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Cloudflare Stock: Momentum Spike Has Fizzled Out - Now Back Within Buy Zone

Seeking Alpha2021-12-27

Summary Cloudflare is one of our highest conviction companies. Cloudflare stock's momentum spike has fizzled out, and it has dropped nicely into our buy zone. We discuss why we think long-term ...

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eugenepay
·2021-12-29
Very insightful, will be watching
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Moojani
·2021-12-27
Good to watch
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Lim89
·2021-12-27
Ok
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- Nicholwong:
  Ok
  2021-12-28
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- Lim89:
  Ya
  2021-12-27
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nelson21
·2021-12-27
Pls like
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Keez
·2021-12-27
Ok
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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nCloudflare Stock: Momentum Spike Has Fizzled Out - Now Back Within Buy Zone\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-12-27 16:00 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4476832-cloudflare-stock-now-back-within-buy-zone>Seeking Alpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nCloudflare is one of our highest conviction companies.\nCloudflare stock's momentum spike has fizzled out, and it has dropped nicely into our buy zone.\nWe discuss why we think long-term ...\n\n<a href=\"https://seekingalpha.com/article/4476832-cloudflare-stock-now-back-within-buy-zone\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"NET","symbol_name":"Cloudflare, Inc.","start_time":0,"source_url":"https://seekingalpha.com/article/4476832-cloudflare-stock-now-back-within-buy-zone","article_id":"1119282541","we_media_id":null,"thumbnails":[],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=1119282541","pubTimestamp":1640592014,"sourceInfo":null,"weMediaInfo":null,"summary":"Summary\n\nCloudflare is one of our highest conviction companies.\nCloudflare stock's momentum spike ha","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"NET":"Cloudflare, Inc."},"translate_title":"Cloudflare股票：势头峰值已经消失--现在回到了买入区","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"NET":0.9},"content_text":"Summary\n\nCloudflare is one of our highest conviction companies.\nCloudflare stock's momentum spike has fizzled out, and it has dropped nicely into our buy zone.\nWe discuss why we think long-term investors can consider adding now.\n\nSteve Jennings/Getty Images Entertainment\nInvestment Thesis\nCloudflare, Inc.(NYSE:NET) is another of our highest conviction tech companies whose stock recently dropped back into our buy zone. Investors who need an introduction can refer to one of our previous articles. We had also discussed its thesis just before its FQ3 report card was released. We cautioned investors not to follow the momentum spike heading into its earnings with our Neutral call back then. The stock has fallen more than 28% since our article was published. Notably, a robust FQ3 performance also led to us revising our estimates upwards.\nWe also observed that its momentum spike that we cautioned earlier seems to have fizzled out. Therefore, we believe the entry point might be less risky now for investors who have been waiting to add exposure. Consequently, we think it's apt to update why we believe it's back within our buy zone.\nCloudflare Stock YTD Performance\nNET stock YTD performance (as of 23 December '21).\nNET stock has had a spectacular year so far. When its upward momentum spiked in November, its YTD returns reached 180%. However, the recent retracement in growth stocks has also lowered its price to more reasonable levels. Consequently, its YTD gains have also compressed dramatically, down to 80.6%. Nonetheless, it's still well ahead of the broad market, making it a fantastic year for NET investors.\nWhy is Cloudflare One of Our Highest Conviction Companies?\nKeen investors should be aware that the company has often telegraphed that it's a networking company. Its software-defined architecture is capable of supporting both on-premise and cloud workloads. It's also capable of delivering solutions for both hybrid and multi-cloud environments. Therefore, the company operates a highly scalable business model. Its capability has also allowed it to compete effectively across multiple spectrums against legacy on-premise and cloud-native peers.\nNET may have started serving the long-tail small-and-medium businesses (SMB). However, it has gained significant traction in the enterprise space as it penetrates with remarkable effectiveness. Therefore, it has also allowed Cloudflare to scale its TAM from $32B in 2018 to $100B by 2024. Consensus estimates point to revenue of just $646.8M for FY21 (Cloudflare guided for $647.5M at the midpoint). Therefore, we believe that the company is undoubtedly still in the early innings of its rapidly-expanding market opportunities.\nCloudflare paying customers. Data source: Company filings\nCloudflare enterprise customers. Data source: Company filings\nCloudflare has scaled so quickly that it has nearly 4M customers globally. In addition, 132K are paying, which grew at a CAGR of 29.3% over the last three years. Notably, it has also gained significant traction in its enterprise base. Its enterprise customers increased to 1,260 in FQ3'21, representing a phenomenal CAGR of 69% over the previous three years. Moreover, Cloudflare emphasized that \"nearly 20% of all websites use Cloudflare today.