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.