Cloudflare Inc Soars to Record Levels on Strong Q3 Results

cloudfare stockCloudflare Stock Rose on Strong Financials

Cloudflare Inc (NYSE:NET) has been one of the best-performing cloud stocks in 2020, advancing 296% year-over-year, 320% year-to-date, and 42% in November.

A designer and developer of application software, Cloudflare has been bullish, not just because of the COVID-19-fueled demand for cloud computing products and services, but because of its consistent, broad-based growth.

The company has been reporting strong financial results since it went public in September 2019.

In its most recent quarter, Cloudflare Inc announced yet another quarter of double-digit revenue growth, surpassing $100.0 million for the first time ever, crossing the threshold of 100,000 paying customers, and releasing more than a dozen new products and features.

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Thanks to strong fourth-quarter and full-year guidance, the company’s near-term and long-term outlooks are excellent.

Chart courtesy of StockCharts.com

NET Stock Overview

Cloudflare is an Internet infrastructure and web site security company that makes the Internet faster, more reliable, and safer. (Source: “Investor Presentation, Q3 2020,” Cloudflare Inc, last accessed December 7, 2020.)

The San Francisco-based company’s cloud platform software is used for traffic load balancing, video streaming, security, analysis, and domain registration. With its cloud platform, there’s no need to add hardware, install software, or change a line of code.

All of the online traffic powered by Cloudflare is routed through the company’s intelligent global network. Through this, the company’s machine learning system improves every time a customer makes a request. Any time the platform pushes new code, it automatically affects more than 27 million Internet properties.

The company operates on a massive scale, blocking 76 billion cyberthreats every day. It has more than 3.2 million total customers (free and paying) in over 160 countries and counts 16% of Fortune 1000 companies as clients.

Cloudflare continues to experience rapid customer growth, which might explain the company’s 50% compound annual growth rate for revenue from 2016 and 2019.

Strong Third-Quarter Results

On November 5, Cloudflare announced that its revenue for the third quarter ended September 30 increased 54% year-over-year to $114.2 million. (Source: “Cloudflare Announces Third Quarter 2020 Financial Results,” Cloudflare Inc, November 5, 2020.)

The company reported third-quarter gross profit of $87.2 million (76.3% gross margin), compared to $57.9 million (78.3% gross margin) in the third quarter of 2019. It reported a third-quarter operating loss of $21.3 million (18.6% of total revenue), compared to $41.1 million (55.6% of total revenue) in the third quarter of 2019.

Cloudflare Inc reported a third-quarter net loss of $26.5 million ($0.09 per share), compared to a third-quarter 2019 net loss of $40.9 million ($0.35 per share) in the same prior-year period.

The company ended the third quarter with cash, cash equivalents, and available-for-sale securities of $1.1 billion.

Matthew Prince, co-founder & CEO, commented,

I’m incredibly proud that we exceeded financial, customer, and innovation milestones, all while providing our services, at no cost, to state and local governments to ensure that cyberattacks don’t disrupt the United States 2020 elections. The world has never needed the Internet more than it has over the last nine months, and we’re laser focused on helping to keep it fast, reliable, and secure.

(Source: Ibid.)

Business Outlook

For the fourth quarter of 2020, Cloudflare Inc expects to report:

  • Total revenue between $117.5 and $118.5 million, compared to $84.0 million in Q4 2019
  • An adjusted loss from operations of $9.0 to $10.0 million, compared to $18.3 million in Q4 2019
  • An adjusted net loss per share of $0.03 to $0.04, compared to $0.06 in Q4 2019

For full-year fiscal 2020, Cloudflare expects to report:

  • Total revenue of $422.5 to $423.5 million, compared to full-year 2019 revenue of $287.0 million
  • An adjusted loss from operations of $37.0 to $38.0 million, compared to $71.2 million in 2019
  • An adjusted loss per share of $0.12 to $0.13, compared to $0.48 in 2019

Analyst Take

Cloudflare stock has been on a tear over the last year.

While NET stock has certainly been juiced from the COVID-19 pandemic, the fact that Cloudflare Inc has been reporting strong results since going public—and the fact that it continues to have a great outlook—proves it’s not just a coronavirus play.