\"\nSo, what makes Cloudflare's business model so scalable? First of all, investors need to understand that the company designed a complete technology stack that's highly efficient to scale. CFO Thomas Seifert articulated (edited):\n\n The network certainly is the competitive moat we have. The bigger we get in terms of data that moves through the network, the larger the product and service offering that runs on this network, and the faster those flywheels turn. It starts with the hardware stack. It's an off-the-shelf hardware stack. That's why our CapEx efficiency is so incredibly good. And on this hardware stack, we run a completely integrated homogeneous software stack. So this allows us literally to offer every product we have and every service we offer on every server in every city and every location. (5th Annual Virtual Wells Fargo TMT Summit)\n\nIt's such a critical competitive moat that Cloudflare believes its competitors cannot match even if they try to invest. The company's points-of-presence (POP) has expanded to more than 250 cities. As a result, it has gained tremendous clout and influence with the local internet service providers (ISP). Notably, these ISPs depend on Cloudflare to help them optimize their costs. They leverage Cloudflare's superior reliability, latency, and cost-effectiveness of its massive network.\nConsequently, it has allowed Cloudflare to co-locate its hardware in these ISPs' data centers. In addition, it helps the company to significantly \"drive down its bandwidth and co-location expenses.\" Cloudflare emphasized: \"This symbiotic relationship that we have with ISPs and the efficiency of our serverless network architecture allows us to introduce new products on our network at low marginal cost.\"\nGross margins comps (LTM). Data source: S&P Capital IQ\nCloudflare and the CDN leaders Fastly(NYSE:FSLY), and Akamai(NASDAQ:AKAM)(Cloudflare has maintained that it's not a pure-play CDN) recognize network, bandwidth, and co-location costs in their cost of revenue. Readers can quickly glean how its competitive moat has afforded superior gross margins over time. Accordingly, Cloudflare is confident that its competitors cannot easily replicate its advantages by increasing CapEx intensity. Cloudflare emphasized (edited):\n\nThis build-out is not a function of CapEx. So you cannot just replicate that by saying, here is $1 billion, let's be in 250 cities. What makes that network so efficient is that it's the most interconnected network on the planet, with thousands of interconnections to other networks. And this is hard to compete with and replicate because dollars and CapEx are just not going to get you into those interconnects. So, it allows us to continue powering more and more of the infrastructure for the people who are actually accessing the web. And that scalability comes from the technical infrastructure and the way that we have been able to have a very symbiotic relationship with the other network providers around the world in order to connect everywhere. (Wells Fargo TMT and RBC Conference)\n\nCloudflare SG&A and R&D margins. Data source: S&P Capital IQ\nHence, we believe that Cloudflare's strong gross margins give it tremendous flexibility to invest. Readers can observe that its R&D margins accounted for 30.2% of its revenue over the last twelve months (LTM). We believe that such a strong commitment to innovation will keep Cloudflare at the fore of its leadership. While Fastly's LTM R&D margin was higher at 35.3%, the company couldn't match Cloudflare's highly competitive gross margin advantage. Akamai's LTM R&D margin came in at just 13.9%, as the company is focusing more on leveraging profits than growth.\nCloudflare revenue YoY change, and GAAP EBITDA margins. Data source: S&P Capital IQ\nAs such, Cloudflare's exceptional business model has allowed it highly consistent topline growth over the last two years. Notably, it has also been improving its operational efficiencies as it scales. As a result, on a GAAP basis, its EBITDA margin has improved to -8.5% in FQ3'21, compared to -47.5% two years ago.\nCloudflare revenue and adjusted EBITDA margins mean consensus estimates. Data source: S&P Capital IQ\nConsensus estimates also pointed to robust topline expansion over the next three years. Cloudflare's revenue is estimated to increase at a CAGR of 40% from FY20-23. Moreover, its adjusted EBITDA is expected to grow even faster. Cloudflare is projected to post an adjusted EBITDA margin of 11.6% by FY23, compared to just 3.6% in FY20. Hence, Cloudflare is still in the early stages of its massive growth.\nSo, is NET Stock a Buy Now?\nNET stock EV/NTM Revenue 2Y mean.\nWe know that stocks like Cloudflare's would never be cheap. They will likely continue to trade at a premium valuation, given its moat and excellent execution. CEO Matthew Prince and his two other co-founders (COO and CTO, respectively) continue to play an integral role in shaping Cloudflare's future developments. NET stock is trading at an EV/NTM Revenue of 52.7x, markedly above its 2Y mean of 34.5x. Typically, we wouldn't even consider stocks with such a high premium. However, NET stock isn't just another stock. Investors should also consider that the company will gain significant operating leverage moving forward. Therefore, we think a DCF valuation model might provide more clarity within reasonable assumptions.\nNET stock DCF valuation model. Data source: S&P Capital IQ, company filings, author\nTherefore, we believe that the stock has now dropped back into our buy zone. Moreover, it seems to be supported along its 50-week moving average support level, which has been reliable since last year.\nAs such,we revise our rating on NET stock to Buy.","kind":null,"is_publish_news":true,"is_publish_highlight":true,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":9009564685,"gmtCreate":1640738068764,"gmtModify":1676533537411,"author":{"id":"3579422406918791","authorId":"3579422406918791","name":"eugenepay","avatar":"https://static.tigerbbs.com/8670ad80c8b0ae7fe2d194cf801f1af7","vip":1,"crmLevel":3,"crmLevelSwitch":0,"idStr":"3579422406918791","authorIdStr":"3579422406918791"},"htmlText":"Very insightful, will be watching","listText":"Very insightful, will be watching","text":"Very insightful, will be watching","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9009564685","repostId":1119282541,"repostType":2,"repost":{"id":"1119282541","pubTimestamp":1640592014,"share":"https://ttm.financial/m/news/1119282541?lang=&edition=fundamental","pubTime":"2021-12-27 16:00","market":"us","language":"en","title":"Cloudflare Stock: Momentum Spike Has Fizzled Out - Now Back Within Buy Zone","url":"https://stock-news.laohu8.com/highlight/detail?id=1119282541","media":"Seeking Alpha","summary":"Summary\n\nCloudflare is one of our highest conviction companies.