What Happened:

Shares of software development tools maker JFrog (NASDAQ:FROG) fell 18.7% in the morning session after the company reported first quarter earnings results. Its billings unfortunately missed analysts' expectations by roughly 3%, and its new large contract wins shrunk. On the earnings call, management also highlighted that its a time of “digestion” for customers as they re-evaluate spend and budgets for the year. The market seems to be interpreting as a signal that growth could be uneven for the rest of 2024. Looking ahead, guidance for next quarter and the full year were roughly in line with expectations. On the other hand, JFrog narrowly top analysts' revenue expectations this quarter. Overall, this was a mixed quarter for JFrog and not as exciting as some of their previous convincing beats.

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What is the market telling us:

JFrog's shares are very volatile and over the last year have had 10 moves greater than 5%. But moves this big are very rare even for JFrog and that is indicating to us that this news had a significant impact on the market's perception of the business. 

The biggest move we wrote about over the last year was 3 months ago, when the stock gained 29.8% on the news that the company reported first-quarter results, which exceeded Wall Street's expectations for key topline metrics, including revenue, billings, and remaining performance obligations (RPO - leading revenue indicator). Profitability ratios also came in strong as gross margin and adjusted operating income came in ahead of expectations, leading to a strong EPS beat. Looking ahead, the company provided solid guidance, with revenue and non-GAAP operating income outlook for the next quarter and full year exceeding Wall Street's estimates. Overall, this was an impressive quarter for the company with no negatives.

JFrog is up 0.4% since the beginning of the year, but at $33.65 per share it is still trading 29.4% below its 52-week high of $47.64 from February 2024. Investors who bought $1,000 worth of JFrog's shares at the IPO in September 2020 would now be looking at an investment worth $519.32.

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