QS Research · Michael Burry's Scion Capital analyst template · 2006
JFrog Ltd (FROG)
As of 2026-11-11 · 12/15 boxes filled from SEC filings and market data
Report price $103.55 (close 2026-11-10)
Conclusion: PASS
Conviction low · base case +6% · downside -36% · upside +22%
The market is paying 18.72x EV/Sales and 58.0x EV/FCF for a business whose TTM GAAP EBITDA is -$28.6M, EBIT -$49.4M and net income -$21.1M, with ROIC of -16.2% against an 11.9% WACC (N14, N15, N12, N40, N41). The growth is real — Q3 2026 revenue +31%, cloud +60%, RPO +60%, NDR 124% (S31) — but the peer median EV/Sales is 7.18x (6 peers) (N49), and the code's cases are base +5.6% to $109.36, downside -35.9% to $66.41, upside +22.0% to $126.33, with reward/risk 0.61. The only positive cash measure, FCF of $207.4M, is 78% stock pay, leaving about $45.5M of owner earnings (N18, N38, N39). The call is pass with low conviction: the premium multiple is unsupported by earnings or returns on capital, and the downside case at a compressed 10.86x multiple is -35.9%.
Key numbers
- Share price: $103.55
- Market cap: $12.90B
- Latest financial period: TTM to Sep 30, 2026
- Revenue (TTM): $642.2M
- FCF yield: 1.6%
- Price / book: 12.78x
- EV / FCF (TTM): 58.0x
- Revenue growth (latest fiscal year): +24.1%
- ROIC (TTM): -16.2%
- WACC: 11.9%
- Economic profit spread: -28.0 pts
The 15 boxes
- ✓ 1. Long-form business notes
JFrog sells multi-tier subscriptions (Pro, Pro X, Enterprise X, Enterprise Plus) around JFrog Artifactory, the universal package repository, with security, curation, MLOps and governance add-ons, sold bottom-up through free trials/open source and top-down through a strategic enterprise sales force. Revenue went from $150.8M in FY2020 to $531.8M in FY2025 and $642.2M TTM to 2026-09-30, while GAAP operating income was negative in every year of the window (-$91.9M FY2025, -$49.4M TTM) even as operating cash flow was positive ($145.7M FY2025, $215.4M TTM). Between the two 10-Ks the pitch moved from DevOps/CSRM 'Liquid Software' to a system of record for the software supply chain in the AI era, adding curation, advanced/runtime security, ML and app-trust products. I value this on post-deal GAAP operating income and operating cash flow from the XBRL facts, since no adjusted EBITDA line appears in these sources.
- ✓ 2. Competitive advantage
JFrog shows the revenue-side fingerprint of a real franchise (gross profit of $503.8M on $642.2M revenue, TTM to 2026-09-30; revenue growth of 24% and 22% in FY2025 and FY2024 per the 10-K) but no GAAP profit evidence of it: operating income is negative in every period in the data, including -$91.9M in FY2025 and -$49.4M TTM. The 10-K admits it competes in each product category against Microsoft's GitHub, GitLab, Cloudsmith, Sonatype, cloud providers AWS/Azure/Google Cloud and security point solutions such as Snyk, Aqua and Black Duck, several with greater resources and brand recognition. What is documented is scale with large customers (1,168 customers at ARR $100k+ and 74 at $1M+ at Dec 31 2025) and a cash-generative model (operating cash flow $215.4M TTM on $8.0M capex); retention, win rates and pricing power are not in these sources, so the moat case rests on the company's own 'system of record' description and the growing large-customer counts.
- ✓ 3. 10-Q takeaways
Q3 2026 (quarter ended Sep 30, 2026) was a growth quarter with a GAAP operating loss and a strongly positive non-GAAP one: revenue $179.2M, +31% YoY, cloud $101.5M, +60% and 57% of revenue, GAAP operating loss ($1.8)M (-1.0% margin) versus non-GAAP operating income $40.7M (22.7% margin, the company's own definition excluding share-based comp, amortization of acquired intangibles, acquisition costs and related tax effects). Cash generation was strong — Q3 2026 operating cash flow $69.3M and free cash flow $66.5M — with $880.9M of cash, equivalents and investments at Sep 30, 2026 and RPO $812.4M, up 60%. Guidance is numeric but non-GAAP only: Q4 2026 revenue $183-185M and FY2026 revenue $680-682M. Margins quoted below are the GAAP and company-defined non-GAAP bases from the release; no adjusted-EBITDA measure is given in these sources.
- ✓ 4. Corporate governance
Filled; members read this box.
- ✓ 5. Overview of the prior 3 years of 8-K filings
Filled; members read this box.
- ✓ 6. Other significant filings
Filled; members read this box.
- ✓ 7. Chronology of significant news and events
Filled; members read this box.
- ✓ 8. Comparables valuation interpretation
Filled; members read this box.
- ✓ 9. Insider trading interpretation
Filled; members read this box.
- ○ 10. Earnings-call notes
- ○ 11. Impression of the shareholder letter
- ○ 12. Scuttlebutt overview
- ✓ 13. Valuation and risk/reward summary
Filled; members read this box.
- ✓ 14. Current price suppression and potential catalysts
Filled; members read this box.
- ✓ 15. Conclusions
The call above.
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