Cloudflare (Nasdaq: NET) shares are up 28% following its better-than-expected Q2 earnings report which showed the company beating expectations on the top and bottom line. In addition, the company's CEO, Matthew Prince was upbeat in his forecast and assessment of the company's prospects especially in noting that the sales cycle was speeding up.
Cloudflare was one of the best-performing stocks following the pandemic as it is a leader in cloud security and services. Overall, it climbed 1,370% from its low in March 2020 and topped in November of last year. Although it was able to defy the bearish trend in growth stocks for many months, it eventually succumbed and declined by nearly 80% until it bottomed in June of this year. Since this low, the stock is already up more than 90% and could resume its status as a market leader given this fundamental and technical momentum.
Inside the Numbers
In Q2, Cloudflare reported a net loss of $64 million which was more than its $35 million loss in the previous quarter. The company attributed this miss to a change in its monetization strategy as it looks to help customers consolidate from using multiple vendors to solely Cloudflare's platform. Due to Cloudflare's business model of distribution first, analysts and investors are more focused on sales metrics.
Revenue increased by 54% to $234.5 million which is a sharp deviation from other tech companies which are experiencing a slowdown in revenue. It also topped analysts' expectations of $227.3 million. It also increased its full-year forecast and now sees 48% revenue growth.
Cloudflare also added a record number of customers who are paying more than $100,000 per year. According to CEO Matthew Prince, there was some deterioration in the business in Q1 as new leads slowed, it took longer to close sales, and customers were taking longer to pay their bills. He noted that these measures stabilized in Q2 and were trending in a better direction by the end of the current quarter.
Cloudflare is the largest tech stock and most visible growth stock that is seeing no slowdown in growth, contrary to investors' and analysts' expectations. In response, analysts raised their price targets on the stock. The average analyst price target is now $92 from $84 prior to earnings.