What happened
JFrog (FROG -2.11%) shares underperformed the market this week, falling 7% through Thursday trading compared to a 0.7% decline in the wider market, according to data provided by S&P Global Market Intelligence. The drop wasn't enough to put the software development services company in negative territory for the year, though, as shares are still up over 10% since early January.
This week's dip came as investors digested the latest earnings update from management.
So what
Executives said on Wednesday that sales rose 29% in the fourth-quarter selling period that ended in late December. That result was just below the 30% boost that most investors were expecting. JFrog posted significant operating losses, consistent with its current growth focus.
"Our fourth quarter revenue results were in line with the guidance range we provided, and we met our commitments on profitability," CEO Shlomi Ben Haim said in a press release.
Yet investors focused more on management comments suggesting a tougher selling environment ahead.
Now what
Executives said they noticed that economic headwinds increased toward the end of the quarter. These pressures informed their short-term outlook, which calls for sales growth to slow again in the first quarter as revenue lands between $78 million and $79 million. Most Wall Street pros were looking for a slightly stronger result.
The bigger issue is that JFrog's demand trends haven't stabilized yet, and so the risk remains elevated that the company will surprise investors by reducing expectations for 2023.
Currently, those targets call for sales to rise to about $342 million from the $280 million that the company booked in 2022. Wall Street had been expecting a higher result for 2023, and so investors reacted to this weaker outlook by pushing the stock lower.
JFrog might still see a growth rebound in the coming quarters. Yet investors will remain cautious around the stock so long as operating trends keep slowing.
