Jfrog(FROG) SaaS stock analysis
We look at an innovative, profitable, high growth SaaS business leader in the DevOps industry that is off to a great start and has a long runway for further growth
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Industry Overview
DevOps enables software innovation by integrating software development and operations, shortening, automating, and improving the software build and release workflow. DevOps is a combination of new technologies, methodologies, and culture that powers a continuous, fast, and secure software release cycle. DevOps spans the entire lifecycle of software, from the planning, coding, building, and testing of software by developers, to the releasing, deploying, operating, and monitoring of that software by operators. Iterating from the development side to the operations side is mission-critical, yet exceedingly difficult to build and manage at the scale and speed that businesses require and is known as Continuous Software Release Management(CSRM).
Mission
JFrog’s vision is to power a world of continuously updated, version-less software—we call this Liquid Software.
I love this mission statement as it’s very simple and gives a guide as to what exactly Jfrog stands for, effortless software production and delivery.
Culture
Jfrog’s culture focuses on innovation, leading the way for the industry, and setting standards, have win-win relationships with customers and their community, move fast in this rapidly changing industry and work as a collaborative team.
Business Overview
Jfrog has a hybrid(on-prem and cloud) Continuous Software Release Management(CSRM)/DevOps Platform. Leveraging their extensive understanding of continuous software release management, they are able to provide an end-to-end and hybrid platform that enables organizations to continuously deliver updates across any system. They empower developers with the tools need so they can be more efficient in building new applications while also ensuring these apps remain secure when deployed on production servers. Jfrog provides a platform that connects developers with operators. Customers can shorten software development from months or years down to days as well automate processes for increased efficiency.
Jfrog Platform
Jfrog innovated the world’s first universal package repository, JFrog Artifactory, to fundamentally transform the way that the software release cycle is managed. Their package-based approach to releasing software enables software releases to be continuous and software to always be current. Jfrog empowers its customers to shorten their software release cycles and enable the continuous flow of current, up-to-date software from any source to any destination.
Jfrog’s Platform allows customers to compile software from source code repositories, manage the dependencies among components within software packages, moving packages to a universal repository, ingest packages from third parties, including open source libraries, scan for vulnerabilities through various stages, distribute to endpoints, and deploy in production, all through a single user access point.
Jfrog Products
JFrog Artifactory
JFrog Artifactory is an all-inclusive package repository that allows customers to store, update, manage their software packages at any scale. This includes the cache of dependencies for each version of a package as well as from external sources which ensures they will always have the most up-to-date software being deployed on their servers with ease no matter what environment they are in; public cloud or private hosted server. As a result, JFrog Artifactory serves as the “single source of truth” for an entire organization’s packages, ensuring consistency and enabling trust and automation in the software release cycle.
JFrog Pipelines
JFrog Pipelines is a Continuous Integration/Continuous Delivery tool, responsible for automating the movement of software packages through the DevOps workflow. Included in this automated process are compilations and management throughout as well as end-to-end visibility with testing tools and deployment tools seamlessly coordinated to make sure everything goes smoothly during the release cycle.
JFrog Xray
JFrog Xray continuously scans JFrog Artifactory to secure all packages stored in it. JFrog Xray is able to break down and understand software packages at a binary level, utilizing the metadata stored in JFrog Artifactory for more efficient security scanning. This enables better DevSecOps, allowing customers to achieve both control and trust earlier on their software release cycles by automating these workflows - eliminating tedious tasks that add no value whatsoever like manual vulnerability analysis or code reviews.
JFrog Distribution
JFrog Distribution provides a simple way to keep software packages updated, even when new versions are released. It uses proprietary technology and native integrations with major package technologies; together they create reliable, scalable, secure distribution on multiple locations for customers’ deployment tools.
