JFrog (NASDAQ:FROG) Beats Q3 Sales Targets, Stock Soars

Kayode Omotosho /
2021/11/04 4:58 pm EDT

Software development tools maker JFrog (NASDAQ:FROG) reported strong growth in the Q3 FY2021 earnings announcement, with revenue up 38.1% year on year to $53.7 million. The company expects that next quarter's revenue would be around $58 million, which is the midpoint of the guidance range. That was roughly in line with analyst expectations. JFrog made a GAAP loss of $20.4 million, down on its loss of $5.26 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 FY2021 Highlights:

  • Revenue: $53.7 million vs analyst estimates of $52.5 million (2.24% beat)
  • EPS (non-GAAP): $0.01 vs analyst estimates of -$0.04 ($0.05 beat)
  • Revenue guidance for Q4 2021 is $58 million at the midpoint, above analyst estimates of $57.5 million
  • Free cash flow was negative $18.6 million, down from positive free cash flow of $18 million in previous quarter
  • Net Revenue Retention Rate: 129%, in line with previous quarter
  • Customers: 466 customers paying more than $100,000 annually
  • Gross Margin (GAAP): 78.6%, down from 81.3% same quarter last year

“JFrog’s strong performance in Q3 across all metrics demonstrated the company’s commitment to both new business and expansion of existing customers,” said Shlomi Ben Haim, CEO and Co-Founder of JFrog.

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.

Software is eating the world and the volume of software produced is exploding. Companies like JFrog are in a good position to benefit from this trend, since they provide the tools that software developers use to do their jobs.

Sales Growth

As you can see below, JFrog's revenue growth has been very strong over the last year, growing from quarterly revenue of $38.8 million, to $53.7 million.

JFrog Total Revenue

And unsurprisingly, this was another great quarter for JFrog with revenue up a robust 38.1% year on year. On top of that, revenue increased $5.04 million quarter on quarter, a very strong improvement on the $3.57 million increase in Q2 2021, and a sign of re-acceleration of growth.

Analysts covering the company are expecting the revenues to grow 32.1% over the next twelve months, although estimates are likely to change post earnings.

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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 129% in Q3. That means even if they didn't win any new customers, JFrog would have grown its revenue 29% year on year. Despite it going down over the last year 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 $3.31 billion JFrog is a relatively smaller company, but its more than $402.3 million in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.

We were very impressed how strongly JFrog accelerated the rate of new contract wins this quarter. And we were also excited to see the really strong revenue growth. On the other hand, it was less good to see the pretty significant deterioration in gross margin. Overall, this quarter's results seemed pretty positive and shareholders can feel optimistic. The company is up 9.81% on the results and currently trades at $38.95 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.

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