JFrog Ltd. (FROG): A Bull Case Theory

We came across a bullish thesis on JFrog Ltd. on Elliot’s Musings’s Substack by Elliot. In this article, we will summarize the bull’s thesis on FROG. JFrog Ltd.’s share was trading at $40.68  as of June 20^th. FROG’s forward P/E was 58.14 according to Yahoo Finance.

JFrog (FROG) recently reported Q2 earnings that met expectations but were accompanied by a lowered full-year revenue guidance, leading to a sharp 30% stock decline. While revenue of $103 million fell at the lower end of guidance, the company attributed the reduction to macroeconomic pressure, delayed deals, and volatile usage among SMB customers on monthly billing plans.

To address this, JFrog is transitioning toward more predictable annual contracts. Despite slowing growth, key customer metrics remained solid: customers generating $1 million+ in ARR rose 75% YoY, and those spending $100K+ reached 928, up 14% YoY. Importantly, about half of JFrog’s revenue now comes from customers using its full platform—an essential metric for its standalone success, though its security product isn’t expected to materially contribute until 2025.

While Net Dollar Retention stood at a healthy 118%, management anticipates a decline into the mid-teens, though stable gross retention suggests this isn’t due to competitive losses. The market’s harsh reaction was exacerbated by the timing—JFrog had reaffirmed guidance just before quarter-end, raising concerns about visibility.

However, the author sees opportunity in the downturn, viewing the lowered guidance as prudent and now de-risked. JFrog’s dominance in artifact management via Artifactory and its partnership with GitHub strengthen its long-term prospects and make it an attractive acquisition candidate. With a modest 5.5x EV/2024 sales multiple and potential FCF expansion, the current valuation offers downside protection. Assuming steady topline growth and expanding margins, JFrog could reach $30 per share by 2028, supporting a compelling long-term risk/reward profile.

Previously, we covered a bullish thesis on JFrog Ltd. by Elliot in September 2024, which highlighted risks around Artifactory’s commoditization and the need for a broader platform and proactive sales approach. The company’s stock price has appreciated by approximately 45% since our coverage. Elliot shares an identical thesis but emphasizes downside protection from M&A potential and the GitHub partnership.

JFrog Ltd. is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 43 hedge fund portfolios held FROG at the end of the first quarter, which was 32 in the previous quarter. While we acknowledge the risk and potential of FROG as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and have limited downside risk. If you are looking for an extremely cheap AI stock that is also a major beneficiary of Trump tariffs and onshoring, see our free report on the best short-term AI stock.

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Disclosure: None.