Cloudflare, Inc. (NYSE: NET)
Cloudflare's cloud-based content delivery network (CDN) accelerates the delivery of digital content for websites and apps. The company also shields websites from bot-driven DDoS (distributed denial of service) attacks by separating human visitors from malicious bots. Currently, Cloudflare serves data from 275 cities across more than 100 countries. With financials looking very good and two upcoming opportunities for the cloud provider to benefit from, the company has seen a big increase in mentions by 131% over the last day, encouraging investors to wonder what makes it such a popular stock. Shares of Cloudflare trade at $76.35 right now.
With a great amount of growth potential and solid financials, Cloudflare seems like a stock that’s hard to miss. Here are a few reasons you should consider taking a position in the cloud provider now.
Cloudflare has been growing very quickly since its initial public offering in late 2019. Its revenue rose 49% in 2019, 50% in 2020, and 52% to $656.4 million in 2021.
Moreover, recently revenue skyrocketed 53% to $813 million, and the company generated $36 million in cash from operations which imply that the streak continues.
Sales climbed 54% year over year in the second quarter to reach $234.5 million, and the company increased its large-customer count by 212 to reach 1,749 in the same period. With large customers now accounting for 60% of sales, Cloudflare's growth engine is looking very strong.
Cloudflare grew its customer base by 20% to 151,000 over the past year, and the average customer spent 26% more, underscoring an effective land-and-expand strategy.
In addition, the company values its addressable market at $115 billion (and rising), and management plans to operate at breakeven while growth remains strong.
It expects its revenue to grow 47% to 48% in 2022, even as the macro headwinds stretch out its sales cycles and delay some payments.
Cloudflare isn't profitable by GAAP or non-GAAP measures yet, but its non-GAAP losses are narrowing, and its free-cash-flow margins are improving. The business's non-GAAP (adjusted) gross margin of 78.9% last quarter points to big earnings growth potential down the line.
Its global network interconnects with every major internet service provider and cloud vendor, which positions its hardware within 50 milliseconds of 95% of internet users worldwide, making it the fastest cloud provider. Put simply, Cloudflare makes the internet faster and safer for its customers, while reducing IT costs and complexity.
Although it may seem like you can’t go wrong with Cloudflare, it is very important to take a balanced approach towards your investments and consider the drawbacks of taking a position in the company right now.
Cloudflare also has a highly growth-dependent valuation, and it's seen dramatic sell-offs as inflation, rising interest rates, and other factors have caused investors to become much more risk averse and considering the upcoming macro headwinds the company could lose out.
Its stock isn't cheap at 26 times this year's sales, but given its trajectory, it could soon grow into this figure.
Rapidly increasing large-customer base, very promising financials and huge opportunities for growth in the near future all indicate that the best thing to do would be to take a position in Cloudflare immediately. However, nothing about the future is certain and given its currently high valuation, there is a small (very small) chance that things could go south. Nonetheless, history and current metrics are on our side here making Cloudflare a company you can’t miss.
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