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    JFrog (FROG)

    Q1 2024 Earnings Summary

    Reported on Feb 12, 2025 (After Market Close)
    Pre-Earnings Price$40.62Last close (May 9, 2024)
    Post-Earnings Price$33.60Open (May 10, 2024)
    Price Change
    $-7.02(-17.28%)
    • Strong Cloud Revenue Growth: JFrog's cloud revenue grew 47% year-over-year in Q1 2024 , demonstrating robust demand for its cloud offerings. Despite Q1 being a "digestion quarter," the company expects cloud growth to normalize and potentially accelerate in future quarters, similar to trends seen in 2023.
    • High Gross Margins Due to Cost Efficiencies: The company achieved an 85.1% gross margin in Q1 2024 , attributed to efficiencies from standardizing on the Vdoo database acquired 2-3 years ago. This highlights effective cost management even as cloud revenue increases as a percentage of total revenue.
    • Expansion Opportunities Through Platform Consolidation and Security Offerings: Customers are consolidating tools around JFrog's unified platform, including security solutions, distribution, automation, and database products. JFrog expects its security offerings to become a material part of its business performance this year , and changes in the competitive landscape may present opportunities for market share gains.
    • The company is experiencing broad-based digestion across its customer base, with customers delaying expansions and new projects, potentially slowing near-term growth. CFO Ed Grabscheid stated that the digestion was "consistent throughout the quarter" and it was "broad-based across the portfolio" with "nothing that we can point out specifically." ,
    • Sequential growth in cloud revenue was lower than in prior years, as customers are cautious about cloud expansion and spending. CFO Ed Grabscheid noted that "customers expanded in terms of usage in Q4. In Q1, they took that opportunity to digest a little bit more." CEO Shlomi Haim added that big migration projects "are not even being discussed at this point," indicating potential headwinds for future cloud growth. ,
    • Gross margins are expected to decline from the current 85.1% to 83%-84% in 2024 as the company continues to invest in databases and other costs, potentially pressuring profitability. CFO Ed Grabscheid mentioned that "we'll continue to spend and invest in those databases and other costs associated with our gross margins."
    1. Cloud Growth Guidance
      Q: Is the mid-40% cloud growth guidance based on commitments?
      A: Ed confirmed that the mid-40% cloud growth guidance for the year is based on customer commitments, and any upside would come from additional consumption. He reiterated confidence in achieving this target, noting that consumption trends would drive growth above the mid-40% level.

    2. Customer Spending Trends
      Q: Are you seeing customers optimize cloud spend in Q1?
      A: Ed explained that after strong consumption in Q4, customers used Q1 as a period of digestion, leading to 47% year-over-year cloud growth. He noted that purchasing decisions and large projects are expected to pick up in the second half of 2024.

    3. Security Pipeline and Challenges
      Q: How is the pipeline build for security products?
      A: Shlomi stated that the security pipeline is growing with enterprise customers interested in JFrog Advanced Security and Curation. However, the sales cycle is longer than for DevOps products because customers are consolidating existing security solutions, making proof-of-concept processes more extensive.

    4. Gross Margin Improvement
      Q: Why were gross margins strong at 85% this quarter?
      A: Ed attributed the strong gross margin of 85.1% to efficiencies gained by eliminating a third-party outsourced database and standardizing on the Vdoo database acquired earlier. He expects gross margins to be between 83% to 84% for the full year as they continue to invest in databases and associated costs.

    5. Competitive Dynamics in Security
      Q: Have you seen changes in security competition recently?
      A: Shlomi noted that recent industry changes, such as major players being spun out or acquired, have not significantly altered the competitive landscape for JFrog. Customers continue to seek comprehensive security solutions and tool consolidation, and JFrog sees opportunities to gain share in this environment.

    6. Self-Hosted Business Performance
      Q: Was there anything unusual in self-hosted growth this quarter?
      A: Ed reported a slight acceleration in the self-hosted business with no one-time events impacting it. He expects the self-hosted trend in 2024 to be similar to what was seen in 2023.

    7. MLOps Opportunity
      Q: How mature is the MLOps opportunity for JFrog?
      A: Shlomi explained that MLOps and AI are not yet mature markets, but they are preparing the JFrog platform for future opportunities. While MLOps could be a tailwind, it is not expected to significantly impact their 2024 guidance.

    8. Large Customer Net Adds
      Q: Did the digestion period affect large customer growth?
      A: Ed acknowledged that net adds of $100K customers were slower this quarter, partly due to customers reassessing budgets and expansion plans. He expects growth to normalize in future quarters, similar to trends seen in 2023.

    9. Upselling Other Products
      Q: Are you seeing upsell opportunities with other products?
      A: Shlomi mentioned that customers are consolidating tools around the JFrog platform, including products like Distribution, Automation, and the Database. Expansion is driven by broader adoption of these products within organizations, both in cloud and self-hosted environments.

    10. SMB Customer Demand
      Q: How is demand from SMB customers holding up?
      A: Shlomi noted that software supply chain security is important for companies of all sizes, including SMBs. These customers are seeking comprehensive security solutions like JFrog's Advanced Security, Curation, and Xray, which cater to their needs for robust security coverage.

    11. Sales Productivity and Channel Efforts
      Q: How is the productivity from new partners and sales teams?
      A: Shlomi emphasized that partnerships and channels are expanding by geography and expertise. They are collaborating with different partners in security and DevOps across various regions and have added Carahsoft to pursue the public sector. These efforts aim to enhance field presence and promote the JFrog platform.

    12. Value of Security Research Team
      Q: What's the value of having a security research team?
      A: Shlomi highlighted that their security research team is one of the largest in the industry, providing customers and the community with early insights into threats. This not only benefits the community but also strengthens their security tools by detecting threats before others.

    13. Timing of Digestion Trend
      Q: Was digestion consistent throughout the quarter?
      A: Ed confirmed that the digestion phase was consistent throughout the quarter, with customers reassessing budgets and planning expansions, which is typical for the season.

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