To The Moon

$Cloudflare, Inc.(NET)$ will be reporting their quarterly earnings result for period ending 30 Sep 2024.

Cloudflare stock have trading with more than 1% gains on Monday (05 Nov), this is different from the more than 10% that Cloudflare have climbed in 2023.

The earnings per share have been expected to come in at 18 cents.

Can Cloudflare Met and Exceed Second Quarter Results?

Cloudflare have second quarter earnings and revenue that topped Wall Street targets while guidance came in above expectations.

The earnings per share for the second quarter came in at 20 cents which is up 100% from one year ago. Revenue climbed 30% to $401 million. this is higher than what analysts have predicted adjusted profit of 14 cents a share and revenue of $394 million.

Cloudflare strong second quarter, crossing $1.6 billion in annualized revenue and growing 30% year-over-year.

If we looked at how Cloudflare have beaten the forecast EPS for the past three quarters, I have strong expectations we are going to see a better than 18 cents forecasted.

One of the factor is a new tool, AI Audit that was introduced to help Cloudflare customers have more control over how AI bots access and use their content.

Can AI Audit Tool Bring Cloudflare More Customers?

As we know that there have been talks and discussions on how writers intellect rights are protected. Networking company Cloudflare has a solution for people who want to know how their content is used: AI Audit. The tool provides website owners with features to analyze and control how AI bots interact with their content. 

Cloudflare’s CEO envisions a future where website owners have more control over how AI bots access and use their content. The free tool is first step to let website owners monitor AI model interactions with their sites.

AI bots frequently scrape websites for data to train models, sometimes without permission or payment. This is a growing issue, especially for smaller publishers who rely heavily on traffic for revenue.

In response, AI Audit allows site owners to track AI scrapers and block or allow them with a simple click. This offers a new level of control over how digital content is accessed. Hence, making it easier for even smaller sites to protect their intellectual property.

So now question that I would be seeking is how this AI audit would help differential Cloudflare from other provider in cloud web security, can this bring them more customers and hence more revenues?

Cloudflare has 210,166 paying customers as of June 2024, showing a 20.7% year-over-year increase. Cloudflare's paying customer base has grown by 2.19x since Q2 2020.

The minimum threshold for being considered a “large customer” by Cloudflare is an annualized revenue of $100,000 or more per account.

Cloudflare had a total of 3,046 large customers in Q2 2024, contributing more than $100,000 in annualized revenue. The internet security company increased its enterprise segment by 29.51% over the past year.

Why AI Scraping is a Problem for Small Publishers

The rise of AI scraping has created a challenging environment for smaller publishers. While major publications like TIME and The Atlantic have formal licensing agreements with AI companies such as OpenAI, smaller websites are often left in the dust.

Many have seen their content used for AI training without any form of compensation, undermining their ability to sustain their businesses.

For these smaller sites, traffic is their lifeblood. Advertising revenue often depends on the number of visitors, and when AI scrapers use their content without permission, it reduces the incentive for human visitors to visit these sites directly.

This practice raises important ethical questions: Should AI companies be allowed to use content without compensating the creators? Cloudflare’s move to create a marketplace aims to answer this question by letting publishers set their own prices for AI access, potentially leveling the playing field.

How Cloudflare’s Marketplace Could Transform the Industry

With the introduction of Cloudflare’s new marketplace, small publishers will finally have a way to monetize their content. Website owners will have the power to set their own prices for how AI companies can use their data. Yes, either in exchange for payment or credit.

The marketplace will offer a range of options, from direct financial compensation to recognition. The goal? To allow smaller content creators to be more competitive in the rapidly growing AI space.

Cloudflare's new AI Audit tool aims to give content creators better bot controls

Cloudflare Ownership Mixed Of Institutional and Retail Investors

The ownership structure of Cloudflare (NET) stock is a mix of institutional, retail, and individual investors. Approximately 44.57% of the company’s stock is owned by Institutional Investors, 10.01% is owned by Insiders, and 45.41% is owned by Public Companies and Individual Investors.

As investors we need to be aware of how investors feel about this stock, Cloudflare, if we were to look at how a company keep innovating and helping its customer, this company stock would not do that bad.

Technical Analysis - MACD and Multi-timeframe (MTF)

While I am more interested to see how Cloudflare customers especially on the smaller ones would increase.

We are seeing that Cloudflare have managed to trade above the short-term and long-term MA, and the MACD though showing a bearish downside, but MTF is giving some potential upside.

I would be expecting an earnings surprise beat on the revenue and EPS, as Cloudflare should have the number of websites protected increased with the AI audit.

Summary

If we look at how many websites Cloudflare are protecting, the AI Audit tool would be something that would be useful to help site owners to track AI scrapers and block or allow them with a simple click.

This is something that both large customers and small publishers need, as they wanted to protect their intellectual property.

I would be watching the price action for Cloudflare today (06 Nov) and watch the earnings breakdown.

Appreciate if you could share your thoughts in the comment section whether you think Cloudflare would be able to beat the earnings and profit estimates and a better guidance.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.