JFrog (FROG) Q3 2026 earnings review
JFrog's cloud sales jump 60%, and customers sign bigger contracts
JFrog, whose software stores and secures the files companies ship, grew faster as AI tools multiplied those files. Its cloud service led, with sales up 60%, because big customers turned extra usage into larger contracts. Finance chief Ed Grabscheid raised the full-year outlook again. By our math, though, it still has cloud growth easing to about 49% in the fourth quarter.
| Revenue | $179.2M +31% from a year ago |
|---|---|
| Cloud revenue | $101.5M +60% from a year ago |
| Signed revenue not yet booked (RPO) | $812M +60% from a year ago |
| Full-year revenue outlook | Raised $31M middle of the range: 28% growth |
⚖️ Verdict: 🟢 Bullish
The story got better because customers now lock AI-driven usage into signed contracts instead of paying for it month by month. Contracts are harder to cut when budgets tighten. One caution: the share count rose 5% from a year ago, and JFrog bought back no shares.
The question now is whether AI keeps creating files fast enough for JFrog to beat its cautious plan again. If yes, cloud growth holds near this year's pace; if AI labs build their own tools, it fades. The fourth-quarter results, which should include figures for security sales, will tell.
🐂 Bull Case
Customers Turned Extra Cloud Use Into Contracts
JFrog sells Artifactory, software that stores and secures the files companies build, as a cloud service or as software customers run themselves. Chief executive Shlomi Ben Haim argues that AI coding tools multiply those files. "In Q3, our cloud business continued to accelerate," he said.
The numbers back him. Cloud revenue climbed 60% from a year ago, after 53% growth in the second quarter. Many customers had been paying for use beyond their contracts. Ben Haim said his sales staff keep "converting overusage into commitments" and reward customers with "a discounted price offering for higher annual commitments".
One telecoms group signed "a $76 million multiyear SaaS agreement", committing to 167% more data use than before, Ben Haim said. That matters because the standing worry is that customers will cut extra AI usage once budgets tighten. A contract is harder to cut than a monthly overage, so each conversion shrinks that risk.
What to watch: fourth-quarter cloud revenue. By our math, the full-year cloud plan implies growth of about 49%, so a result well above it would show the converted contracts hold.
Contracted Future Revenue Rose 60% in a Year
JFrog reports remaining performance obligations (RPO), the revenue customers have signed for but the software maker has not yet booked. RPO leaves out usage above contract minimums, so it counts only committed spending. Finance chief Ed Grabscheid called the quarter's total a "record performance".
RPO grew 60% from a year ago. By our math, JFrog added $153 million of it during the quarter, against $31 million a year earlier. The third quarter usually brings few new contracts, which makes the gain stand out.
But much of the new money arrives late. JFrog expects to book 60% of RPO within a year, down from 67% three months earlier. Multi-year deals such as the telecoms contract lengthen the average term. By our math, the part due within a year rose $46 million, while the later part gained $107 million. So next year's revenue benefits less than the headline suggests.
What to watch: the share of RPO due within a year, in the fourth-quarter filing. A further fall would mean signed contracts are running ahead of near-term revenue by a widening gap.
Existing Customers Spend More, Led by Security Tools
Net dollar retention (NDR) compares what the same customers spend now with a year earlier. JFrog credits its security tools, such as Curation, which blocks risky open-source packages, for much of the rise.
- Net dollar retention: 124%, against 118% a year ago
- Customers paying over $1 million a year: 112, against 71
- Enterprise+, the full-platform subscription: 61% of revenue, against 56%
- Existing customers: about 83% of the revenue gain, by our math
Security could keep retention high even if AI-driven cloud use cools. But chief executive Shlomi Ben Haim said JFrog is "not yet sharing the results of our security numbers in 2026".
What to watch: security's share of annual recurring revenue, due with the full-year results. A share well above the 10% JFrog reported for 2025 would tie the retention gains to security.
