Shares of the software supply chain tooling company JFrog Ltd. took a beating in after-hours trading today on mixed second-quarter financial results and disappointing guidance that came in below analysts’ expectations.

The company reported second-quarter earnings before certain costs such as stock compensation of 15 cents per share, just beating the Street’s consensus estimate of 14 cents per share. Revenue rose more than 22% from a year earlier, to $103 million, but fell just shy of the $103.6 million target analysts were looking for.

Despite the mixed results, JFrog was able to reduce its overall loss slightly, to $14.3 million, down from $15.4 million in the same period one year earlier.

Shareholders may have been able to live with the revenue miss, if not for the company’s poor guidance, which suggests that things are unlikely to get much better in the remainder of the fiscal year.

For the third quarter, JFrog officials said they’re eyeing revenue of between $105 million and $106 million, some way below the Street’s forecast of $108 million in sales. In addition, the company reduced its full-year outlook from a previous range of $426 million to $429 million, to a new range of $422 million to $424 million. That also falls short of Wall Street’s targets, with analysts looking for total sales of $428.3 million.

JFrog co-founder and Chief Executive Shlomi Ben Haim (pictured) called on investors to consider the company’s long-term prospects, saying that it’s on a mission to “revolutionize the software industry with a unified platform that encompasses EveryOps and streamlines the software supply chain flow.”

Unfortunately for him, many investors were clearly more focused on the company’s near-term prospects, and weren’t happy with what they saw. A sharp selloff followed, sending JFrog’s stock price into a tailspin. It was down by more than 28% in extended trading.

JFrog is the creator of a comprehensive software supply chain platform that increasingly spans disciplines such as DevOps, DevSecOps, MLOps and MLSecOps, with its flagship offering being the open-source binary code repository manager Artifactory. Unlike the better-known GitHub platform, which is used to store application code, Artifactory is used to store the binary files created when engineers compile their code into functioning applications.

The company’s other main product is JFrog Pipelines, a continuous integration and continuous delivery platform that’s used by developers to create automated software workflows and transform raw code into binaries before deploying them automatically.

There was some encouraging news for investors, though, with JFrog reporting cloud revenue of $39.3 million in the quarter, up 42% from a year earlier. Cloud now represents 38% of its total sales, up from 33% one year ago.

There was some encouraging customer growth to report too, with JFrog saying that it now boasts 928 customers that deliver at least $100,000 in annual revenue, up from 813 a year earlier. Moreover, the company is doing well in terms of upselling its tools and services to that customer base. It said customers adopting the “end-to-end JFrog platform Enterprise+ subscription” accounted for 50% of its total sales in the quarter, compared to just 45% a year ago.

Constellation Research Inc. analyst Holger Mueller said JFrog has been growing well recently, and so investors are upset that the company’s management doesn’t foresee much more acceleration for the rest of the full year.  He explained that JFrog is struggling to deliver a profit because, although its revenue grew well, its cost base also increased at the same clip.

“That means JFrog is still losing money, and it’s not clear how long investors are willing to keep stomaching that,” Mueller said. “Shlomi Ben Haim and his team say they’re optimistic they’ll be able to deliver a positive earnings per share by the end of the year, but the challenge will be to take out costs while growing revenue to achieve that outlook.”

During the quarter, JFrog announced it had forged a promising new partnership with Microsoft Corp.-owned GitHub to deliver an integrated platform. It’s aimed at enabling joint customers to manage “EveryOps” for developers, including DevOps, DevSecOps, MLOps and generative artificial intelligence-powered apps.

In addition, JFrog unveiled a new integration with the application monitoring and security platform provider Datadog Inc. that gives developers visibility into logs for JFrog-managed instances of Artifactory in the cloud.

Photo: JFrog