\nCloudflare stock's momentum spike ha","content":"Summary\n<ul>\n <li>Cloudflare is one of our highest conviction companies.</li>\n <li>Cloudflare stock's momentum spike has fizzled out, and it has dropped nicely into our buy zone.</li>\n <li>We discuss why we think long-term investors can consider adding now.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/9fc5ef750ea3016ea632581c55ad066d\" tg-width=\"1536\" tg-height=\"1022\" width=\"100%\" height=\"auto\">Steve Jennings/Getty Images Entertainment\nInvestment Thesis\nCloudflare, Inc.(NYSE:NET)&nbsp;is another of our highest conviction tech companies whose stock recently dropped back into our buy zone. Investors who need an introduction can&nbsp;refer to one of our previous articles. We had also discussed its thesis just before its FQ3 report card was released. We cautioned investors not to follow the momentum spike heading into its earnings&nbsp;with our Neutral call&nbsp;back then. The stock has fallen more than 28% since our article was published. Notably, a robust FQ3 performance also led to us revising our estimates upwards.\nWe also observed that its momentum spike that we cautioned earlier seems to have fizzled out. Therefore, we believe the entry point might be less risky now for investors who have been waiting to add exposure. Consequently, we think it's apt to update why we believe it's back within our buy zone.\nCloudflare Stock YTD Performance\n<img src=\"https://static.tigerbbs.com/7d77d264c8185ed4c2ba14ed0d4ee1c5\" tg-width=\"640\" tg-height=\"331\" width=\"100%\" height=\"auto\">NET stock YTD performance (as of 23 December '21).\nNET stock has had a spectacular year so far. When its upward momentum spiked in November, its YTD returns reached 180%. However, the recent retracement in growth stocks has also lowered its price to more reasonable levels. Consequently, its YTD gains have also compressed dramatically, down to 80.6%. Nonetheless, it's still well ahead of the broad market, making it a fantastic year for NET investors.\nWhy is Cloudflare One of Our Highest Conviction Companies?\nKeen investors should be aware that the company has often telegraphed that it's a networking company. Its software-defined architecture is capable of supporting both on-premise and cloud workloads. It's also capable of delivering solutions for both hybrid and multi-cloud environments. Therefore, the company operates a highly scalable business model. Its capability has also allowed it to compete effectively across multiple spectrums against legacy on-premise and cloud-native peers.\nNET may have started serving the long-tail small-and-medium businesses (SMB). However, it has gained significant traction in the enterprise space as it penetrates with remarkable effectiveness. Therefore, it has also allowed Cloudflare to scale its TAM from $32B in 2018 to $100B by 2024. Consensus estimates point to revenue of just $646.8M for FY21 (Cloudflare guided for $647.5M at the midpoint). Therefore, we believe that the company is undoubtedly still in the early innings of its rapidly-expanding market opportunities.\n<img src=\"https://static.tigerbbs.com/eb7cddd302c8b3166c4bbb9c4f6ce858\" tg-width=\"640\" tg-height=\"396\" width=\"100%\" height=\"auto\">Cloudflare paying customers. Data source: Company filings\n<img src=\"https://static.tigerbbs.com/571e5f97779f0b582bf7c05534eadbb1\" tg-width=\"640\" tg-height=\"396\" width=\"100%\" height=\"auto\">Cloudflare enterprise customers. Data source: Company filings\nCloudflare has scaled so quickly that it has nearly 4M customers globally. In addition, 132K are paying, which grew at a CAGR of 29.3% over the last three years. Notably, it has also gained significant traction in its enterprise base. Its enterprise customers increased to 1,260 in FQ3'21, representing a phenomenal CAGR of 69% over the previous three years. Moreover, Cloudflare emphasized that \"nearly 20% of all websites&nbsp;use Cloudflare today.\"\nSo, what makes Cloudflare's business model so scalable? First of all, investors need to understand that the company designed a complete technology stack that's highly efficient to scale. CFO Thomas Seifert articulated (edited):\n<blockquote>\n The network certainly is the competitive moat we have. The bigger we get in terms of data that moves through the network, the larger the product and service offering that runs on this network, and the faster those flywheels turn. It starts with the hardware stack. It's an off-the-shelf hardware stack. That's why our CapEx efficiency is so incredibly good. And on this hardware stack, we run a completely integrated homogeneous software stack. So this allows us literally to offer every product we have and every service we offer on every server in every city and every location. (5th Annual Virtual Wells Fargo TMT Summit)\n</blockquote>\nIt's such a critical competitive moat that Cloudflare believes its competitors cannot match even if they try to invest. The company's points-of-presence (POP) has expanded to more than 250 cities. As a result, it has gained tremendous clout and influence with the local internet service providers (ISP). Notably, these ISPs depend on Cloudflare to help them optimize their costs. They leverage Cloudflare's superior reliability, latency, and cost-effectiveness of its massive network.\nConsequently, it has allowed Cloudflare to co-locate its hardware in these ISPs' data centers. In addition, it helps the company to significantly \"drive down its bandwidth and co-location expenses.