JFrog Ltd (NASDAQ:FROG) could be staring at a significant growth opportunity with its Curation product designed to help enterprises secure software supply chains. With the new product, the company plans to capitalize on the sharp rise in malicious npm packages, which surged 451% year over year.
On September 4, DA Davidson echoed the product’s long-term prospects in identifying and blocking the malicious or vulnerable packages. Consequently, it reaffirmed a Buy rating on the stock with a $115 price target.
According to the research firm, a wave of high-profile package attacks has accelerated demand for the product as enterprises seek to secure their supply chains. The product stands out for its ability to block risky third-party software components before they enter a company’s development environment.
This represents a potentially important distinction from traditional security solutions, which often focus on identifying vulnerabilities after software has entered an environment. By preventing risky dependencies from entering in the first place, Curation could allow JFrog to expand beyond its traditional role as an artifact management platform and establish itself as a broader software supply chain security and governance provider.
The product could also turn software supply chain security into a larger recurring revenue opportunity. As enterprises adopt Curation alongside existing JFrog products, the company could increase the value of its enterprise relationships and expand annual recurring revenue through larger software deals.
DA Davidson is already seeing an opportunity among several seven-figure customers, suggesting that Curation could become increasingly relevant to large enterprises. The firm believes high-profile attacks on software packages could further accelerate adoption, while the emerging DevGovOps trend could provide an additional long-term growth driver.
Curation Risks
While Curation strengthens the company’s security prospects, there is a growing risk of investors pricing in a larger monetization opportunity. That’s in part because the supply chain product is simply an optional add-on to select enterprise subscriptions. Therefore, there is a likelihood that customers will view it as an incremental security feature rather than a standalone product.
JFrog Ltd also faces competition in an increasingly crowded software supply chain security market. Major technology companies, including Microsoft and Google Cloud, are expanding or bundling software supply chain security and package governance capabilities into their broader platforms. This could limit JFrog’s pricing power and make customer acquisition more challenging.
While security incidents can create spikes in demand, they might not produce sustained, linear spending growth. Therefore, the strong Curation demand could be event-driven and might not last for long.
Verdict
Institutional holding has been building around JFrog Ltd. As of the second quarter, 51 hedge funds held stakes in the stock, a slight improvement from 47 at the end of the first quarter. Meanwhile, Whale Rock Capital Management trimmed its stake in the stock by 26% in the second quarter to $405.2 million, while Arrowstreet Capital also cut its stake by 24% to $136.37 million.
Curation gives JFrog Ltd a potentially attractive avenue to expand its addressable market and increase the strategic value of its platform. However, the company’s ability to convert the product from an optional security feature into a meaningful recurring revenue stream will be critical to determining whether the opportunity ultimately justifies higher expectations for the stock.
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