What Happened:
Shares of software development tools maker JFrog (NASDAQ:FROG) fell 31.9% in the morning session after the company reported second quarter earnings results. Its full-year revenue guidance was lowered by 1% and came in below expectations. Also, its revenue guidance for the next quarter missed Wall Street's estimates. Profitability is also expected to be pressured, with adjusted operating income for the next quarter and full year below consensus.
Management called out a challenging macro, which led to "projects being delayed, stricter budget environment, rigid procurement process." Cloud migrations were also slower during the quarter, and this delayed the anticipated spending uplift from on-prem to Cloud migrations. Overall, this was a weak quarter for JFrog, with the below-consensus outlook weighing heavily on the stock.
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What is the market telling us:
JFrog's shares are very volatile and over the last year have had 11 moves greater than 5%. But moves this big are very rare even for JFrog and that is indicating to us that this news had a significant impact on the market's perception of the business.
The biggest move we wrote about over the last year was 6 months ago, when the stock gained 29.8% on the news that the company reported first-quarter results, which exceeded Wall Street's expectations for key topline metrics, including revenue, billings, and remaining performance obligations (RPO - leading revenue indicator). Profitability ratios also came in strong as gross margin and adjusted operating income came in ahead of expectations, leading to a strong EPS beat. Looking ahead, the company provided solid guidance, with revenue and non-GAAP operating income outlook for the next quarter and full year exceeding Wall Street's estimates. Overall, this was an impressive quarter for the company with no negatives.
JFrog is down 31.3% since the beginning of the year, and at $23.04 per share it is trading 51.6% below its 52-week high of $47.64 from February 2024. Investors who bought $1,000 worth of JFrog's shares at the IPO in September 2020 would now be looking at an investment worth $355.46.
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