Baron Funds, an investment management company, released its “Baron Small Cap Fund” fourth-quarter 2024 investor letter. A copy of the letter can be downloaded here. The fund was down 0.99% (Institutional Shares) in the quarter trailing the Russell 2000 Growth Index’s 1.70% return and the broader Russell 3000 Index’s 2.63% return. For the year the Fund was up 13.61% compared to 15.15% and 23.81% returns for the indexes. Although the fund’s performance this year did not surpass the benchmark, its long-term results are significantly better. In addition, please check the fund’s top five holdings to know its best picks in 2024.
Baron Small Cap Fund highlighted stocks like JFrog Ltd. (NASDAQ:FROG), in the fourth quarter 2024 investor letter. Incorporated in 2008, JFrog Ltd. (NASDAQ:FROG) provides an end-to-end hybrid software supply chain platform. The one-month return of JFrog Ltd. (NASDAQ:FROG) was 15.59%, and its shares gained 1.20% of their value over the last 52 weeks. On January 30, 2024, JFrog Ltd. (NASDAQ:FROG) stock closed at $35.36 per share with a market capitalization of $3.94 billion.
Baron Small Cap Fund stated the following regarding JFrog Ltd. (NASDAQ:FROG) in its Q4 2024 investor letter:
“We initiated a position in JFrog Ltd. (NASDAQ:FROG), a leading provider of software tools that help developers manage, secure, and release modern software applications. JFrog’s flagship product, Artifactory, is a universal repository that stores and manages the “binaries” – the machine-readable files that applications rely on to run in production. As companies build increasingly complex applications with numerous dependencies and components from open-source libraries, managing these binaries has become mission-critical. JFrog simplifies this complexity by offering a centralized solution to store, track, and secure all software binaries, ensuring consistent deployments and faster development cycles. The company also provides adjacent security tools, such as JFrog Xray and Advanced Security, which continuously scan these binaries for vulnerabilities and policy violations, ensuring that only safe, compliant software reaches production.
JFrog has established itself as the industry standard in binary management, serving more than 7,000 customers, including 83% of the Fortune 100, the top 10 global technology corporations, the largest 10 financial institutions, and 9 of the top 10 health care organizations. The company is gaining market share from smaller competitors in the binary category due to its breadth and depth of coverage – Artifactory supports over 30 different package formats and programming languages (far more than competitors), while offering more efficient storage, deeper security context, and tighter integrations with other developer tools. Once adopted, JFrog delivers measurable ROI for customers by freeing up developer time, reducing complexity, and preventing costly security breaches. This has driven industry-leading customer gross retention rates of 97%, and solid 117% net expansion rates as customers expand their usage and adopt more product modules. 46 customers each spend more than $1 million annually on the platfrom. JFrog’s stickiness and strong developer brand awareness produce healthy unit economics, with trailing-twelve-month free cash flow margins more than doubling over the past two years to 22% as of the latest reported quarter.
Looking ahead, we believe JFrog can sustain healthy growth as generative AI adoption accelerates, driving the need to manage new binary types (e.g., large language model artifacts) and increasing overall application complexity. Additionally, we expect average deal sizes to grow as customers adopt higher-priced products like Advanced Security and migrate to JFrog’s cloud offering, which typically yields a 20% to 80% uplift in pricing. This combination of pricing power and operating leverage should drive strong free cash flow growth over time, which we believe will bode well for the stock.”
A corporate executive standing in front of a large monitor, demonstrating the DevOps package repository.
JFrog Ltd. (NASDAQ:FROG) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 32 hedge fund portfolios held JFrog Ltd. (NASDAQ:FROG) at the end of the third quarter which was 33 in the previous quarter. In the third quarter, JFrog Ltd. (NASDAQ:FROG) reported $109.1 million in revenues, up 23% year-over-year. While we acknowledge the potential of JFrog Ltd. (NASDAQ:FROG) as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
In another article, we discussed JFrog Ltd. (NASDAQ:FROG) and shared Wasatch Small Cap Growth Strategy’s views on the company in the previous quarter. In addition, please check out our hedge fund investor letters Q3 2024 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.