JFrog Artifactory Edge
JFrog Artifactory Edge is a specialized, read-only version of JFrog Artifactory that provides reliable deployment of software packages. It sits downstream from the distribution service and can be co-located close to where deployments happen so it's always up to date with production. JFrog Artifactory Edge utilizes and leverages metadata from JFrog Artifactory to facilitate the transfer of only the incremental changes in software packages from their previous versions, rather than entire applications, enabling efficient, real-time updates to edge instances.
JFrog Mission Control
JFrog Mission Control is a holistic, high-level view of how customer’s CSRM workflow operates. JFrog Mission Control can configure and track services regardless if they are on public cloud, private cloud, or even hybrid environments at geographically dispersed sites across the world.
JFrog Insight
JFrog Insight is the universal DevOps intelligence tool that integrates with Jfrog Platform to deliver powerful BI and analytics capabilities. It processes, collects key metrics across systems, then correlates them for development teams, managers, operations teams, and compliance officers in order to provide actionable insights.
Jfrog Business Model
Jfrog has a bottom-up, community-focused approach to driving increased usage of their products with a focus on demonstrating the value that their products can provide to software developers and IT operators before their respective organizations become customers. Jfrog strives to make software developers and IT operators more efficient, effective, and productive, and create champions of JFrog in the process. Their multi-tiered structure for both self-managed subscriptions and software-as-a-service (“SaaS”) subscriptions, technology partnership ecosystem, and their recent focus on a strategic sales team to increase adoption of their products is their strategy to generate more revenues.
Jfrog Subscription Plans
Jfrog offers customers multiple subscription options as follows:
JFrog Pro - JFrog Pro provides access to the universal version of JFrog Artifactory and ongoing updates, upgrades, and bug fixes.
JFrog Pro X - JFrog Pro X provides the same features as JFrog Pro with the addition of JFrog Xray and SLA support.
JFrog Pro Team - JFrog Pro Team provides cloud subscribers with JFrog Artifactory, security scanning with JFrog Xray, and CI/CD tools with JFrog Pipelines.
JFrog Enterprise - JFrog Enterprise provides the same features as JFrog Pro with the addition of High Availability cluster configuration, multi-site replication, and JFrog Mission Control, enabling larger enterprise-scale deployments, and SLA support. Additionally, customers have the option to add a High Availability version of JFrog Xray to the JFrog Enterprise subscription. SaaS subscriptions of JFrog Enterprise also include CI/CD tooling with JFrog Pipelines.
JFrog Enterprise Plus - JFrog Enterprise Plus provides the same features as JFrog Enterprise, including JFrog Xray with HA, with the addition of JFrog Pipelines, JFrog Insight, JFrog Distribution, and JFrog Artifactory Edge. JFrog Enterprise Plus is the full platform subscription option.
Jfrog’s bottom-up selling developer subscriptions
Jfrog offers varying forms of free access to their products in the form of free trials, freemium offerings, and open-source software which helps generate demand for their paid offerings within the software developer and IT operator communities.
Jfrog Growth Strategies
Extend platform and add product organically - Jfrog will continue to invest in building new capabilities and extending their platform to support a broader range of use cases, including increased security solutions for DevSecOps and enabling DevOps solutions for devices on the edge.
Extend platform and add product in-organically - Jfrog will acquire new technologies to complement their organic innovation efforts to address the evolving needs of the market and drive increased value for their customers.
Expand within the existing customer base - Jfrog is building a small, high-touch strategic sales team to identify new use cases and drive expansion and standardization on JFrog within their largest customers.
Acquire new customers - Free trial subscription options, freemium product offerings, and open source version of JFrog Artifactory increase software developer and IT operator familiarity with Jfrog Platform and allow for low-friction product adoption.
Expand internationally - Jfrog intends to continue to expand internationally as DevOps practices are increasingly adopted around the world.
Expand and develop our technology partnership ecosystem - Jfrog intends to cultivate and leverage channel partners to grow market presence and drive greater sales efficiency.
Insider Ownership
Jfrog has high insider ownership at 38%. The management is highly invested in their own business, so we can see that they have a long-term vision and focus.
