JFROG - Will Growth Accelerate?

JFROG is an interesting company with many nice attributes except one - slowing growth.

Rev      Q1      Q2      Q3      Q4
2018    13.1    14.7    16.7    19.1
2019    21.2    24.9    27.8    30.8
2020    32.8    36.4    38.9    43.2(e)

 %      Q1     Q2     Q3     Q4
2019    62%    69%    67%    61%
2020    55%    46%    40%    40%(e)

Q4 estimate is based on a 3% beat similar to last quarter*.

Obviously, no one can be certain whether growth will pick back up toward pre-Covid levels, but it is worthwhile considering and worth looking into the company in a bit more detail.

JFROG (FROG) was discussed a bit on this board in the link below:

From that thread we find Howard Chen’s review of the S-1 which I thought was an excellent review.

For subscribers to Bert’s site or Seeking Alpha, you can also find his commentary from early December.

Again, I think Howard Chen did a very nice job reviewing the company’s offerings and the competitive landscape. I would encourage folks to read that.

I know nothing about the technology except for what I’ve read, but it does sound interesting and I invite developers here to offer any insights they have into the product from personal experience.

The elephant in the room is declining revenue growth and let’s get back to that in a moment after looking at some very positive attributes:

JFROG is cash flow positive and has been for some time
Last quarter FCF yield was 25%
They have accomplished growth with an inbound inside sales motion (low cost).
In fact, over half of the S&M spend comes from “community” events.
Over 5,800 customers
Customer logos are very impressive
Increased customers over $100k ARR by almost 10% sequentially to 313.
9 customers over $1M ARR impressive for a company of this scale
High DBNRR (or whatever acronym you choose for this) at 136% last quarter
Grows along side the customer as usage of their platform grows.
Cloud and on-Prem offerings/Tech lead

As far as the technology, I can only reference sources and comment as a layman. To that end, I can clearly see the value JFROG provides and once again the customer profile is quite impressive. There are some parts of this story that seem easy to understand. Of course it makes sense to issue more frequent software updates as opposed to new versions. Why get a new car when only the brakes need to be fixed? JFROG looks like it allows companies to issue upgrades quickly with all of the requisite security and compliance built in.

It is self-evident more and more companies are going to rely on software to create the best possible customer experience. This will continue to proliferate. Just like companies need observability to monitor software, it seems reasonable to me companies will need to be able to update software to keep customers happy and continue to improve their experience. Excelling at this will be a competitive differentiator for companies. It seems Liquid Software development will be a prerequisite.

Of course, there are risks.
Liquid software development is not nearly as important as I think it will be
Competitors offer equivalent or better products and growth does not accelerate and/or slows
Someone develops a better liquid software development “mouse trap”

Finally, here are some reasons why I believe growth has a good chance of accelerating.

JFROG is experiencing high growth in their cloud offering. While only 20% of sales last quarter, it is growing at 74%. Last quarter, JFROG released a free cloud version of the basic product. The company is confident free customers will convert to paying.

JFROG is starting to build out an elite sales team focused on their top 100 customers. Remember the business to date has been driven by inbound inside selling and interaction with the developer community. A grass roots effort if you will. Adding top tier sales personnel seems like a wise idea and should drive revenue growth going forward. JFROG has spent judiciously and can certainly afford this maneuver.

Lastly, it seems likely JFROG was impacted by Covid. Unfortunately, you won’t find much commentary on this as JFROG only has one public quarter under their belt and little was said on the call nor during analyst’s inquiries. But suffice it to say, most companies were unlikely to have been focused on upgrading software during the pandemic. Resources were likely shifted to the most important functions and improvements were paused. I find it unlikely this pause will be permanent.

I have a Muggsy Bogues sized position in JFROG at this time to get a feel for the company as it interests me. Hope to hear feedback from the community.



I think JFrog will be successful at what it does, but doesn’t excite me much. It is a process tool, not a building block.

JFrog is not a tool that enables features WITHIN the app, like the APIs and SDKs that you can use in your app as the building blocks of your application (from ESTC, MDB, SNOW, TWLO, OKTA, etc). Building blocks like these are exciting as they 1) enable the Application & API Economies and they 2) scale up as the app’s increase their usage. More success of their customers equals more revenue, because as the # of users rises, the amount of data or usage rises. These types of tools SCALE as the applications integrating into them SCALE.

JFrog is a process tool solely for developers to use. It does not scale based on # of developers, but on complexity of the application and infrastructure, and complexity of development workflow. I find process tools like this more akin to TEAM products. But even TEAM has lots of angles to pivot to from there - it can usage scale based # of team members needing to use it, and can pivot into other directions that are appropriate for other teams outside of development (IT, product mgmt, etc).

I think JFrog will have success, as development environments are constantly shifting into more complex structures (traditional stacks, containers, microservices, serverless), and so these workflows need to be tamed … but where does JFrog pivot from here? I don’t see the SCALE potential that I see in other, more building-block focused dev tooling.
Saul’s method looks for scale in the financials (revenue and customers and NRR and operations), and then I look for scale in platform (technology, platform pivots, TAM add) to lift all of that higher. Not seeing where the latter part of that equation fits in for JFrog.

I thought the company was initially compelling as it IS showing strong operational leverage with some huge margin swings, and great cust growth. But with the above, plus the declining revenues on a pretty small rev base (sub-100M per Q), and I’m not interested.

  • muji

Thanks for the input, Muji. Excellent points on scaling and duly noted.

JFROG won’t directly benefit like TWLO on a usage basis that is driven (aided) by TWLO’s customer’s customers. It does seem to me (the layman) JFROG would benefit in an indirect way. As their customers grow, so too will the need for CSRM in order to provide the best save developer time (money), improve end user experience, while doing so efficiently and compliantly.

I can’t necessarily comment on optionality and where JFROG goes from here. I might suggest it is a bit early to consider optionality especially in what seems to be a nascent sector. JFROG is still a small company at $139M the past twelve months. TAM estimates range around $20B. While I don’t put much stock in TAM estimates, that still suggests plenty of room for growth. JFROG sits at a market cap of around $7B. The business model generates quite a bit of cash unlike many companies at this scale.

There are still plenty of risks and I’m not here to suggest one should invest in JFROG over something else. Just aiming to discuss it further if there is interest.