Software supply chain tooling company JFrog Ltd. delivered a convincing earnings beat on the back of impressive revenue growth, and followed up with strong guidance for the current quarter, sending its stock way higher in after-hours trading today.

The company reported fourth-quarter earnings before certain costs such as stock compensation of 19 cents per share, easily beating Wall Street’s target of 13 cents. Its revenue grew by an impressive 27%, accelerating from growth of 23% in the previous quarter, to $97.3 million. That was above the company’s own forecast of $93 million and well ahead of the Street’s target of $93.1 million.

In addition, the company made good progress on its path to profitability, posting a net loss of $11.2 million, up from a loss of $23.1 million in the same period one year earlier.

Investors liked what they saw, and JFrog’s stock, which had already gained nearly 4% during the regular trading session, shot up by more than 20% after-hours.

JFrog co-founder and Chief Executive Shlomi Ben Haim (pictured) said the strong performance showcases his team’s solid execution across its strategic pillars, which include driving growth in the cloud and enhancing its security offerings. “The market demands a consolidated solution for DevOps and DevSecOps around binary management, and we are excited to see new opportunities for expansion in security in 2024, as well as potential tailwinds within MLOps and MLSecOps, which are supported natively by our platform,” the CEO said.

JFrog is the creator of an open-source binary code repository manager, called Artifactory. Unlike the better-known GitHub platform, which is used to store application code, Artifactory is used to store the binary files created when engineers compile their code into functioning applications. The company also sells JFrog Pipelines, which is a continuous integration and continuous delivery platform used by developers to create automated software workflows that can transform raw code into binaries before deploying them automatically.

In an interview with Barron’s, Ben Haim noted that the company beat both its own estimates and the Street’s forecasts on every metric, with accelerated growth and improved profitability being the icing on the cake. In particular, he said the company has had big success in grabbing larger enterprise customers. At the end of fiscal year 2023, it had 37 customers that spent at least $1 million annually on its products, up from just 19 one year ago.

The CEO also discussed the company’s drive into security software, saying this was a calculated bet that has paid off handsomely. “Everything we bet on turned out to be what CIOs and CISOs want,” he said. “They want consolidated suppliers rather than point solutions, they want security as part of their software supply chain, and they want to be able to track the full delivery flow of their software.”

The success is likely one of the reasons for JFrog’s optimism going forward. For the first quarter, it’s targeting sales of between $98 million and $99 million, ahead of the $97.3 million analyst target. It also sees profits of between 13 and 15 cents per share, above the consensus call of 11 cents.

Looking to the full year, JFrog sees total revenue at between $424 million and $428 million, ahead of the $421.8 million forecast. Its earnings target is 58 to 60 cents per share, above the Street’s guidance of 52 cents per share.

Holger Mueller of Constellation Research Inc. said JFrog is benefiting from the fact that every enterprise is slowly transforming into a software company, as its platform is primed to enable those transformations. “It’s no surprise that JFrog has continued to accelerate its growth in the fourth quarter and the full year,” Mueller said. “But it deserves extra kudos because Ben Haim and team have also managed to control their operating expenses, and the company has gotten nearer to achieving profitability for it. It’s also clear now that the situation in Israel is not impacting JFrog’s business in any negative way.”

Before today’s after-hours stock surge, JFrog’s shares had gained 4% in the year to date and 49% over the previous year.

Photo: JFrog/YouTube