\" Cloudflare emphasized: \"This symbiotic relationship&nbsp;that we have with ISPs and the efficiency of our serverless network architecture allows us to introduce new products on our network at low marginal cost.\"\n<img src=\"https://static.tigerbbs.com/f39da1f0d583ef247df4df47a02a9bbb\" tg-width=\"640\" tg-height=\"396\" width=\"100%\" height=\"auto\">Gross margins comps (LTM). Data source: S&amp;P Capital IQ\nCloudflare and the CDN leaders Fastly(NYSE:FSLY), and Akamai(NASDAQ:AKAM)(Cloudflare has maintained that it's not a pure-play CDN) recognize network, bandwidth, and co-location costs in their cost of revenue. Readers can quickly glean how its competitive moat has afforded superior gross margins over time. Accordingly, Cloudflare is confident that its competitors cannot easily replicate its advantages by increasing CapEx intensity. Cloudflare emphasized (edited):\n<blockquote>\n This build-out is not a function of CapEx. So you cannot just replicate that by saying, here is $1 billion, let's be in 250 cities. What makes that network so efficient is that it's the most interconnected network on the planet, with thousands of interconnections to other networks. And this is hard to compete with and replicate because dollars and CapEx are just not going to get you into those interconnects. So, it allows us to continue powering more and more of the infrastructure for the people who are actually accessing the web. And that scalability comes from the technical infrastructure and the way that we have been able to have a very symbiotic relationship with the other network providers around the world in order to connect everywhere. (Wells Fargo TMT and RBC Conference)\n</blockquote>\n<img src=\"https://static.tigerbbs.com/f52c039f93892b0942acf170ab0cb93e\" tg-width=\"640\" tg-height=\"396\" width=\"100%\" height=\"auto\">Cloudflare SG&amp;A and R&amp;D margins. Data source: S&amp;P Capital IQ\nHence, we believe that Cloudflare's strong gross margins give it tremendous flexibility to invest. Readers can observe that its R&amp;D margins accounted for 30.2% of its revenue over the last twelve months (LTM). We believe that such a strong commitment to innovation will keep Cloudflare at the fore of its leadership. While Fastly's LTM R&amp;D margin was higher at 35.3%, the company couldn't match Cloudflare's highly competitive gross margin advantage. Akamai's LTM R&amp;D margin came in at just 13.9%, as the company is focusing more on leveraging profits than growth.\n<img src=\"https://static.tigerbbs.com/8523463296f548f472ba8d2252e272c4\" tg-width=\"640\" tg-height=\"396\" width=\"100%\" height=\"auto\">Cloudflare revenue YoY change, and GAAP EBITDA margins. Data source: S&amp;P Capital IQ\nAs such, Cloudflare's exceptional business model has allowed it highly consistent topline growth over the last two years. Notably, it has also been improving its operational efficiencies as it scales. As a result, on a GAAP basis, its EBITDA margin has improved to -8.5% in FQ3'21, compared to -47.5% two years ago.\n<img src=\"https://static.tigerbbs.com/03d98ef1d4addcabcbc0b865cb981606\" tg-width=\"640\" tg-height=\"395\" width=\"100%\" height=\"auto\">Cloudflare revenue and adjusted EBITDA margins mean consensus estimates. Data source: S&amp;P Capital IQ\nConsensus estimates also pointed to robust topline expansion over the next three years. Cloudflare's revenue is estimated to increase at a CAGR of 40% from FY20-23. Moreover, its adjusted EBITDA is expected to grow even faster. Cloudflare is projected to post an adjusted EBITDA margin of 11.6% by FY23, compared to just 3.6% in FY20. Hence, Cloudflare is still in the early stages of its massive growth.\nSo, is NET Stock a Buy Now?\n<img src=\"https://static.tigerbbs.com/cd5cf860d8b13e68290ca0adbe54eafa\" tg-width=\"640\" tg-height=\"384\" width=\"100%\" height=\"auto\">NET stock EV/NTM Revenue 2Y mean.\nWe know that stocks like Cloudflare's would never be cheap. They will likely continue to trade at a premium valuation, given its moat and excellent execution. CEO Matthew Prince and his two other co-founders (COO and CTO, respectively) continue to play an integral role in shaping Cloudflare's future developments. NET stock is trading at an EV/NTM Revenue of 52.7x, markedly above its 2Y mean of 34.5x. Typically, we wouldn't even consider stocks with such a high premium. However, NET stock isn't just another stock. Investors should also consider that the company will gain significant operating leverage moving forward. Therefore, we think a DCF valuation model might provide more clarity within reasonable assumptions.\n<img src=\"https://static.tigerbbs.com/44aa88643408f3ce0ad33a44efb7f7bc\" tg-width=\"901\" tg-height=\"595\" width=\"100%\" height=\"auto\">NET stock DCF valuation model. Data source: S&amp;P Capital IQ, company filings, author\nTherefore, we believe that the stock has now dropped back into our buy zone. Moreover, it seems to be supported along its 50-week moving average support level, which has been reliable since last year.\nAs such,we revise our rating on NET stock to Buy.","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Cloudflare Stock: Momentum Spike Has Fizzled Out - Now Back Within Buy Zone</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nCloudflare Stock: Momentum Spike Has Fizzled Out - Now Back Within Buy Zone\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-12-27 16:00 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4476832-cloudflare-stock-now-back-within-buy-zone>Seeking Alpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nCloudflare is one of our highest conviction companies.\nCloudflare stock's momentum spike has fizzled out, and it has dropped nicely into our buy zone.\nWe discuss why we think long-term ...\n\n<a href=\"https://seekingalpha.com/article/4476832-cloudflare-stock-now-back-within-buy-zone\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"NET":"Cloudflare, Inc."},"source_url":"https://seekingalpha.com/article/4476832-cloudflare-stock-now-back-within-buy-zone","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1119282541","content_text":"Summary\n\nCloudflare is one of our highest conviction companies.