Shares of JFrog (FROG) today jumped 28% on heavy volume after the company reported rapid Q4 cloud revenue growth of 59%. It was the second consecutive quarter of accelerated growth in the cloud unit.
JFrog provides a DevSecOps platform (both on-premises and in the cloud) used by developers to build and distribute software securely and efficiently. In 2023, the company’s total revenue rose 25% to $349.9 million.
JFrog shares today hit a new 52-week high of $48.80. After rising 62% in 2023, the stock is up 37% YTD.
In Q4, JFrog’s total revenue of $97.3 million topped the consensus estimate of $93 million, with growth accelerating to 27% from 23% in the previous quarter. Gross margin of 84.6% rose 90 basis points year over year, while operating margin of 16.6% was up 210 basis points. Per-share earnings of 19 cents came in seven cents above the consensus. Net dollar retention of 119% was stable with the Q3 level, but down from 128% in the year-ago quarter.
Usage-based cloud revenue of $36 million represented 37% of total Q4 revenue, up from 30% in the year-ago quarter. Even after adjusting for 600 basis points of one-time growth in the cloud unit in Q4 due to higher-than-normal revenue true-ups (totaling $1.5 million), cloud revenue grew 53%, up nicely from Q3 growth of 46%.
In 2023, JFrog’s cloud revenue rose 50% to $119.3 million and represented 34% of total revenue, up from 28% in 2022.
JFrog has a total customer base of 7,400, including 83% of the Fortune 100. There are now 886 customers with annual recurring revenue (ARR) above $100k, up 20% from the year-ago level. The total number of customers with more than $1 million of ARR advanced 95% to 37.
Today, software is at the heart of all types of companies, so proper management of the software supply chain has taken on greater importance. Enterprises see the JFrog platform as mission-critical when it comes to managing risk and providing excellent end-user outcomes.
JFrog’s main competitive advantage is that it takes binaries (software packages) from the development phase to the deployment phase. Customers can either self-manage (on-prem) or use the cloud. The company’s DevOps workflow encompasses the planning, coding, building and testing by developers. It also includes the deployment, operation and monitoring of the software by operators. Plus, JFrog secures all components of an application from creation to delivery.
Artifactory is JFrog’s flagship product. It’s a binary repository manager that acts as a system of record for all software within an organization, including applications written internally and from open source. Within Artifactory, binaries can be edited, tracked and managed. The product helps automate the entire software development process, which in turn speeds up release cycles. Organizations like that they can get up-to-date software to users as quickly as possible.
JFrog also offers Advanced Security, a binary-focused DevSecOps solution that protects the software supply chain. Advanced Security is integrated with Artifactory along with JFrog’s Xray, a universal software composition analysis solution that proactively identifies security vulnerabilities.
Many security solutions for software fall short because they only focus on source code and what happens before the application is in production, according to JFrog. For organizations to truly protect the software supply chain, users need to consider both code in development and in production at the binary level. Advanced Security offers a set of binary and source code analysis capabilities on a unified platform with an intuitive UI.
Introduced in October 2022, Advanced Security added about $5 billion to JFrog’s total addressable market, which is estimated to total at least $40 billion. With this newer product, JFrog’s security capabilities are now a real competitive differentiator. Since Advanced Security protects the entire software supply chain, the product gives JFrog the ability to displace and consolidate the functionality of multiple security tools or even entire security companies. Customers can save money by eliminating various security point solutions.
JFrog is primarily an expansion story. The average land deal has been around $10,000. Enterprise customers are landing with higher ASPs, often because they’re consolidating multiple tools onto JFrog’s platform and committing to the cloud at scale. JFrog’s goal is to move as many accounts as possible to its Enterprise+ full-platform tier, which in Q4 accounted for 49% of total revenue, up from 43% a year ago.
For Q1, JFrog’s total revenue guidance range of $98 million to $99 million (growth of 23%) was above the consensus of $97.4 million. The initial 2024 total revenue outlook of $424 million to $428 million (growth of 21% to 22%) topped the consensus of $421.7 million.
