JFrog (NASDAQ:FROG) Misses Q4 Sales Targets, Stock Drops

Anthony Lee /
2023/02/08 4:16 pm EST

Software development tools maker JFrog (NASDAQ:FROG) fell short of analyst expectations in Q4 FY2022 quarter, with revenue up 29.2% year on year to $76.5 million. Guidance for the next quarter also missed analyst expectations with revenues guided to $78.5 million at the midpoint, or 3.07% below analyst estimates. JFrog made a GAAP loss of $23.2 million, down on its loss of $22.7 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) Q4 FY2022 Highlights:

  • Revenue: $76.5 million vs analyst estimates of $77 million (0.58% miss)
  • EPS (non-GAAP): $0.04 vs analyst estimates of $0.02 ($0.02 beat)
  • Revenue guidance for Q1 2023 is $78.5 million at the midpoint, below analyst estimates of $81 million
  • Management's revenue guidance for upcoming financial year 2023 is $342 million at the midpoint, missing analyst estimates by 3.77% and predicting 22.1% growth (vs 36% in FY2022)
  • Free cash flow of $6.42 million, up 68.1% from previous quarter
  • Net Revenue Retention Rate: 128%, in line with previous quarter
  • Customers: 736 customers paying more than $100,000 annually
  • Gross Margin (GAAP): 77.4%, down from 78.3% same quarter last year

“Our fourth quarter revenue results were in line with the guidance range we provided, and we met our commitments on profitability, despite macroeconomic headwinds increasing near the end of the year,” 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 $42.7 million in Q4 FY2020, to $76.5 million.

JFrog Total Revenue

Even though JFrog fell short of revenue estimates, its quarterly revenue growth was still up a very solid 29.2% year on year. On top of that, revenue increased $4.56 million quarter on quarter, a solid improvement on the $4.18 million increase in Q3 2022. Happily, that's a slight re-acceleration of growth.

Guidance for the next quarter indicates JFrog is expecting revenue to grow 23.2% year on year to $78.5 million, slowing down from the 41.3% year-over-year increase in revenue the company had recorded in the same quarter last year. For the upcoming financial year management expects revenue to be $342 million at the midpoint, growing 22.1% compared to 35.5% increase in FY2022.

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 128% in Q4. That means even if they didn't win any new customers, JFrog would have grown its revenue 28% 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 Q4 Results

With a market capitalization of $2.46 billion JFrog is among smaller companies, but its more than $443.2 million in cash and positive free cash flow over the last twelve months put it in a very strong position to invest in growth.

It was good to see JFrog still deliver strong revenue growth this quarter. That feature of these results really stood out as a positive. On the other hand, it was unfortunate to see that JFrog's revenue guidance for the full year missed analysts' expectations and it indicates quite a significant slowdown in growth. Overall, this quarter's results were not the best we've seen from JFrog. The company is down 5.79% on the results and currently trades at $22.6 per share.

JFrog may have had a tough quarter, but does that actually create an opportunity to invest 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.