“Release fast or die” is the stated motto of Israeli end-to-end DevOps (developers and operations) platform provider JFrog (NASDAQ:FROG). The company’s main service is to help businesses build and release their software faster. Prospective investors in FROG stock should be aware of all the hype surrounding its initial public offering (IPO) and how this hype affected the share price.
JFrog attempts to bridge the divide between software development (Dev) and IT operations (Ops) while pursuing a “Liquid Software” mission “to enable the flow of software seamlessly and securely from developer’s keystrokes all the way to production.” The company also strive to achieve what it calls “Continuous Software Release Management, or CSRM.”
Without a doubt, there’s a strong need for businesses to get their software updates and releases out quickly. Therefore, it’s understandable that some hype has accompanied the JFrog IPO.
But it is possible that the hype has gone overboard? I believe that investors should own great companies at a good price. Given the frenetic trading action in FROG stock, it’s conceivable that the “good price” part of the formula is missing here.
Early Price Inflation in FROG Stock
Even before FROG stock was available to the public for trading, the proposed share price was quickly being inflated. Early on, Jfrog provided a proposed price range of $33 to $37 for the stock.
Probably due to the buildup of hype surrounding the upcoming IPO, Jfrog then raised the proposed price range of FROG stock to $39 to $41. That’s already a pretty big price jump.
Then, when the time came for the IPO, Jfrog priced FROG stock at $44. Thus, by the the time the public had a chance to get their hands on FROG shares, a run-up in the price had already taken place.
But, as we’ll soon discover, that’s a drop in the bucket compared to what came next.
FROG Jumps Fast and Far
On the IPO day, FROG stock opened at a jaw-dropping $71.27. That’s roughly 62% than FROG’s offering price.
There was a moderate cooling off after that. At the close of that first public trading day, FROG stock shares were priced at $64.79.
That’s a slightly more reasonable price, but it’s still up 47% from the IPO price. And bear in mind that the IPO price for FROG stock had already been bumped up by Jfrog more than once.
By the close of the trading day on Oct. 2, FROG stock was valued at $75.75 per share. So evidently, the mania surrounding this stock hasn’t faded. This begs the question of why there’s such a frenzy going on with FROG and whether it makes sense to jump into the long side of the trade now.
Contributing Factors
For one thing, the FROG IPO had some big-money backers. The lead book-running managers for the IPO were banking giants Morgan Stanley (NYSE:MS), J.P. Morgan (NYSE:JPM) and Bank of America (NYSE:BAC) segment BofA Securities.
Additionally, the co-managers for the IPO included famous names like Stifel Financial (NYSE:SF), Piper Sandler (NYSE:PIPR) and Oppenheimer (NYSE:OPY). So, the presence of well-heeled financial backers undoubtedly added fuel to the hype fire.
Furthermore, the FROG IPO occurred during a seasons of general IPO mania. There’s been plenty of buzz associated with the IPO’s of Snowflake (NYSE:SNOW), Unity Software (NYSE:U), Sumo Logic (NASDAQ:SUMO) and Vitru (NASDAQ:VTRU).
Since the IPO calendar has been so full, it seems that the trading community is swarming to any and every one of them, including FROG. This seemingly led to the JFrog IPO being “multiple times oversubscribed,” as IPO Boutique described the event.
I don’t doubt that there’s a need for the speedy execution of software updates and releases. However, the price action of FROG stock and the “oversubscribed” nature of the IPO concerns me. For me at least, the phrase “crowed trade” comes to mind here.
The Bottom Line
Contrarian and/or value investors might have difficulty justifying the current share price of FROG stock. The level of hype, and the apparent reasons for that hype, will dissuade some prospective investors.
Jfrog might be a good company that provides an important service. However, it’s entirely possible that FROG stock traders have leapfrogged past the bounds of rationality.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