\nCloudflare stock's momentum spike has fizzled out, and it has dropped nicely into our buy zone.\nWe discuss why we think long-term investors can consider adding now.\n\nSteve Jennings/Getty Images Entertainment\nInvestment Thesis\nCloudflare, Inc.(NYSE:NET) is another of our highest conviction tech companies whose stock recently dropped back into our buy zone. Investors who need an introduction can refer to one of our previous articles. We had also discussed its thesis just before its FQ3 report card was released. We cautioned investors not to follow the momentum spike heading into its earnings with our Neutral call back then. The stock has fallen more than 28% since our article was published. Notably, a robust FQ3 performance also led to us revising our estimates upwards.\nWe also observed that its momentum spike that we cautioned earlier seems to have fizzled out. Therefore, we believe the entry point might be less risky now for investors who have been waiting to add exposure. Consequently, we think it's apt to update why we believe it's back within our buy zone.\nCloudflare Stock YTD Performance\nNET stock YTD performance (as of 23 December '21).\nNET stock has had a spectacular year so far. When its upward momentum spiked in November, its YTD returns reached 180%. However, the recent retracement in growth stocks has also lowered its price to more reasonable levels. Consequently, its YTD gains have also compressed dramatically, down to 80.6%. Nonetheless, it's still well ahead of the broad market, making it a fantastic year for NET investors.\nWhy is Cloudflare One of Our Highest Conviction Companies?\nKeen investors should be aware that the company has often telegraphed that it's a networking company. Its software-defined architecture is capable of supporting both on-premise and cloud workloads. It's also capable of delivering solutions for both hybrid and multi-cloud environments. Therefore, the company operates a highly scalable business model. Its capability has also allowed it to compete effectively across multiple spectrums against legacy on-premise and cloud-native peers.\nNET may have started serving the long-tail small-and-medium businesses (SMB). However, it has gained significant traction in the enterprise space as it penetrates with remarkable effectiveness. Therefore, it has also allowed Cloudflare to scale its TAM from $32B in 2018 to $100B by 2024. Consensus estimates point to revenue of just $646.8M for FY21 (Cloudflare guided for $647.5M at the midpoint). Therefore, we believe that the company is undoubtedly still in the early innings of its rapidly-expanding market opportunities.\nCloudflare paying customers. Data source: Company filings\nCloudflare enterprise customers. Data source: Company filings\nCloudflare has scaled so quickly that it has nearly 4M customers globally. In addition, 132K are paying, which grew at a CAGR of 29.3% over the last three years. Notably, it has also gained significant traction in its enterprise base. Its enterprise customers increased to 1,260 in FQ3'21, representing a phenomenal CAGR of 69% over the previous three years. Moreover, Cloudflare emphasized that \"nearly 20% of all websites use Cloudflare today.\"\nSo, what makes Cloudflare's business model so scalable? First of all, investors need to understand that the company designed a complete technology stack that's highly efficient to scale. CFO Thomas Seifert articulated (edited):\n\n The network certainly is the competitive moat we have. The bigger we get in terms of data that moves through the network, the larger the product and service offering that runs on this network, and the faster those flywheels turn. It starts with the hardware stack. It's an off-the-shelf hardware stack. That's why our CapEx efficiency is so incredibly good. And on this hardware stack, we run a completely integrated homogeneous software stack. So this allows us literally to offer every product we have and every service we offer on every server in every city and every location. (5th Annual Virtual Wells Fargo TMT Summit)\n\nIt's such a critical competitive moat that Cloudflare believes its competitors cannot match even if they try to invest. The company's points-of-presence (POP) has expanded to more than 250 cities. As a result, it has gained tremendous clout and influence with the local internet service providers (ISP). Notably, these ISPs depend on Cloudflare to help them optimize their costs. They leverage Cloudflare's superior reliability, latency, and cost-effectiveness of its massive network.\nConsequently, it has allowed Cloudflare to co-locate its hardware in these ISPs' data centers. In addition, it helps the company to significantly \"drive down its bandwidth and co-location expenses.\" Cloudflare emphasized: \"This symbiotic relationship that we have with ISPs and the efficiency of our serverless network architecture allows us to introduce new products on our network at low marginal cost.\"\nGross margins comps (LTM). Data source: S&P Capital IQ\nCloudflare and the CDN leaders Fastly(NYSE:FSLY), and Akamai(NASDAQ:AKAM)(Cloudflare has maintained that it's not a pure-play CDN) recognize network, bandwidth, and co-location costs in their cost of revenue. Readers can quickly glean how its competitive moat has afforded superior gross margins over time. Accordingly, Cloudflare is confident that its competitors cannot easily replicate its advantages by increasing CapEx intensity. Cloudflare emphasized (edited):\n\nThis build-out is not a function of CapEx. So you cannot just replicate that by saying, here is $1 billion, let's be in 250 cities. What makes that network so efficient is that it's the most interconnected network on the planet, with thousands of interconnections to other networks. And this is hard to compete with and replicate because dollars and CapEx are just not going to get you into those interconnects. So, it allows