Cloudflare
Cloudflare has been one of the best-performing stocks in the market with a 65% gain this year that follows a 345% gain last year. Thus, it's certainly likely that the company has a high bar in terms of expectations which could explain the stock's middling reaction to the strong results. However, the results did make clear that, unlike many Internet companies, Cloudflare isn't seeing a loss in momentum with the economy going back to normal.
Inside the Numbers
In Q2, Cloudflare reported a loss of $0.02 per share, slightly beating analysts' estimates of a $0.03 per share loss. Revenue came in higher than expectations at $154.2 million, a 53% increase while analysts were looking for $146 million.
The company also achieved a new milestone with 143 new customers crossing $100,000 in annual recurring revenue. In total, the company has 126,375 paying customers, a 32% increase from last year. It also has millions of users of its free products, and the company has been successful in converting some portion of these users into customers.
Guidance also came in strong as the company expects revenue of $166 million in Q3, while analysts were looking for $157 million of revenue. For the full year, the company is forecasting revenue of $629 million which is an upgrade from its previous guidance of $616 million and would be 46% higher than 2020.
Overall, the company maintains its long-term focus. CEO Matthew Prince reiterated that the company is planning several product launches in the coming years, but its goal is to have operating margins of around 20%. The company is also approaching breakeven in terms of its free cash flow.
Stock Price Outlook
Cloudflare is certainly a high-multiple, growth stock so the usual caveats apply. However, it's clearly maintaining the surge in growth it experienced during the pandemic and building on top of it.
This is also evident with its stock price which shows it corrected by nearly 30% along with the bigger selloff in growth stocks. Unlike many of its peers, the dip was furiously bought and it has continued making new highs and is now up more than 100% from its March and May lows.
Still, Cloudflare has a big hill to climb with its nearly $40 billion valuations and $630 million in 2021 revenue. However, the company has a track record of introducing innovative and useful products. Additionally, it's solved the biggest problem for software companies - distribution - as its free product gives it an entry point to millions of users who rely on and trust the company.
