Cloudflare (Nasdaq: NET) dropped 5% despite posting results that were better than expected. The cybersecurity and CDN company has been one of the best-performers over the past few months as investors were increasingly optimistic about its Cloudflare One launch and that unit's future potential.
Cloudflare was started in 2009. It started off providing security for web applications through its intelligent global network and is used by most major websites. Since then, it's expanded into other products and services such as content delivery and cybersecurity risk management.
Inside the Numbers
In Q4, Cloudflare reported a loss of $0.02 per share which was less than analysts' expectations of a $0.03 loss. It was also better than last year's $0.06 per share loss. Revenue increased 50% to $126 million which was slightly better than expectations of $118.4 million.
Guidance also was slightly better than expected for Q1 with revenue of $130.5 million and a loss between $0.02 and $0.03 per share. Analysts were expecting the company to announce a loss of $0.03 on revenue of $125.8 million. For 2021, Cloudflare expects a loss between $0.08 and $0.09 on revenue of $591 million. Analysts had estimated a $0.09 per share loss on revenue of $567.6 million.
Operating margins in 2020 also expanded to 24.8% as did operating margins to 7.9%. This should continue in the coming years given the nature of its business. Another positive metric was its dollar-based net retention of 119%. It shows that Cloudflare's products are "sticky" and quickly become crucial for its customers. In total, Cloudflare has 111,000 customers. It counts 17% of the Fortune 1000 as customers.
Stock Price Outlook
Shares have gained nearly 400% in the past year. The earnings were positive across the board, yet there was a less than enthusiastic reception from investors. This is a marked difference from its last two reports in which share prices gapped up significantly.
Some reasons for this may be that investors had higher expectations as indicated by "whisper numbers" which were also higher. The last two reports were bigger beats than expected for Cloudflare in terms of revenue and forecasts. In this report, the beat and guidance was only marginally better than expected.
Looking forward, Cloudflare benefitted from a variety of catalysts in 2020 as companies increased spending on cybersecurity and their IT due to the pandemic, cloud-computing stocks outperformed, and the introduction of Cloudflare One led to multiple expansion. Comps will be tough in 2021 as growth will likely fail to keep up with last year's torrid pace. However, this could present a nice, buying opportunity for investors who believe in Cloudflare's vision.