Few can compare to Cloudflare (NYSE: NET) when looking for relative market leaders over the past few months. Cloudflare stock is on an absolute tear, bursting through its all-time high price. Not only that, but the software company is releasing a slew of new services that can boost its bottom line.
Best known for its ability to provide businesses with enhanced network performance and security, Cloudflare is becoming much more than that. As of the end of June, Cloudflare serves around 19% of the Fortune 1,000 companies.
With the cloud storage market set to exceed $390 billion by 2028, the company has a real chance to see its value continue climbing.
The growth stock is taking on one of the biggest cloud contenders in Amazon (NASDAQ: AMZN) and winning in many ways.
Will Cloudflare stock maintain its dominance? Let’s find out…
Cloudflare Stock’s Improving Fundamentals
An essential factor to look for, especially when it comes to growth stocks, is their fundamentals. In Cloudflare’s case, its Q2 earnings show the company is expanding its top line and its ability to generate revenue.
- Total revenue is growing at a CAGR of 50%, reaching $431 million in 2020. Furthermore, Cloudflare’s quarterly revenue grew 53% to $152 million.
- Paying customers is now over 126K. It’s also expanding its reach to over 180 different countries.
- Total addressable market (TAM) is around $86 billion next year, up 168% from $32 billion in 2018. And it’s expected to grow to $100 billion by 2024.
- Large customer (+$100,000 annual revenue) is now over 1,000, growing +50% since last year.
- Operating costs are improving when looking at the percent of revenue.
All in all, things are looking up for Cloudflare stock. By focusing on product innovation, the company has nearly tripled its potential market in the past few years.
Cloudflare’s Growth Strategy
Acquire customers > Expand existing relationships >> Develop new products >>> Extend serverless platform strategy.
The company’s strategy differs from most. Cloudflare is looking to expand its relationship with existing customers by offering new, innovative services.
For example, Cloudflare just announced it’s expanding into email security. The new service is targeting a common issue businesses run into. In fact, it developed the product based on customer feedback, a common strategy the company uses.
With that in mind, the company’s +90% gross retention gives them the ability to develop consumer relationships. As new products are releasing, the existing customers are more likely to adopt them.
Assessing Cloudflare Stock’s Value
When it comes to growth stocks like Cloudflare, high valuations can deter investors. But, the high price is often a result of investor optimism about the company’s future.
In the case of Cloudflare, the stock has blown up since the start of 2020. NET stock is up over 900% since then, going from below $20 a high of $181. The stock is currently trading around $175 per share.
Although Cloudflare stock is blasting through its ATH prices, is the valuation justified?
The Price / Sales ratio gives us a good look at how the company’s value stacks up to sales. Currently, Cloudflare stock sports a P/S upwards of 80 and has consistently increased the past few quarters.
You could look at this in a few different ways.
- It’s overvalued relative to last year or,
- The bigger TAM is attracting more money
There’s no denying Cloudflare stock has a lofty valuation. But, the company is also executing on its strategy, showing it’s a contender in a few big potential markets.
Cloudflare’s latest releases are attracting existing customers, promoting a cross-selling environment. Also, Cloudflare’s subscription-based model creates a superior revenue stream.
Taking on a Giant
Looking at Cloudflare’s latest move, it’s planning to take on the industry giant Amazon (NASDAQ: AMZN) with R2 storage. In what seems like a David vs. Goliath moment, Cloudflare may have the edge (pun intended).
The new technology gives developers a way of storing all the information they need quickly, cost-effectively. R2 storage is designed for edge computing, a superior option to AWS S3 cloud storage.
AWS has maintained over 30% of the cloud market since 2018. However, R2 storage solves the developer’s biggest problem – high fees & difficulty transferring.
From a developer’s standpoint, what would stop you from switching? More secure, easier to scale, and less costly – R2 storage sounds like the better option to me.
Cloudflare’s Advantage – A Developers Dream
Since Cloudflare stock went public on September 13th, 2019, the company has come a long way. I had heard the name but started researching into the company shortly after hearing about its explosive debut.
After discovering the Cloudflare blog, I was convinced. I made my first investment in the company just over $18 a share. CEO Matthew Prince’s ability to explain complex concepts in layman’s terms is incredible. Reading post after post, I believed in what he was pitching.
But, the biggest takeaway was that he explained the blog posts are not designed to attract customers but developers.
And that, I believe, is a big part of the company’s success. Cloudflare has created a developer’s dream by attracting the best talent and giving them a better environment to work in.
Top talent wants to work for the company, and that’s when the magic can happen. Consider other companies that rose to the top of their industries like Apple (NASDAQ: AAPL). And now Tesla (NASDAQ: TSLA) seems to be doing the same in the automotive industry.
Cloudflare Stock Forecast: Can the Cinderella Story Continue?
Cloudflare stock is up almost 50% since the start of October and breaking out into ATHs. With Cloudflare’s rich valuation, will the stock continue its climb?
By disrupting industry after industry, Cloudflare has managed to grow beyond most people’s beliefs. As a result, Cloudflare stock has been a market leader, soaring over 800% since its IPO.
Cloudflare is moving into high potential industries like cybersecurity, edge computing, and content management (CMS).
The CMS market, one that Cloudflare controls 80% of the market share, is expected to reach $116 billion by 2025 alone. Not to mention the edge computing market, which is expecting another $10 billion.
There’s money to be made in these industries, and if Cloudflare continues at its pace, it can continue its dominant growth. But, at ATH prices, take caution buying at these levels. Cloudflare stock is up over 800% since going public.
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About Pete Johnson
Pete Johnson is an experienced financial writer and content creator who specializes in equity research and derivatives. He has over ten years of personal investing experience. Digging through 10-K forms and finding hidden gems is his favorite pastime. When Pete isn’t researching stocks or writing, you can find him enjoying the outdoors or working up a sweat exercising.