us to continue powering more and more of the infrastructure for the people who are actually accessing the web. And that scalability comes from the technical infrastructure and the way that we have been able to have a very symbiotic relationship with the other network providers around the world in order to connect everywhere. (Wells Fargo TMT and RBC Conference)\n\nCloudflare SG&A and R&D margins. Data source: S&P Capital IQ\nHence, we believe that Cloudflare's strong gross margins give it tremendous flexibility to invest. Readers can observe that its R&D margins accounted for 30.2% of its revenue over the last twelve months (LTM). We believe that such a strong commitment to innovation will keep Cloudflare at the fore of its leadership. While Fastly's LTM R&D margin was higher at 35.3%, the company couldn't match Cloudflare's highly competitive gross margin advantage. Akamai's LTM R&D margin came in at just 13.9%, as the company is focusing more on leveraging profits than growth.\nCloudflare revenue YoY change, and GAAP EBITDA margins. Data source: S&P Capital IQ\nAs such, Cloudflare's exceptional business model has allowed it highly consistent topline growth over the last two years. Notably, it has also been improving its operational efficiencies as it scales. As a result, on a GAAP basis, its EBITDA margin has improved to -8.5% in FQ3'21, compared to -47.5% two years ago.\nCloudflare revenue and adjusted EBITDA margins mean consensus estimates. Data source: S&P Capital IQ\nConsensus estimates also pointed to robust topline expansion over the next three years. Cloudflare's revenue is estimated to increase at a CAGR of 40% from FY20-23. Moreover, its adjusted EBITDA is expected to grow even faster. Cloudflare is projected to post an adjusted EBITDA margin of 11.6% by FY23, compared to just 3.6% in FY20. Hence, Cloudflare is still in the early stages of its massive growth.\nSo, is NET Stock a Buy Now?\nNET stock EV/NTM Revenue 2Y mean.\nWe know that stocks like Cloudflare's would never be cheap. They will likely continue to trade at a premium valuation, given its moat and excellent execution. CEO Matthew Prince and his two other co-founders (COO and CTO, respectively) continue to play an integral role in shaping Cloudflare's future developments. NET stock is trading at an EV/NTM Revenue of 52.7x, markedly above its 2Y mean of 34.5x. Typically, we wouldn't even consider stocks with such a high premium. However, NET stock isn't just another stock. Investors should also consider that the company will gain significant operating leverage moving forward. Therefore, we think a DCF valuation model might provide more clarity within reasonable assumptions.\nNET stock DCF valuation model. Data source: S&P Capital IQ, company filings, author\nTherefore, we believe that the stock has now dropped back into our buy zone. Moreover, it seems to be supported along its 50-week moving average support level, which has been reliable since last year.\nAs such,we revise our rating on NET stock to Buy.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9009833453,"gmtCreate":1640599905314,"gmtModify":1676533528247,"author":{"id":"4098833305593430","authorId":"4098833305593430","name":"Moojani","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"4098833305593430","authorIdStr":"4098833305593430"},"htmlText":"Good to watch","listText":"Good to watch","text":"Good to watch","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9009833453","repostId":1119282541,"repostType":4,"repost":{"id":"1119282541","pubTimestamp":1640592014,"share":"https://ttm.financial/m/news/1119282541?lang=&edition=fundamental","pubTime":"2021-12-27 16:00","market":"us","language":"en","title":"Cloudflare Stock: Momentum Spike Has Fizzled Out - Now Back Within Buy Zone","url":"https://stock-news.laohu8.com/highlight/detail?id=1119282541","media":"Seeking Alpha","summary":"Summary\n\nCloudflare is one of our highest conviction companies.\nCloudflare stock's momentum spike ha","content":"Summary\n<ul>\n <li>Cloudflare is one of our highest conviction companies.</li>\n <li>Cloudflare stock's momentum spike has fizzled out, and it has dropped nicely into our buy zone.</li>\n <li>We discuss why we think long-term investors can consider adding now.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/9fc5ef750ea3016ea632581c55ad066d\" tg-width=\"1536\" tg-height=\"1022\" width=\"100%\" height=\"auto\">Steve Jennings/Getty Images Entertainment\nInvestment Thesis\nCloudflare, Inc.(NYSE:NET)&nbsp;is another of our highest conviction tech companies whose stock recently dropped back into our buy zone. Investors who need an introduction can&nbsp;refer to one of our previous articles. We had also discussed its thesis just before its FQ3 report card was released. We cautioned investors not to follow the momentum spike heading into its earnings&nbsp;with our Neutral call&nbsp;back then. The stock has fallen more than 28% since our article was published. Notably, a robust FQ3 performance also led to us revising our estimates upwards.\nWe also observed that its momentum spike that we cautioned earlier seems to have fizzled out. Therefore, we believe the entry point might be less risky now for investors who have been waiting to add exposure. Consequently, we think it's apt to update why we believe it's back within our buy zone.\nCloudflare Stock YTD Performance\n<img src=\"https://static.tigerbbs.com/7d77d264c8185ed4c2ba14ed0d4ee1c5\" tg-width=\"640\" tg-height=\"331\" width=\"100%\" height=\"auto\">NET stock YTD performance (as of 23 December '21).\nNET stock has had a spectacular year so far. When its upward momentum spiked in November, its YTD returns reached 180%. However, the recent retracement in growth stocks has also lowered its price to more reasonable levels. Consequently, its YTD gains have also compressed dramatically, down to 80.6%. Nonetheless, it's still well ahead of the broad market, making it a fantastic year for NET investors.\nWhy is Cloudflare One of Our Highest Conviction Companies?