andrew Caballero-Reynolds/AFP via Getty Images

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Photo: N26

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