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JFrog (NASDAQ:FROG) Q2: Beats On Revenue But Contract Wins Slow Down


Jabin Bastian /
2022/08/03 4:26 pm EDT
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Software development tools maker JFrog (NASDAQ:FROG) reported Q2 FY2022 results that beat analyst expectations, with revenue up 39.3% year on year to $67.8 million. The company expects that next quarter's revenue would be around $71 million, which is the midpoint of the guidance range. That was in roughly line with analyst expectations. JFrog made a GAAP loss of $23.7 million, down on its loss of $13.1 million, in the same quarter last year.

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JFrog (FROG) Q2 FY2022 Highlights:

  • Revenue: $67.8 million vs analyst estimates of $65.5 million (3.49% beat)
  • EPS (non-GAAP): -$0.02 vs analyst estimates of -$0.03 (39.9% beat)
  • Revenue guidance for Q3 2022 is $71 million at the midpoint, roughly in line with what analysts were expecting
  • The company reconfirmed revenue guidance for the full year, at $279.5 million at the midpoint
  • Free cash flow of $2.96 million, down 23.7% from previous quarter
  • Net Revenue Retention Rate: 132%, in line with previous quarter
  • Customers: 647 customers paying more than $100,000 annually
  • Gross Margin (GAAP): 77.5%, down from 81.3% same quarter last year

"During the second quarter, we delivered and exceeded our commitments to the market. Revenue growth in our cloud business accelerated sequentially, showing that hybrid and multi-cloud DevOps is what enterprises are driving at scale. We believe that our success in the second quarter provides further validation that the JFrog Platform is the backbone of their software supply chain,” 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 say, "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 year, growing from quarterly revenue of $48.6 million, to $67.8 million.

JFrog Total Revenue

And unsurprisingly, this was another great quarter for JFrog with revenue up 39.3% year on year. Quarter on quarter the revenue increased by $4.11 million in Q2, which was in line with Q1 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 32.2% year on year to $71 million, slowing down from the 38.1% 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 29.3% 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 132% in Q2. That means even if they didn't win any new customers, JFrog would have grown its revenue 32% year on year. Trending up over the last year, this is 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 Q2 Results

With a market capitalization of $2.28 billion JFrog is among smaller companies, but its more than $430.1 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.

We enjoyed seeing JFrog’s impressive revenue growth this quarter. And we were also excited to see that it outperformed analysts' revenue expectations. On the other hand, it was unfortunate to see the slowdown in new contract wins. Zooming out, we think this was still a decent, albeit mixed, quarter, showing the company is staying on target. The company is up 0.82% on the results and currently trades at $24.44 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.