What a fantastic six months it’s been for JFrog. Shares of the company have skyrocketed 114%, hitting $93.86. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Following the strength, is FROG a buy right now? Or is the market overestimating its value? Find out in our full research report, it’s free.
Why Are We Positive on JFrog?
Named after the amphibian that continuously evolves from egg to tadpole to adult, JFrog (NASDAQ: FROG) provides a platform that helps organizations securely create, store, manage, and distribute software packages across any system.
1. Billings Surge, Boosting Cash On Hand
Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.
JFrog’s billings punched in at $208.1 million in Q2, and over the last four quarters, its year-on-year growth averaged 31.5%. This performance was fantastic, indicating robust customer demand. The high level of cash collected from customers also enhances liquidity and provides a solid foundation for future investments and growth. 
2. Customer Acquisition Costs Are Recovered in Record Time
The customer acquisition cost (CAC) payback period represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.
JFrog is very efficient at acquiring new customers, and its CAC payback period checked in at 24 months this quarter. The company’s rapid recovery of its customer acquisition costs indicates it has a highly differentiated product offering and a strong brand reputation. These dynamics give JFrog more resources to pursue new product initiatives while maintaining the flexibility to increase its sales and marketing investments. 
3. Excellent Free Cash Flow Margin Boosts Reinvestment Potential
Free cash flow isn’t a prominently featured metric in company financials and earnings releases, but we think it’s telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
JFrog has shown robust cash profitability, driven by its attractive business model and cost-effective customer acquisition strategy that enable it to invest in new products and services rather than sales and marketing. The company’s free cash flow margin averaged 28.3% over the last year, quite impressive for a software business. The divergence from its underwhelming operating margin stems from the add-back of non-cash charges like depreciation and stock-based compensation. GAAP operating profit expenses these line items, but free cash flow does not.
Final Judgment
These are just a few reasons JFrog is a rock-solid business worth owning, and after the recent surge, the stock trades at 16.4× forward price-to-sales (or $93.86 per share). Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
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