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Cloudflare: High Revenue Growth With Cybersecurity Tailwinds

May 03, 2022 7:53 AM ETCloudflare, Inc. (NET)AKAM, ZS10 Comments
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Deep Tech Insights


  • Cloudflare is a leading content delivery network (CDN) which has achieved high revenue growth of over 52% in the past year.
  • The company has strong tailwinds from Zero Trust Security industry which is forecasted to grow at a 17.4% CAGR until 2026.
  • The stock price has pulled back by 59% since November and plans to announce earnings for Q12022 on May 5th 2021.
  • The stock is overvalued intrinsically, but trading at one of the lowest forward price to sales ratios historically.

Exterior view of Cloudflare headquarters, San Francisco

Sundry Photography/iStock Editorial via Getty Images

Cloudflare (NYSE:NET) is a leading content delivery network [CDN] which helps websites to provide content faster and in a more secure way. The company has increased their focus on “Zero Trust” security which is a growing industry

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Senior Investment Analyst for Hedge Funds. Interviewed Hedge Fund Managers and CEO's. Investment Strategy: Focus on Deep Dive Valuation, G.A.R.P (Growth at a Reasonable Price). Masters in Equity Valuation, 755+ Companies Analysed.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (10)

Steve Kamman profile picture
Cloudflare is no more a CDN or a security company than AWS (which also sells CDN and security services). Cloudflare is building "the 4th cloud" alongside AMZN AWS, MSFT Azure, and Google GCP. General porupose compute, storage, netowrking, and supporting services such as database, streaming data, etc.... It is just starting to show traction there, but it is also creating a distinct, defensible market space where AWS/Azure/GCP don't play. I disagree with @onkd that it will be "bigger" than AWS (grin). But AWS is running at a ~$70B revenue run rate and will end up in the hundreds of billions of revenues in 5-10 years. Cloudflare will also end up over $100B of revenues given its TAM. A $30B market cap prices in some of that expectation, but this write up reflects how poorly understood the company remains. When the same piece is written in 2-3 years, it will start with "Cloudflare's 4th cloud strategy continues to show traction" and there will be no mention of CDN or Security.
To the author - no snark intended. BUt have a look at Cloudflare Workers (compute offer which also powers all of NET's higher-order services), the upcoming launch of R2 storage, Durable Objects, and the likely launch of database/streaming. That is where you will find the valuation disconnect. Growth will have accelerate as a $650m revenue company starts to chew into a $300B TAM with a one-of-a-kind offer.Also note that MSFT just started using Cloudflare in its Edge browser. If it were easy to replicate Cloudflare's services, Microsoft (who owns the Azure Cloud) would have built it itself.
@Steve Kamman I respect your opinion, and agree with most of your points. Thanks for sharing!
@Steve Kamman do you mind elaborating a bit more on the 4th cloud strategy? Like what exactly does that look like vs the big 3 - differences, need, possible competitive advantages etc.
davidrich77 profile picture
@Steve Kamman im retired but a few years back i ran Akamai in Asia Pacific. I hold NET, OKTA, ZS, AKAM, AMZN amongst others. Your comments are very well informed. NET has price potential which should be realised when their diverse capabilites mature and we see a better overall market.
Millennial_Tyler profile picture
Excellent article. Mid 80s seems to have a ton of support. Only thing I'd argue against is that Duo and Okta are not competitors (yet) as they hjave stayed away from IAM.
Certainly cisco's vpn/sase products are though. Zscaler, Akamai, IAAS storage, and SDWAN products are where the biggest competition is coming from.
I would feel stupid selling my $NET shares at these prices.

$NET in 5-10 years will be bigger than AWS.

$100B+ company incoming.

Many investors know this, which is why this stock has held up comparatively well despite the high valuation in the near-term.

Go ahead and sell for a short-term down swing. I'll be here to take your shares off of you, smiling every step of the way. :)
cdgingrich profile picture
If you think it is a $41 stock you should be shorting it big-time.
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