Lower Sales Costs Lifted the Operating Margin
Operating margin excluding one-offs, the share of revenue left after running costs, reached 22.7%, against 18.7% a year ago. Sales and marketing, the cost of winning customers, did most of the work.
- Sales and marketing: 26.7% of revenue, down 3.1 percentage points
- Research and development: 24.8% of revenue, down 0.6 points
- Cost of running the service: up 0.3 points, mostly cloud hosting
Gross margin slipped because JFrog pays cloud providers to host its fast-growing cloud service, and the filing shows hosting bills up $5.3 million. Finance chief Ed Grabscheid credited "cloud hosting cost optimization" for keeping the dip small.
What to watch: the fourth-quarter operating margin against the plan. A result near the third quarter's level would show that the savings in sales costs last.
🐻 Bear Case
AI Labs Are Customers and Possible Rivals
AI developers such as Anthropic and OpenAI could build tools that overlap with JFrog's, though supporters see them as a new source of large contracts. Chief executive Shlomi Ben Haim said "both of them are honored customers of JFrog" and that what they build "goes complementary with what we provide".
On the call, Ben Haim answered a question about Anthropic's in-house system for tracking code versions. He argued that customers need one record of every file, across all vendors and agents.
But finance chief Ed Grabscheid said "the AI native customers are primarily self-hosted customers", so little of their spending reaches the cloud business. The hybrid customer that JFrog won in the second quarter is "very early in the life cycle with JFrog", he added.
What to watch: the breakdown of AI-related usage, which Ben Haim said JFrog will share when ready. Growth there would show AI work flowing through JFrog rather than around it.
Share Count Rose 5% With No Buybacks
JFrog pays staff partly in shares, so its share count keeps rising. In February its board approved a $300 million buyback plan that could offset the new shares.
The quarterly filing says JFrog "did not repurchase any ordinary shares" in the third quarter. It has spent $2 million of the plan so far. Meanwhile the diluted share count rose 5% from a year ago.
That cuts against the purpose of the plan. Share-based pay did fall to 23% of revenue from 30%, so the burden eases as sales grow. But JFrog holds $881 million in cash and investments and still bought nothing.
What to watch: repurchases in the fourth-quarter filing. Steady buying would show that JFrog uses the plan to offset the shares it issues.
The New Plan Still Has Cloud Growth Easing
Finance chief Ed Grabscheid said: "We continue to derisk our outlook by excluding our largest opportunities due to timing uncertainties." The outlook also leaves out usage above contract minimums. Third-quarter revenue came in 8.6% above the middle of its range, a wider beat than in the three quarters before.
The new plan repeats the pattern: by our math it implies fourth-quarter cloud growth near 49%, after 60%. Readers cannot tell how much of that slowdown is real, because JFrog has never said what share of cloud revenue comes from usage outside contracts. A wide beat says only that the plan was cautious.
What to watch: the gap between fourth-quarter cloud growth and the plan's implied pace. A wide gap again would show that customers keep using more than their contracts cover.
Risks this quarter didn't answer
Three standing concerns got little new evidence this quarter, either because JFrog gave no figure or because the reading was too small to change the case.
- War in Israel, home to JFrog's core research: the filing reports "no major interruption or material adverse impact on our operating results"; a new escalation would test that.
- Gross margin against cloud hosting bills: 83.6% excluding one-offs, 0.3 points below a year ago, with $245 million of hosting and software commitments still to pay.
- Long-term targets for 2027: finance chief Ed Grabscheid said JFrog is on track but gave no update; the full-year report is the next chance.
👓 Other Themes
Israel's New Tax Credits Cut Research Costs
Israel passed a law this year creating a "refundable tax credit regime for qualifying research and development expenditures incurred in Israel". JFrog booked $4.8 million of such credits against research costs in the third quarter. It treats $3.6 million of that, tied to past acquisitions and covering the whole year, as a one-off and leaves it out of profit excluding one-offs.