\nKeen investors should be aware that the company has often telegraphed that it's a networking company. Its software-defined architecture is capable of supporting both on-premise and cloud workloads. It's also capable of delivering solutions for both hybrid and multi-cloud environments. Therefore, the company operates a highly scalable business model. Its capability has also allowed it to compete effectively across multiple spectrums against legacy on-premise and cloud-native peers.\nNET may have started serving the long-tail small-and-medium businesses (SMB). However, it has gained significant traction in the enterprise space as it penetrates with remarkable effectiveness. Therefore, it has also allowed Cloudflare to scale its TAM from $32B in 2018 to $100B by 2024. Consensus estimates point to revenue of just $646.8M for FY21 (Cloudflare guided for $647.5M at the midpoint). Therefore, we believe that the company is undoubtedly still in the early innings of its rapidly-expanding market opportunities.\n<img src=\"https://static.tigerbbs.com/eb7cddd302c8b3166c4bbb9c4f6ce858\" tg-width=\"640\" tg-height=\"396\" width=\"100%\" height=\"auto\">Cloudflare paying customers. Data source: Company filings\n<img src=\"https://static.tigerbbs.com/571e5f97779f0b582bf7c05534eadbb1\" tg-width=\"640\" tg-height=\"396\" width=\"100%\" height=\"auto\">Cloudflare enterprise customers. Data source: Company filings\nCloudflare has scaled so quickly that it has nearly 4M customers globally. In addition, 132K are paying, which grew at a CAGR of 29.3% over the last three years. Notably, it has also gained significant traction in its enterprise base. Its enterprise customers increased to 1,260 in FQ3'21, representing a phenomenal CAGR of 69% over the previous three years. Moreover, Cloudflare emphasized that \"nearly 20% of all websites&nbsp;use Cloudflare today.\"\nSo, what makes Cloudflare's business model so scalable? First of all, investors need to understand that the company designed a complete technology stack that's highly efficient to scale. CFO Thomas Seifert articulated (edited):\n<blockquote>\n The network certainly is the competitive moat we have. The bigger we get in terms of data that moves through the network, the larger the product and service offering that runs on this network, and the faster those flywheels turn. It starts with the hardware stack. It's an off-the-shelf hardware stack. That's why our CapEx efficiency is so incredibly good. And on this hardware stack, we run a completely integrated homogeneous software stack. So this allows us literally to offer every product we have and every service we offer on every server in every city and every location. (5th Annual Virtual Wells Fargo TMT Summit)\n</blockquote>\nIt's such a critical competitive moat that Cloudflare believes its competitors cannot match even if they try to invest. The company's points-of-presence (POP) has expanded to more than 250 cities. As a result, it has gained tremendous clout and influence with the local internet service providers (ISP). Notably, these ISPs depend on Cloudflare to help them optimize their costs. They leverage Cloudflare's superior reliability, latency, and cost-effectiveness of its massive network.\nConsequently, it has allowed Cloudflare to co-locate its hardware in these ISPs' data centers. In addition, it helps the company to significantly \"drive down its bandwidth and co-location expenses.\" Cloudflare emphasized: \"This symbiotic relationship&nbsp;that we have with ISPs and the efficiency of our serverless network architecture allows us to introduce new products on our network at low marginal cost.\"\n<img src=\"https://static.tigerbbs.com/f39da1f0d583ef247df4df47a02a9bbb\" tg-width=\"640\" tg-height=\"396\" width=\"100%\" height=\"auto\">Gross margins comps (LTM). Data source: S&amp;P Capital IQ\nCloudflare and the CDN leaders Fastly(NYSE:FSLY), and Akamai(NASDAQ:AKAM)(Cloudflare has maintained that it's not a pure-play CDN) recognize network, bandwidth, and co-location costs in their cost of revenue. Readers can quickly glean how its competitive moat has afforded superior gross margins over time. Accordingly, Cloudflare is confident that its competitors cannot easily replicate its advantages by increasing CapEx intensity. Cloudflare emphasized (edited):\n<blockquote>\n This build-out is not a function of CapEx. So you cannot just replicate that by saying, here is $1 billion, let's be in 250 cities. What makes that network so efficient is that it's the most interconnected network on the planet, with thousands of interconnections to other networks. And this is hard to compete with and replicate because dollars and CapEx are just not going to get you into those interconnects. So, it allows us to continue powering more and more of the infrastructure for the people who are actually accessing the web. And that scalability comes from the technical infrastructure and the way that we have been able to have a very symbiotic relationship with the other network providers around the world in order to connect everywhere. (Wells Fargo TMT and RBC Conference)\n</blockquote>\n<img src=\"https://static.tigerbbs.com/f52c039f93892b0942acf170ab0cb93e\" tg-width=\"640\" tg-height=\"396\" width=\"100%\" height=\"auto\">Cloudflare SG&amp;A and R&amp;D margins. Data source: S&amp;P Capital IQ\nHence, we believe that Cloudflare's strong gross margins give it tremendous flexibility to invest. Readers can observe that its R&amp;D margins accounted for 30.2% of its revenue over the last twelve months (LTM). We believe that such a strong commitment to innovation will keep Cloudflare at the fore of its leadership. While Fastly's LTM R&amp;D margin was higher at 35.3%, the company couldn't match Cloudflare's highly competitive gross margin advantage. Akamai's LTM R&amp;D margin came in at just 13.9%, as the company is focusing more on leveraging profits than growth.