Competition
IBM, Inc. (Red Hat), Pivotal Software, Inc., and VMware, Inc., and developer-focused software companies, such as GitLab Inc. and Sonatype, Inc., have offerings that compete with Jfrog products.
Cloud providers, such as Alphabet Inc. (GCP), Amazon.com, Inc. (AWS), and Microsoft Corporation (Azure DevOps including GitHub), have offerings that compete with Jfrog products.
Jfrog also competes with home-grown, start-up, and open source technologies.
You can see from the following capability matrix for artifactory that Jfrog is way ahead of its competition.
You can see from the following capability matrix for Xray/security and compliance that Jfrog is way ahead of its competition.
You can see from the following capability matrix for CI-CD Pipelines that Jfrog is ahead of its competition.
Competitive Advantage
Jfrog’s consistent product innovation thought leadership in CSRM, and knowledge sharing with software developers and IT operator communities fuels increased usage of their products.
Jfrog is agnostic to the types of technologies a software developer or IT operator may choose to use and is designed to quickly and seamlessly add support for new package technologies as they arise.
Jfrog’s free trials, freemium offerings, and open-source software options provide low-friction entry points for software developers and IT operators. Customers often upgrade to paid and higher-tiered subscriptions as they increase their usage of their products.
Jfrog’s extensive integrations with technologies across the software development ecosystem power the significant extensibility of their platform and offer their customers the ability to use external software development technologies of their choice on our platform, driving increased customer affinity and product stickiness.
Jfrog provides a central, unified platform for our customers’ software release needs with their universal package management solution, JFrog Artifactory, at its core and a portfolio of adjacent products including build integration, workflow automation, security, and deployment. These products integrate with each other natively, with a unified user interface. This allows organizations to effectively and efficiently manage the full software release cycle through a single user access point.
JFrog Artifactory, stores packages and manages the metadata from the major package technologies, including Debian, Docker, Go, Helm, Kubernetes, Maven, NPM, NuGet, Python, and RPM, in a manner similar to a relational database, wherein it can manage package versions, organize and track dependencies, and perform replication across geographically distributed repositories.
Jfrog’s Xray works by tracking against a database of known vulnerabilities, provides continuous security and analysis of packages in the development environment. It provides continuous protection by recursively scanning components down to their binary file levels on a regular basis. Integration with major package technologies allows Xray to provide critical insights early in the development phase, making it less likely for vulnerable components to reach production. To enhance application quality while minimizing risk, Xray offers customizable governance policies to specific packages and complete auditing capabilities and business impact analysis.
Jfrog’s platform accelerates the software release cycle by enabling the automation of workflows across teams and providing tight coordination between development and operations groups, removing silos within organizations’ software release processes.
Jfrog empowers customers to release software that is execution-ready across any number of different production environments and supports public cloud, on-premise, private cloud, and hybrid deployments, helping customers avoid vendor lock-in. Jfrog’s Platform offers the same product in the cloud and on-premise, so users can work in any environment with an identical user experience.
Key SaaS/Financial Metrics
Revenue TTM - $163M
Revenue Growth - 40%
TAM - 22B
Subscription Revenue as part of Total revenues - 100%
Gross Margin - 82%
Free Cash Flow as part of Total revenues - 18%
Net Expansion Rate - 130%
Rule of 40 - 60%+ (40% growth + 18% FCF)
Total customers - 6K+
EV/Revenue TTM - 24x
EV/Revenue NTM(Assuming 30%growth) - 18x
Final Thoughts
Jfrog is a SaaS DevOps/CSRM leader with a unique highly integrated, open, and extensible platform that enables businesses to accelerate and automate their entire software development lifecycle and enables them to move very fast. They have moats with their platform integrations, products portfolio, innovation, and bottom-up customer acquisition strategy. Jfrog is a high-growth, highly profitable business with a large runaway for further growth.
Note: A lot of information in this article is compiled from Jfrog’s website, SEC filings, and recent presentations.