JFrog’s stock stutters on lukewarm guidance, despite accelerating revenue and customer wins – News

Software supply chain platform provider JFrog Ltd. beat expectations and raised its full-year guidance, but that wasn’t enough to satisfy Wall Street watchers, and its stock headed lower after-hours.

The company reported third-quarter earnings before certain costs such as stock compensation of 15 cents per share, better than the Street’s forecast of 11 cents. Revenue also came in ahead of expectations, rising 23% from a year earlier, to $109.1 million. The Street had guided for just $105.6 million, so it was a solid beat.

JFrog also reported adjusted operating income of $14.72 million, beating the $10.6 million target by a good distance. Still, its losses continued to pile up despite the strong performance. All told, it posted a net loss of $22.9 million in the quarter, rising from a loss of $13.7 million in the year-ago quarter.

The company sells a comprehensive software supply chain platform that spans disciplines such as DevOps, DevSecOps, MLOps and MLSecOps. Its flagship offering is the open-source binary code repository manager Artifactory. Unlike the better-known GitHub platform, which is used to store application code, Artifactory is used to store the binary files created when engineers compile their code into functioning applications.

The company’s other main product is JFrog Pipelines, a continuous integration and continuous delivery platform that’s used by developers to create automated software workflows and transform raw code into binaries before deploying them automatically.

JFrog co-founder and Chief Executive Shlomi Ben Haim (pictured) praised the company for “strong execution in a tight budgetary environment,” boosted by what he said were some of the “largest enterprise wins” in its history.

Its numbers were solid across the board, with cloud revenue rising 38% from a year ago, to $42.4 million, accounting for 39% of the company’s total, up from just 35% earlier. It’s growing its customer base too, with 966 clients that delivered at least $100,000 a year in annual revenue, up from 848 one year ago. Moreover, the number of customers that delivered at least $1 million a year in annual sales rose to 46, up from 30 a year earlier.

In addition, JFrog said, it’s having a lot of success in terms of being able to sell more services to its existing customer base. Customers that use the entire JFrog Platform Enterprise+ suite, its flagship, all-encompassing product, accounted for 50% of its total revenue in the quarter, compared with 46% one year ago.

During the quarter, JFrog announced a few updates to the JFrog Platform Enterprise+ platform, including a new product integration with Nvidia Corp. that provides users with enhanced security and the ability to secure artificial intelligence models. It also strengthened its integration with GitHub in an update that allows users to embed automated security fixes and real-time production monitoring directly into GitHub’s developer workflows.

Constellation Research Inc. analyst Holger Mueller told News he was impressed by JFrog’s ability to keep growing its revenue, driven by the needs of enterprises to deliver new software in a reliable and scalable way. But he said he is alarmed by the company’s mounting losses, and that investors may share those concerns.

“Shlomi Ben Haim and team may have a spending problem,” the analyst opined. “Until recently it had been on a solid path to profitability, but it suddenly went backwards in the third quarter. For every $20 million in revenue it generated, it spent $13 million more on marketing, which is 30% more than it did in the prior quarter. That’s why it’s losses are mounting.”

“This is difficult to understand and the company did not offer any explanation as to the rising costs,” Mueller added. “So investors are going to want to carefully scrutinize how it’s doing on the profit side in the current quarter.”

Unfortunately for JFrog, its guidance suggests it probably won’t make much inroads in the current quarter. The company said it sees fourth-quarter sales of between $113.5 million to $114.5 million, which is exactly in line with the Street’s forecast of $114 million. As for earnings, the company has forecast a profit of between 13 and 15 cents per share, also in line with the analyst forecast of 14 cents.

On the other hand, JFrog did raise its guidance for fiscal 2024 revenue, saying it now expects to see sales of $426 million at the midpoint. That’s slightly ahead of the Street’s forecast of $423 million.

Investors were probably hoping for better progress on the road to profitability and more encouraging guidance, for JFrog’s stock fell just over 2% in extended trading, eating up most of the 3% gain it had made during the regular trading session.

Still, JFrog can’t have too many complaints, as its stock is still up 25% in the year to date.

Photo: JFrog