JFrog’s revenue leaps again, but large customer acquisition slows, hurting its stock

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Software supply chain company JFrog Ltd.’s stock traded lower after-hours today despite beating Wall Street’s expectations in earnings and revenue.

Although investors were pleased enough with the earnings beat, its customer acquisition rate was slower than anticipated and its guidance for the coming quarter merely met with analysts’ expectations.

The company reported a net loss for the quarter of $8.79 million, improving on the $20.8 million loss it delivered one year earlier. Earnings before certain costs such as stock compensation came to 16 cents per share, just ahead of the Street’s call for 14 cents, while revenue rose 25% to $100.31 million, beating the consensus estimate of $98.6 million.

JFrog co-founder and Chief Executive Shlomi Ben Haim (pictured) touted the long-term prospects for the company, whose platform is evolving into a comprehensive solution that spans DevOps, DevSecOps, MLOps and MLSecOps. “Q1 was another quarter of strong execution as we exceeded the high-end of our guidance measures,” he said. “Growth in adoption of JFrog Platform subscriptions highlights the need within organizations for a unified software supply chain platform.”

The company is the creator of an open-source binary code repository manager, called Artifactory. Unlike the better-known GitHub platform, which is used to store application code, Artifactory is used to store the binary files created when engineers compile their code into functioning applications.

It also sells JFrog Pipelines, which is a continuous integration and continuous delivery platform. It’s used by developers to create automated software workflows that can transform raw code into binaries before deploying them automatically.

JFrog reported that its subscription revenue rose 28% to $95.4 million during the quarter, beating the analyst consensus estimate of $93.7 million, while license-based revenue fell 7%, to $4.91 million, below the consensus target of $4.94 million. JFrog said its cloud revenue during the quarter rose 47% from a year earlier, to $36.9 million, and now represents 37% of its total.

However, the picture wasn’t entirely rosy for the company, as it fell short in terms of the Street’s targets for large customer growth. JFrog said it ended the quarter with 911 customers that delivered at least $100,000 in annual revenue, up from 785 one year earlier but below the 922 forecast by Wall Street analysts. The rate of customer acquisition is also noticeably slower on a sequential basis.

Image via StockStory

What’s more, the company’s guidance may have been a tad disappointing for investors, especially given that it has been more bullish in terms of its outlook over the last few quarters. But this time around, it gave a cautious estimate, saying it sees second-quarter earnings of between 13 and 15 cents per share on revenue of between $103 million and $104 million. That’s more or less in line with Wall Street’s forecast of 14 cents per share in earnings and $103.1 million in revenue.

Constellation Research Inc. analyst Holger Mueller told SiliconANGLE that JFrog has been under pressure from investors to stem its losses and a find a way to profitability, and he believes it has made good progress in that direction. With its revenue growing by 25% year-over-year, the company was easily able to reduce its net losses by more than half, he said.

“JFrog’s deficit is now down into the single-digit millions, though that revenue growth was expensive in some ways, as the company’s sales and marketing budget spend was up by $10 million in the quarter,” he pointed out. “It means that for every $1 spent on sales and marketing, the company was able to generate $2 in revenue, which isn’t a bad return. Despite the weaker outlook, Shlomi Ben Haim and team will seek to drive the company towards the break-even line in the next quarter.”

In the wake of the results, investors decided to bail on the company, and its stock fell more than 12% in extended trading.

Photo: JFrog

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