JFrog loses a third of market cap after 2024 guidance cut
The software company's weak forecast stands in contrast to many software companies of its size, including other Israeli firms, which have actually raised their annual forecasts.
The Israeli software company JFrog published lukewarm reports for the second quarter of 2024, coupled with a weak annual forecast. Investors weren’t forgiving, with JFrog shares plunging by over 30% on the Nasdaq in the first hours of trading on Thursday, wiping more than a billion dollars off its market cap.
According to the forecast provided by JFrog with its earning reports after the closing of trading on Wednesday, the company expects annual revenues of $422-$424 million, falling short of the anticipated $428 million. Despite investors' disappointment, these revenues would still reflect an annual growth rate of approximately 20% compared to 2023. Operating profit before non-recurring and accounting items is expected to reach $52-$54 million.
JFrog's weak forecast stands in contrast to many software companies of its size, including other Israeli firms, which have actually raised their annual forecasts.
In the second quarter, JFrog, which has developed a solution for continuous software updates, reported revenues of $103 million—a 22% increase compared to the corresponding quarter last year, but still a slight miss compared to analysts' forecasts. Operating profit before non-recurring items was $13.6 million, but under GAAP accounting rules, JFrog reported a net loss of $19.1 million.
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For the current quarter, JFrog does not anticipate significant growth, expecting revenues to range between $105 and $106 million, with operating profit projected to drop to $10-$11 million.
JFrog noted that sales cycles remain slow due to tighter budgets among its customers and potential clients. The acquisition of the Israeli company Qwak two months ago is intended to add AI capabilities to JFrog's offerings, potentially making the company more competitive and enabling it to charge higher prices for its products. However, this has yet to be reflected in the financial results.
The company explained that most of the slowdown will be felt in the cloud sector, which had previously been its fastest-growing segment, with a 40% increase in revenue compared to the corresponding quarter, reaching $39.3 million. At the end of the second quarter, cloud revenues accounted for 38% of JFrog's total revenues, compared to 33% a year ago.
