JFrog IPO: Should Investors Buy This DevOps Tech Stock?

September 22, 2020

Recently-public DevOps software firm JFrog Ltd (NASDAQ: AMWL) gained 3.4% overnight and is up over 50% from its US$44 IPO price when it listed last week.

Tim’s Take:

For investors, JFrog operates in a weird space between development and operations, dubbed DevOps. Effectively, the company allows for continuous software release management – effectively uninterrupted software updates.

This is extremely important for companies as the bridge between developing an update (from the developer side) and implementing it (from the operations side), can be extremely cumbersome.

That’s where JFrog comes in. Its unified platform allows developers and operations teams to work in unison to ensure rolling software updates for enterprises.

It’s a niche space but it’s the undisputed leader in it. It’s likely its IPO got overshadowed by the publicity surrounding Snowflake yet I actually think this is a more interesting business for investors who are thinking long term.

Why? First off, amazingly, the company is already close to profitability. It made a net loss of just US$400,000 in the first half of 2020. JFrog has now been free cash flow positive for five years.

The company had around 50% revenue growth in the first six months of 2020, pegging its total revenue number at around US$70 million.

Diversified customer base

However, the key selling point for me is its customer base; a whopping 5,800 customers. And they’re not small ones either.

They count all ten of the top tech firms as customers, including Netflix (NASDAQ: NFLX) and Spotify (NYSE: SPOT), as well as financial services and healthcare firms. In fact, 75% of the Fortune 100 are customers of JFrog.

No single firm contributes more than 2% of JFrog’s revenue. Talk about customer diversification. And they’re spending more money with the company.

JFrog had a net retention rate of 139% in its latest quarter, meaning existing customers were spending 39% more with JFrog than before.

The only reservation I’d have is that it just went public and we all know there will be opportunities for long-term investors to buy once the post-IPO hype dies down.

However, in a market where Snowflake is massively loss-making and trading for 135x price-to-sales (PS), JFrog shares could be considered “cheap” on a relative basis given they’re trading at 45x.

With a market cap of only US$6 billion, and equipped with all the right attributes to keep growing well into the future, JFrog is definitely one I’m adding to my watchlist.

Disclaimer: ProsperUs Head of Content Tim Phillips doesn’t own shares in any companies mentioned.

This material is categorised as non-independent for the purposes of CGS-CIMB Securities (Singapore) Pte. Ltd. and its affiliates (collectively “CGS-CIMB”) and therefore does not provide an impartial or objective assessment of the subject matter and does not constitute independent research. Consequently, this material has not been prepared in accordance with legal requirements designed to promote the independence of research. Therefore, this material is considered a marketing communication.

This material is general in nature and has been prepared for information purposes only. It is intended for circulation amongst CGS-CIMB’s clients generally and does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this material. The information and opinions in this material are not and should not be construed or considered as an offer, recommendation or solicitation to buy or sell the subject securities, derivative contracts, related investments or other financial instruments or any derivative instrument, or any rights pertaining thereto. CGS-CIMB have not, and will not accept any obligation to check or ensure the adequacy, accuracy, completeness, reliability or fairness of any information and opinion contained in this material. CGS-CIMB shall not be liable in any manner whatsoever for any consequences (including but not limited to any direct, indirect or consequential losses, loss of profits and damages) of any reliance thereon or usage thereof.

Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.

He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer.

In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.

Share this

Subscribe to our weekly
newsletter and stay updated!