When JFrog (NASDAQ:FROG) priced its initial public offering at $44, markets valued the company at around $4 billion. The over 60% rally on the day rewarded early investors only. Anyone who bought the stock days after the IPO will not enjoy the same return. And if markets panic on FROG stock valuations, latecomers are at risk of paper losses.
DevOps is a technology leader whose market size will continue expanding. On that basis, investors should consider its long-term prospects despite the early run higher.
FROG Stock Tearing Higher
JFrog raised $405 million from the IPO. The cash raised will allow the company to invest further in research and development. Still, R&D costs fell sharply from $9.88 million in 2018 to $3.64 million in 2019. Sales and marketing, along with general and administrative costs also dropped. This suggests that the company may look for a strategic investment through an acquisition.
In the last decade (starting from 2008), JFrog built its end-to-end, hybrid, universal DevOps platform. It offers such features as a software package repository, security, and distribution. It has a continuous software release management cycle that is at the heart of digital transformation. And just as Fastly (NASDAQ:FSLY) offers an edge network platform, JFrog does so too. There, its customers get a mission control admin dashboard to monitor and configure the environment. They also gain insight through the analysis of intelligence metrics.
Impressive Business
Frog stock grew its customer base by 50% as of June 30. It has over 5,800 customers and has over 75% of Fortune 100 companies. 286 customers have over $100,000 in annual recurring revenue. This is a preferred revenue model because investors like its consistency and predictability.
Having lost less than one million dollars and being free cash flow positive for five years, JFrog is on the cusp of profitability. The unified platform has many features that customers like. This includes a hybrid and multi-cloud, scalability across the organization, and security. On its prospectus, the company described its software and business environment as exploding in both volume and importance. So, organizations of varying sizes and in all industries need “software to facilitate interactions with their customers, manage day-to-day operations, gain actionable business insights, secure their digital environments, and drive digital transformation.”
CSRM At Core of Moat
Continuous Software Release Management, or CSRM, is at the core of DevOps workflow. The constant demand for building, testing, releasing, and deploying will only increase. Organizations need a platform that handles the increasing number of software packages. By having a universal package repository, customers get continuous updates. Software is always current. As a result, customers get a shorter software release cycle.
JFrog’s strong performance in the stock market reflects the company’s strong software revenue growth ahead. Furthermore, it offers multiple tiers of subscription. It also attracts customers through free trials and freemium offerings, plus it embraces open-source software options. This range of support will drive potential customers to examine the subscriptions available. Depending on data storage, support, and services needed, JFrog has a range of options for subscribers.
Related Investments
Strong performance from new IPOs gives investors many related investments to consider. Snowflake (NASDAQ:SNOW), which is backed by Warren Buffett, is a software application investment opportunity. Software as a service firm Salesforce.com (NYSE:CRM) holds a 9.9% passive stake in the firm. Unity Software (NYSE:U), a gaming software platform, is another successful September IPO.
Nano-X Imaging (NASDAQ:NNOX) is not a hot IPO, after its August debut. The stock topped over $65 in Sept. only to lose half its value toward the end of the month.
JFrog may dip if the technology-led stock market correction that started a month ago picks up pace. If that happens, value investors seeking growth may consider the stock at a better, discounted, price.
Disclosure: On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article.
