Cloudflare Inc Up 130% in 2020 on COVID-19-Fueled Demand for Security & Networking

Cloudflare Inc Up 130% in 2020, More Gains Expected

Cloudflare Inc (NYSE:NET) was a great cloud stock even before the world was rocked by COVID-19. Because of that pandemic, investors have become even more bullish on this Internet infrastructure stock.

While some tech stocks are unjustly benefiting from broader market sentiment, the rise in Cloudflare stock (about 130% year-to-date and about 120% year-over-year) is more than justified. The company has been posting excellent quarterly results since going public in September 2019.

The soaring demand for cloud computing products and services in this year’s second quarter is expected to have a big impact on Cloudflare’s corresponding financial results. As a result, the company’s long-term outlook remains stellar.

NET Stock Overview

Cloudflare Inc is a Web infrastructure and web site security company that is making the Internet faster, more reliable, and safer.

The San Francisco-based company’s platform protects and speeds up Internet applications online without the need of adding hardware, installing software, or changing lines of code. (Source: “Cloudflare Announces First Quarter 2020 Financial Results,” Cloudflare, Inc., May 7, 2020.)

All of the Web traffic powered by Cloudflare is routed through the company’s intelligent global network. That means the company’s machine learning system improves every time a customer makes a request.

Any time Cloudflare pushes a new code, it automatically impacts over 27 million Internet properties. (Source: “Investor Presentation, Q1 2020,” Cloudflare, Inc., last accessed July 15, 2020.)

The company has more than 2.8 million customers in more than 160 countries, and it continues to experience rapid customer growth. Large customers, which Cloudflare defines as those with revenue in excess of $100,000, have been growing at a compound annual growth rate (CAGR) of 68%, from 197 in the first quarter of 2018 to 556 in the first quarter of 2020.

Not surprisingly, this has resulted in stellar revenue growth. In 2016, it reported full-year revenue of $85.0 million, which increased by 59% in 2017 to $135.0 million, by 43% in 2018 to $193.0 million, and by 49% in 2019 to $287.0 million.

A full 100% of its revenue is subscription-based and 52% comes from outside of the United States. It counts 13% of the Fortune 1,000 as customers.

Chart courtesy of StockCharts.com

Another Strong Quarter

On May 7, Cloudflare Inc announced that its revenue for the first quarter (ended March 31) increased 48% year-over-year to $91.3 million. (Source: Cloudflare, Inc., May 7, 2020, op. cit.)

Gross profit was $70.4 million (77.2% gross margin), compared to $47.4 million (76.7% gross margin) in the first quarter of 2019.

Cloudflare reported a first-quarter net loss of $32.7 million ($0.11 per share), compared to a 2019 first-quarter net loss of $17.1 million ($0.20 per share). It reported an adjusted net loss of $12.3 million ($0.04 per share), versus an adjusted net loss of $16.0 million ($0.19 per share) in the same prior-year period.

The company ended the quarter with cash and cash equivalents of $588.0 million.

Matthew Prince, co-founder and CEO commented, “I’m proud of the strong results for the quarter, and the role we are playing, as a guardian of the Internet, when the world needs it most.” (Source: Ibid.)

Business Outlook

For the second quarter of fiscal 2020, Cloudflare Inc expects total revenue of $93.5 to $94.5 million and an adjusted net loss per share of $0.05 to $0.06.

For fiscal 2020, Cloudflare is reaffirming previous guidance of:

• Total revenue of $389.0 to $393.0 million, compared to total revenue of $287.0 million in fiscal 2019
• An adjusted loss from operations of $61.0 to $65.0 million, compared to an adjusted loss from operations of $71.2 million in fiscal 2019
• An adjusted net loss per share of $0.19 to $0.21, compared to an adjusted net loss per share of $0.48 in fiscal 2019

(Source: Ibid and “Cloudflare Announces Fourth Quarter and Fiscal Year 2019 Financial Results,” Cloudflare Inc, February 13, 2020.)

Analyst Take

Cloudflare stock has been on a great run over the last 12 months, which is testament to the company’s long-term growth potential.

Meaning, this isn’t a tech stock that is simply enjoying tailwinds from COVID-19. As we all know, that impetus will eventually end.

Cloudflare Inc has an enviable list of customers, it has been reporting strong financial results, and it continues to have a great outlook.