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JFrog (NASDAQ:FROG) Beats Q3 Sales Targets


Jabin Bastian /
2022/11/02 4:20 pm EDT
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Software development tools maker JFrog (NASDAQ:FROG) beat analyst expectations in Q3 FY2022 quarter, with revenue up 34% year on year to $71.9 million. The company expects that next quarter's revenue would be around $77 million, which is the midpoint of the guidance range. That was in roughly line with analyst expectations. JFrog made a GAAP loss of $23.5 million, down on its loss of $20.4 million, in the same quarter last year.

Is now the time to buy JFrog? Access our full analysis of the earnings results here, it's free.

JFrog (FROG) Q3 FY2022 Highlights:

  • Revenue: $71.9 million vs analyst estimates of $70.6 million (1.88% beat)
  • EPS (non-GAAP): $0.02 vs analyst estimates of $0 ($0.02 beat)
  • Revenue guidance for Q4 2022 is $77 million at the midpoint, above analyst estimates of $76.5 million
  • Free cash flow of $3.82 million, up 28.9% from previous quarter
  • Net Revenue Retention Rate: 130%, in line with previous quarter
  • Customers: 696 customers paying more than $100,000 annually
  • Gross Margin (GAAP): 77.9%, in line with same quarter last year

“Our third quarter results exceeded the high-end of guidance across all metrics, as cloud revenues grew 60%, driven with our cloud marketplace partners and higher levels of customer usage,” said Shlomi Ben Haim, JFrog Co-founder and CEO.

With the name chosen due to the founders' fondness for frogs, JFrog (NASDAQ:FROG) provides 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" which means the volume of software produced is exploding. But building software is complex and difficult work which drives demand for software tools that help increase the speed, quality, and security of software deployment.

Sales Growth

As you can see below, JFrog's revenue growth has been very strong over the last two years, growing from quarterly revenue of $38.8 million in Q3 FY2020, to $71.9 million.

JFrog Total Revenue

And unsurprisingly, this was another great quarter for JFrog with revenue up 34% year on year. Quarter on quarter the revenue increased by $4.18 million in Q3, which was in line with Q2 2022. This steady quarter-on-quarter growth shows the company is able to maintain a strong growth trajectory.

Guidance for the next quarter indicates JFrog is expecting revenue to grow 29.9% year on year to $77 million, slowing down from the 38.7% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 28.3% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

Product Success

One of the best things about software as a service businesses (and a reason why they trade at such high multiples) is that customers tend to spend more with the company over time.

JFrog Net Revenue Retention Rate

JFrog's net revenue retention rate, an important measure of how much customers from a year ago were spending at the end of the quarter, was at 130% in Q3. That means even if they didn't win any new customers, JFrog would have grown its revenue 30% year on year. Despite the recent drop this is still a great retention rate and a clear proof of a great product. We can see that JFrog's customers are very satisfied with their software and are using it more and more over time.

Key Takeaways from JFrog's Q3 Results

With a market capitalization of $2.45 billion JFrog is among smaller companies, but its more than $434 million in cash and positive free cash flow over the last twelve months give us confidence that JFrog has the resources it needs to pursue a high growth business strategy.

It was good to see JFrog deliver strong revenue growth this quarter. And we were also happy to see it topped analysts’ revenue expectations, even if just narrowly. On the other hand, there was a deterioration in revenue retention rate. Zooming out, we think this was still a decent, albeit mixed, quarter, showing the company is staying on target. The company is flat on the results and currently trades at $23 per share.

Should you invest in JFrog right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

The author has no position in any of the stocks mentioned.