What Happened?
Shares of software development tools maker JFrog (NASDAQ: FROG) jumped 15.3% in the pre-market session after the company reported strong fourth-quarter 2024 results, which revealed an acceleration in its new large contract wins, enabling it to exceed Wall Street's revenue and operating profit estimates, the latter by a very convincing amount. Cloud revenue importantly exceeded expectations. Adoption of its cloud business remained strong, now accounting for 43% of total revenue, up from 37% a year ago. While revenue guidance for the full year was in line with Wall Street's estimates, full-year operating income guidance was ahead, showing better profitability. Again, Cloud revenue growth was guided ahead, allowing the market to look past the in line full-year total revenue guidance. Zooming out, we think this was a very solid quarter featuring some areas of strength for the stock.
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What The Market Is Telling Us
JFrog’s shares are somewhat volatile and have had 14 moves greater than 5% over the last year. But moves this big are rare even for JFrog and indicate this news significantly impacted the market’s perception of the business.
The biggest move we wrote about over the last year was 6 months ago when the stock dropped 31.9% on the news that the company reported second quarter earnings results. Its full-year revenue guidance was lowered by 1% and came in below expectations. Also, its revenue guidance for the next quarter missed Wall Street's estimates. Profitability is also expected to be pressured, with adjusted operating income for the next quarter and full year below consensus.
Management called out a challenging macro, which led to "projects being delayed, stricter budget environment, rigid procurement process." Cloud migrations were also slower during the quarter, and this delayed the anticipated spending uplift from on-prem to Cloud migrations.
Overall, this was a weak quarter for JFrog, with the below-consensus outlook weighing heavily on the stock.
JFrog is up 30% since the beginning of the year, but at $39.92 per share, it is still trading 16.2% below its 52-week high of $47.64 from February 2024. Investors who bought $1,000 worth of JFrog’s shares at the IPO in September 2020 would now be looking at an investment worth $616.09.
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