ForgeRock (NYSE:FORG) Reports Q3 Results

Full Report / December 14, 2021
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Cybersecurity software provider ForgeRock (NYSE: FORG) announced better-than-expected results in the Q3 FY2021 quarter, with revenue up 37.6% year on year to $44.2 million. Guidance for next quarter's revenue was surprisingly good, being $47 million at the midpoint, 5.65% above what analysts were expecting. ForgeRock made a GAAP loss of $15.2 million, down on its loss of $7.8 million, in the same quarter last year.

ForgeRock (FORG) Q3 FY2021 Highlights:

  • Revenue: $44.2 million vs analyst estimates of $38.4 million (15% beat)
  • EPS (non-GAAP): -$0.35 vs analyst estimates of -$0.45 (22.7% beat)
  • Revenue guidance for Q4 2021 is $47 million at the midpoint, above analyst estimates of $44.4 million
  • Gross Margin (GAAP): 80.7%, down from 84.2% same quarter last year

Founded in Norway by former Sun Microsystems engineers, ForgeRock (NYSE:FORG) offers software as a service that helps companies secure and manage the identity of their customers and employees.

More companies are digitizing their processes, leading to employees needing access to a growing number of applications, systems and data. As a result, enterprises are challenged with the rapid proliferation of Identities to manage along with increasing and evolving regulatory requirements and growing cyber security threats. On top of that, Enterprise IT environments have become increasingly complex as an increasingly distributed workforce has created more challenges for enterprises to effectively secure employee access to applications and data. Finally, most IT security platforms are built for customers, employees, or devices, but not all three.

ForgeRock’s Identity Management Platform enables enterprises to secure, manage, and govern the identities of everything—consumers, employees and partners, APIs, microservices, devices, and IoT. ForgeRock's platform specializes in addressing complex needs of large enterprises operating in hybrid IT environments, both Cloud and On-Premise.

As software penetrates corporate life, employees are using more apps every day, on more devices, in more locations. This drives the need for identity and access management software that help companies efficiently manage who has access to what, and ensure that access privileges are secure from cyber criminals.

ForgeRock’s competitors can be grouped into (1) legacy providers such as CA Technologies (NASDAQ: AVGO), IBM (NYSE:IBM), and Oracle (NYSE: ORCL), (2) cloud-only providers such as OKTA (NASDAQ: OKTA), and (3) companies that provide a singular functionality across identity, access, and governance such as CyberArk (NASDAQ: CYBR), Ping Identity (NYSE: PING), and SailPoint (NASDAQ: SAIL).

Sales Growth

As you can see below, ForgeRock's revenue growth has been impressive over the last year, growing from quarterly revenue of $32.1 million, to $44.2 million.

ForgeRock Total Revenue

And unsurprisingly, this was another great quarter for ForgeRock with revenue up 37.6% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $273 thousand in Q3, compared to $1.55 million in Q2 2021. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Analysts covering the company are expecting the revenues to grow 8.96% over the next twelve months.


What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. ForgeRock's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 80.7% in Q3.

ForgeRock Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.80 left to spend on developing new products, marketing & sales and the general administrative overhead. Despite it going down over the last year, this is still a great gross margin, that allows companies like ForgeRock to fund large investments in product and sales during periods of rapid growth and be profitable when they reach maturity.

Key Takeaways from ForgeRock's Q3 Results

Since it has still been burning cash over the last twelve months it is worth keeping an eye on ForgeRock’s balance sheet, but we note that with a market capitalization of $2.11 billion and more than $378 million in cash, the company has the capacity to continue to prioritise growth over profitability.

We were impressed by how strongly ForgeRock outperformed analysts’ revenue expectations this quarter. And we were also glad that the revenue guidance for the next quarter exceeded analysts' expectations. Zooming out, we think this was a fantastic quarter that should have shareholders cheering. The company currently trades at $25.38 per share.

Is Now The Time?

ForgeRock may have had a good quarter, but investors should also consider its valuation and business qualities, when assessing the investment opportunity. We cheer for everyone who is making the lives of others easier through technology, but in case of ForgeRock we will be cheering from the sidelines. Its revenue growth has been exceptional, though we don't expect it to maintain historical growth rates. But while its impressive gross margins are indicative of excellent business economics, the downside is that its customer acquisition is less efficient than many comparable companies and its cash burn raises the question if it can sustainably maintain its growth.

ForgeRock's price to sales ratio based on the next twelve months is 11.8x, suggesting that the market does have lower expectations of the business, relative to the high growth tech stocks. While we have no doubt one can find things to like about the company, and the price is not completely unreasonable, we think that at the moment there might be better opportunities in the market.

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