JFrog (NASDAQ:FROG) Surprises With Third-Quarter Sales, Accelerates Contract Gains

Software developer JFrog (NASDAQ:FROG) exceeded Wall Street’s revenue expectations in the third quarter of 2024, with revenue up 23% year over year to $109.1 million. The company expects revenue next quarter to be around $114 million, close to analyst estimates. Non-GAAP earnings of $0.15 per share were also 41.7% above analyst consensus estimates.

Is Now the Time to Buy JFrog? Find out in our full research report.

• Gain: $109.1 million vs. analyst estimates of $105.6 million (3.3% better)

• Custom EPS: $0.15 vs. analyst estimates of $0.11 ($0.04 better)

• Adjusted operating result: $14.72 million vs. analyst estimates of $10.6 million (beat)

• Revenue guidance for Q4 CY2024 is $114 million in the middle, about in line with what analysts expected

• Adjusted operating income guidance for Q4 CY2024 is $14.5 million in the middle, about in line with what analysts expected

• Full year CY2024 revenue guidance Interest rose at the midpoint to $426 million, slightly more than what analysts expected

• Adjusted operating income guidance for full year CY2024 increased midway to $57 million, more than what analysts expected

• Gross margin (GAAP): 75%, compared to 77.7% in the same quarter last year

• Operating margin: -27.4%, compared to -20.4% in the same quarter last year

• Free cash flow margin: 24.5%, compared to 15.5% in the previous quarter

• Net Income Retention Rate: 117%, compared to 118% in the previous quarter

• Customers: 966 customers pay more than $100,000 annually

• Market capitalization: $3.50 billion

“Our third quarter results reflect strong execution in a tight fiscal environment, with some of the largest operating profits in JFrog history,” said Shlomi Ben Haim, co-founder and CEO of JFrog.

JFrog (NASDAQ:FROG), named after its founders’ affinity for frogs, offers a software-as-a-service platform that makes developing and releasing software easier and faster, especially for large teams.

As Marc Andreessen says, “software is eating the world,” meaning the amount of software produced is exploding. But building software is complex and difficult work, increasing the demand for software tools that help increase the speed, quality and security of software implementation.

A company’s long-term performance can provide signals about business quality. Even a bad company can perform well for one or two quarters, but a top company grows for years. Fortunately, JFrog’s 29.2% annualized revenue growth over the past three years has been impressive. This is encouraging because it shows that JFrog’s offering is resonating with customers, which is a useful starting point.

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This quarter, JFrog reported robust year-over-year revenue growth of 23%, and revenue of $109.1 million exceeded Wall Street estimates by 3.3%. Management is currently expecting a 17.2% annualized increase next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 16.9% over the next twelve months, a slowdown from the past three years. This projection is still remarkable and indicates that the market is taking into account the success of its products and services.

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One of the best parts of the software-as-a-service business model (and one reason they trade at high valuations) is that customers typically spend more on a company’s products and services over time.

JFrog’s net revenue retention, a key performance metric that measures how much money existing customers from a year ago are spending today, was 118% in the third quarter. This means that even if JFrog had not acquired any new customers in the last twelve months, its revenue would have increased by 18%.

JFrog has a good net retention rate, which proves that customers are happy with the software and are getting more value from it over time, which is always great to see.

We were impressed by JFrog’s significant improvement in winning new major contracts this quarter. We were also pleased that sales exceeded Wall Street expectations. Expectations were largely good, with next quarter and full year revenue and adjusted operating profit expectations all in line at slightly above expectations. On the other hand, gross margin decreased. Overall, this quarter had some key positives, but perhaps expectations were high or the results weren’t good enough for a stock with a high multiple. Shares fell 1.2% to $32.50 immediately after the report.

Is JFrog an attractive investment opportunity at its current price? We think the latest quarter is just one piece of the longer-term business quality puzzle. Quality, in combination with valuation, can help determine whether the stock is a buy. We cover that in our useful full research report which you can read here. It’s free.