💲 Other KPIs
Free cash flow, the cash left after running the business and buying equipment, reached 37% of revenue, against 21% a year ago. The ratio moves with the timing of customer payments, so it swung over the past year. Upfront payments on bigger contracts lifted it this quarter, and equipment spending stayed below 2% of revenue.
Deferred revenue, cash customers have paid for service JFrog has not yet delivered, rose 37% from a year ago. That outpaced revenue growth of 31%, which fits customers paying upfront for larger yearly contracts. It also helped cash flow, because JFrog collects the money before it books the revenue.
Office lease liabilities climbed to $112 million from $12 million in December, mainly because JFrog signed a new office lease in Israel. Lease cost roughly doubled from a year ago. The filing says the new lease added $2.1 million to research costs this quarter.
🔮 Guidance
New. The plan has fourth-quarter sales about 27% above a year ago, after 31% growth in the third quarter. By our math, the middle of the range sits $17 million above what the previous full-year outlook left for the quarter. Revenue has beaten the middle of the range by about 6% on average over the last four quarters. If the pattern holds, fourth-quarter growth would reach about 34%.
New. The middle of the range implies a fourth-quarter operating margin near 20%, below the third quarter's 22.7%. By our math, operating income would still rise about 44% from a year ago. JFrog has beaten the middle of this range in each of the last four quarters, most recently by 45%.
New. The middle of the range is about 32% above last year's fourth quarter, a smaller gain than in the third quarter. It assumes about 131 million shares, roughly 1% more than in the third quarter, so new shares trim the result per share.
Raised. The middle of the range moved up $31 million, to about 28% growth for the year. It is the third raise this year, and each one has been bigger than the last. The new range equals third-quarter results plus the fourth-quarter plan, so it adds no cushion of its own.
Raised. The middle of the range moved up $25.5 million, the largest of three raises this year. By our math, it implies a margin of about 21% for the year. That sits well above the 17% margin JFrog set as its 2026 target in February.
Raised. The plan now has profit per share, excluding one-offs, about 40% above last year's $0.82. The raise reaches beyond the third quarter's result. The middle of the range moved up $0.17, while the third quarter beat its own plan by $0.09.
Raised. Finance chief Ed Grabscheid lifted expected cloud growth for the year again, and the figure still leaves out usage above contract minimums. By our math, the middle implies about 49% cloud growth in the fourth quarter. The middle has moved up 22 percentage points since February, across three raises.
Raised. Grabscheid set the lowest net dollar retention he expects for 2026 at 122%. The measure compares what existing customers spend with a year earlier, and it already stands two points above the new floor. He tied the higher floor to security products and larger cloud commitments.
Raised. The new range sits about three-quarters of a point above the old one at the middle. Gross margin ran at 83.5% over the first nine months, so the plan allows a small dip in the fourth quarter. Grabscheid credited work on cloud hosting costs for keeping the margin steady as cloud grows.
❓ Key Questions
How much cloud revenue comes from usage outside contracts?
JFrog's outlook excludes that usage, and the company has never sized it. The figure would show how much revenue customers could cut if they trim AI spending, and how much upside the outlook ignores.
What share of revenue do security products now bring?
Security made up 7% of revenue and 10% of annual recurring revenue in 2025. Management credits it for the rise in retention but plans to update the figures only at year end.
When will JFrog use its $300 million buyback?
The board approved the plan in February, yet JFrog has spent $2 million and bought nothing in the third quarter. Meanwhile the share count grows about 5% a year.
How much did the $76 million telecoms deal add?
The deal lifted contracted future revenue, but JFrog gave no split by year. Its yearly value would show how much of the jump in signed contracts comes from one customer.
Will JFrog update its 2027 revenue target of $775–825 million?
Finance chief Ed Grabscheid said JFrog is tracking against its long-term model and will discuss 2027 at year end. The plan for 2026 already implies about 28% growth.