In mid-September, JFrog (NASDAQ:FROG) pulled off a successful IPO (Initial Public Offering) as the shares spiked 47% on the debut. And this would not be the end of the gains. FROG stock would go on to jump from $65 to $85.
But the momentum did not hold up. Keep in mind that FROG stock has since settled to about $58. The market capitalization is $5.3 billion.
Volatility is nothing new with red-hot technology stocks.And yes, as for the last month or so, the valuations have gotten frothy and there has been a rotation to other sectors.
But for investors looking at the long-term, the recent selling could be an opportunity. So does this mean that FROG stock is a good value now?
Well, let’s get a backgrounder on the company.
The Technology
The co-founders of JFrog certainly know the challenges for software developers. Before starting the company, they provided custom software development and services for clients.
Through this experience, the co-founders saw that DevOps was often complex because of the myriad tasks, processes and tools. There was also the problems with dealing with an explosion of new cloud native technologies, containers, mobile systems, and so on.
Because of this, the co-founders set out to build a platform that allowed for unifying the processes though package management. This meant having a central repository manager for the code.
Yet JFrog was not a walled garden either. The focus was on making it integrate with a developer’s own ecosystem. Note that JFrog calls itself the “Switzerland of DevOPs.”
The vision for the company is to make it so that software has no versions — known as liquid software. By doing this, there will be improved security, higher performance and much less downtime.
The Growth Story
The latest earnings report showed the company continues to grow nicely. For Q3, the revenues jumped by 40% to $38.9 million and the free cash flows came to $9.7 million. There is $578 million in the bank.
JFrog has also continued to show progress in upselling and cross-selling. Note that there are 313 customers with ARR (Annual Recurring revenues) greater than $100,000 and nine that exceed $1 million. The net dollar retention rate for the past year is an impressive 136%.
But despite all this, FROG stock sold off on the earnings news. For the most part, Wall Street had expected even more growth.
There are also worries about the competitive environment. The fact is that there are a many tough rivals in the DevOps market like IBM’s (NYSE:IBM) RedHat, Pivotal Software, GitLab, Sonatype, VMware (NYSE:VMW), Amazon (NASDAQ:AMZN), Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) and Microsoft (NASDAQ:MSFT).
Bottom Line On FROG Stock
Yet even though the competition is a headwind, JFrog still the benefit of being a pioneer of the DeveOps category as well as having a powerful end-to-end platform. The IPO will be another positive because it will provide more visibility.
Then there is the long-term growth trends of software development. In the shareholder letter in the S-1, the founders noted the following: “As companies go through digital transformation and software becomes the defining competitive advantage across industries, the world is demanding pure DevOps-enabling, Continuous Software Release Management solutions that make software easier and more secure to deliver in a fully automated fashion. ‘Release fast or die,’ as we like to say. The companies that provide the solutions to handle this expanding volume of global software and make it immediately available anywhere, anytime, for all users, will be the solutions—and companies—that prevail.”
Oh, and the market potential is certainly large. JFrog estimates it at about $22 billion.
Now it’s truethe company’s stock will remain volatile. But over the long-haul, there is likely to be continued growth as so many companies will have a need for the type of software that JFrog provides.
On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling. He is also the author of courses on topics like the Python language and COBOL.
