JFrog – FY3Q20 ER

JFrog’s first result as a public company came in earlier.

Few operational highlights:

  • Number of customers with ARR greater than $100K increased to 313 this quarter from 286 last quarter
  • Number of customers with ARR above $1M increased to 9 this quarter from 8 last quarter
  • Net Dollar Retention for trailing four quarters declined to 136% for this quarter from 139% last quarter

In terms of financial results, total revenue growth was 39.7%, slightly below my expectation. Gross profit margin was 81.3% which is inline with my expectation.

I missed the assumption of increased SBC in Opex after IPO in my initial model so I significantly underestimated. Since the SBC is a non-cash item, there’s no material difference in non-GAAP profitability metric like Adj. EBITDA below. I notice JFrog is using their onw Non-GAAP metrics so I will add line items so that my metrics are comparable to their metrics later.

JFrog generated $9.7M FCF in third quarter. The major difference between the actual and forecast came from the changes in net working capital.

The topline in last quarter doesn’t provide a positive surprise to the market. The stock dropped 3.5% after market. If the company follows normal growth trajectory, it will be difficult to sustain 30X+ of high EV/Sales multiple .

The guidance for 4Q20 was not very impressive. The lower bound of guidance implies a yoy of 33% which is at the similar level with standalone net dollar retention of 133% in 2Q20. The implied yoy growth from higher bound guidance is at the similar level of net dollar retention of 136% for trailing four quarters.

Assume 4Q20 revenue consists of growth from 4Q19 revenue base and revenue from new customers. If those 4Q19 revenue grew at 33% + $2,000K from new customers, JFrog can easily beat its guidance. Beat will not be enough, JFrog needs to fight the gravity.

Let’s if I can find something interesting in transcript once it comes out.


2 thoughts on “JFrog – FY3Q20 ER

  1. Hi Yui, stumble upon your blog. Just wondering if you’re invested in Jfrog and what’s your target price for the company. Cheers.

    I’m researching on this counter too and I find Jfrog a very strong company with high comparative advantage. Looking to buy this counter on the recent dip 🙂


    1. I built initial position on the first day and added along the way but missed the first spike to sell above 90. I took the opportunity to sell at the second intraday spike. I rebuilt part of the position during the weakness of before earnings release and sold 1/3 the day before earnings release and 2/3 pre-market after the earnings release. I don’t have position at the moment.

      I don’t have target price for the company but I wonder there might be some pressure above 30x NTM EV/Sales in the short term. Technically, it might take some time to consolidate (it has small amount of free float so it might rebound or test another support quickly). I think JFrog is a good company with mission critical product and healthy economics. It grows fast but probably not fast enough to sustain 30x NTM EV/Sales in the short term.

      One of my scenario is that company de-rates to ~25x NTM EV/Sales or lower but accelerates sometime in the future because their GTM and S&M initiative work and start kicking in. Then the stock gets re-rate.


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