Cloudflare (NET) is a $67 billion provider of global cloud services that comprise a suite of deeply integrated products, including website and application services solutions, developer-based solutions, other CDN (content delivery network) and consumer offerings.
I want to share details about aspects of its business before I explain how it fell into the cellar of the Zacks Rank. Separately from its lack of earnings momentum, the stock is extremely "rich" on the two most basic valuation metrics at 27X sales and over 200X EPS.
Cloudflare's Business and Customers
Cloudflare’s website and application security offerings ensure internet properties like websites, applications and application programming interfaces (APIs) are fast, reliable, and safe from attack, while website and application performance offerings enhance conversions and user experiences by reducing churn and accelerating web and mobile performance of the customers.
Website and application security solutions include Web Application Firewall, bot management, Distributed Denial of Service, API Gateway, secure socket layer/ transport layer security encryption, secure origin connection and rate limiting.
Website and application performance solutions include services like content delivery, load balancing, Domain Name System (DNS), argo smart routing, video stream delivery, Cloudflare Registrar and Cloudflare Waiting Room.
Cloudflare One is a Zero Trust network-as-a-service platform with two components: network services, which deliver network connectivity, security and performance to customers as a service; and zero trust services, which are the products that protect, inspect and privilege data.
Cloudflare’s products and services network spans over 310 cities in more than 100 countries globally. Its network includes more than 13,000 major Internet Service Providers, cloud service providers and enterprises.
In 2024, Cloudflare reported revenues of $1.67 billion, which was 28.8% higher than the figure reported in the previous year. The company derived about 48% of its revenues from outside the United States for the past five years.
As of 2024, Cloudflare had about 237,714 paying customers and 3,497 large customers.
The company faces competition from on-premise network hardware vendors like Cisco, Check Point, Palo Alto, Fortinet, Juniper and F5, point solution vendors such as Oracle and Zscaler and several other public cloud services providing companies.
You can read yesterday's update here...
Cloudflare Improves Sales Execution: Will Margin Gain Continue?
Cloudflare Growth in the AI Economy
Two weeks ago I profiled a NET competitor in the CDN space Akamai (AKAM). The growth slowdown was obvious in AKAM's numbers.
But besides the valuation concerns, NET seems to be holding its own with projected 25% revenue growth this year to cross $2 billion and a repeat expected for next year to cross $2.5B.
The catch is a slip in EPS estimates for this year and next. And since the current Zacks consensus calls for only 5% EPS growth this year, the rally to 200X earnings is a bit head-spinning for some investors.
Cooker's Take: I think NET is seen as a key player in the bandwidth and delivery of all the new Gen-AI video tools, like Google's Veo 3 and other emerging players. These tools are exploding content engagement exponentially. Which means content production will likely soar to take advantage.
That's why the stock has run and is just waiting for the next few quarters to show up with sales and earnings receipts. The Zacks Rank will let you know.
For the latest in AI developments impacting companies like NET and the entire tech industry, be sure to catch the multimedia program The Week In AI where we break down the innovations, the controversies, and the break ups in Silicon Valley's greatest revolution.
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Cloudflare, Inc. (NET): Free Stock Analysis Report Akamai Technologies, Inc. (AKAM): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).
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