Frugal startups should pay attention to how JFrog’s IPO prices

In last week’s IPO wave, one company fell a bit by the wayside amongst filings from better-known companies like Asana and Palantir. JFrog, a company that TechCrunch reported helps allows developers and companies deliver application updates “in the background without disturbing the user experience” when it raised $165 million in 2018, is positioned for an exciting debut.

Why? The unicorn — the same 2018 round valued JFrog at around $1.2 billion according to PitchBook data — has a unique blend of growth, margins and profitability that should make its pricing cycle incredibly interesting.

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JFrog will give us an insight into how Wall Street will value a fast-growing, managed software company that also doesn’t lose money. It’s not something we see often, and other market hopefuls like the aforementioned Asana and Palantir are far from similar levels of profitability.

Let’s take a quick look at what JFrog would be worth if it were a more normal — read: less profitable — SaaS company, and then ask what it might be worth as a cash-generating, recently profitable concern. The numbers are pretty surprising.

JFrog

If you want more on the basics of JFrog’s business and why developers and companies care about the company, head here. We’re only doing numbers today.

Back to the basics as a refresher from early last week, here’s what you need to know about JFrog’s business:

• Revenue grew from $63.5 million in 2018 to $104.7 million in 2019 and from $46.1 million to $69.2 million from the first half of 2019 to the first half of 2020. Those gains of 65% and 60.1%, respectively, put JFrog on a comfortable growth pace for a company doing nine-figure revenues.
• JFrog has lost less money as it has grown. From $1.00 per share in 2018 to $0.20 per share in 2019, and from $0.08 per-share in the first half of 2019 to just $0.02 per share in the first half of 2020.
• JFrog’s gross margins have been 81% or better in every mutliquarter period we have record of.
• JFrog’s operating cash flow has improved over time as well, rising from +$8.6 million in 2018 to $10 million in 2019, and from +$0.415 million in the first half of 2019 to +$5.9 million in the first half of 2020.
• And, after some quarters of extremely limited losses, JFrog posted its first known (since Q1 2018) GAAP profitable quarter in Q2 2020, generating $1.7 million in net income off of revenues of $36.4 million in the same period.

Now ask yourself, what is that company worth?