\n<img src=\"https://static.tigerbbs.com/8523463296f548f472ba8d2252e272c4\" tg-width=\"640\" tg-height=\"396\" width=\"100%\" height=\"auto\">Cloudflare revenue YoY change, and GAAP EBITDA margins. Data source: S&amp;P Capital IQ\nAs such, Cloudflare's exceptional business model has allowed it highly consistent topline growth over the last two years. Notably, it has also been improving its operational efficiencies as it scales. As a result, on a GAAP basis, its EBITDA margin has improved to -8.5% in FQ3'21, compared to -47.5% two years ago.\n<img src=\"https://static.tigerbbs.com/03d98ef1d4addcabcbc0b865cb981606\" tg-width=\"640\" tg-height=\"395\" width=\"100%\" height=\"auto\">Cloudflare revenue and adjusted EBITDA margins mean consensus estimates. Data source: S&amp;P Capital IQ\nConsensus estimates also pointed to robust topline expansion over the next three years. Cloudflare's revenue is estimated to increase at a CAGR of 40% from FY20-23. Moreover, its adjusted EBITDA is expected to grow even faster. Cloudflare is projected to post an adjusted EBITDA margin of 11.6% by FY23, compared to just 3.6% in FY20. Hence, Cloudflare is still in the early stages of its massive growth.\nSo, is NET Stock a Buy Now?\n<img src=\"https://static.tigerbbs.com/cd5cf860d8b13e68290ca0adbe54eafa\" tg-width=\"640\" tg-height=\"384\" width=\"100%\" height=\"auto\">NET stock EV/NTM Revenue 2Y mean.\nWe know that stocks like Cloudflare's would never be cheap. They will likely continue to trade at a premium valuation, given its moat and excellent execution. CEO Matthew Prince and his two other co-founders (COO and CTO, respectively) continue to play an integral role in shaping Cloudflare's future developments. NET stock is trading at an EV/NTM Revenue of 52.7x, markedly above its 2Y mean of 34.5x. Typically, we wouldn't even consider stocks with such a high premium. However, NET stock isn't just another stock. Investors should also consider that the company will gain significant operating leverage moving forward. Therefore, we think a DCF valuation model might provide more clarity within reasonable assumptions.\n<img src=\"https://static.tigerbbs.com/44aa88643408f3ce0ad33a44efb7f7bc\" tg-width=\"901\" tg-height=\"595\" width=\"100%\" height=\"auto\">NET stock DCF valuation model. Data source: S&amp;P Capital IQ, company filings, author\nTherefore, we believe that the stock has now dropped back into our buy zone. Moreover, it seems to be supported along its 50-week moving average support level, which has been reliable since last year.\nAs such,we revise our rating on NET stock to Buy.","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Cloudflare Stock: Momentum Spike Has Fizzled Out - Now Back Within Buy Zone</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nCloudflare Stock: Momentum Spike Has Fizzled Out - Now Back Within Buy Zone\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-12-27 16:00 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4476832-cloudflare-stock-now-back-within-buy-zone>Seeking Alpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nCloudflare is one of our highest conviction companies.\nCloudflare stock's momentum spike has fizzled out, and it has dropped nicely into our buy zone.\nWe discuss why we think long-term ...\n\n<a href=\"https://seekingalpha.com/article/4476832-cloudflare-stock-now-back-within-buy-zone\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"NET":"Cloudflare, Inc."},"source_url":"https://seekingalpha.com/article/4476832-cloudflare-stock-now-back-within-buy-zone","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1119282541","content_text":"Summary\n\nCloudflare is one of our highest conviction companies.\nCloudflare stock's momentum spike has fizzled out, and it has dropped nicely into our buy zone.\nWe discuss why we think long-term investors can consider adding now.\n\nSteve Jennings/Getty Images Entertainment\nInvestment Thesis\nCloudflare, Inc.(NYSE:NET) is another of our highest conviction tech companies whose stock recently dropped back into our buy zone. Investors who need an introduction can refer to one of our previous articles. We had also discussed its thesis just before its FQ3 report card was released. We cautioned investors not to follow the momentum spike heading into its earnings with our Neutral call back then. The stock has fallen more than 28% since our article was published. Notably, a robust FQ3 performance also led to us revising our estimates upwards.\nWe also observed that its momentum spike that we cautioned earlier seems to have fizzled out. Therefore, we believe the entry point might be less risky now for investors who have been waiting to add exposure. Consequently, we think it's apt to update why we believe it's back within our buy zone.\nCloudflare Stock YTD Performance\nNET stock YTD performance (as of 23 December '21).\nNET stock has had a spectacular year so far. When its upward momentum spiked in November, its YTD returns reached 180%. However, the recent retracement in growth stocks has also lowered its price to more reasonable levels. Consequently, its YTD gains have also compressed dramatically, down to 80.6%. Nonetheless, it's still well ahead of the broad market, making it a fantastic year for NET investors.\nWhy is Cloudflare One of Our Highest Conviction Companies?\nKeen investors should be aware that the company has often telegraphed that it's a networking company. Its software-defined architecture is capable of supporting both on-premise and cloud workloads. It's also capable of delivering solutions for both hybrid and multi-cloud environments. Therefore, the company operates a highly scalable business model. Its capability has also allowed it to compete effectively across multiple spectrums against legacy on-premise and cloud-native peers.\nNET may have started serving the long-tail small-and-medium businesses (SMB). However, it has gained significant traction in the enterprise space as it penetrates with remarkable effectiveness. Therefore, it has also allowed Cloudflare to scale its TAM from $32B in 2018 to $100B by 2024. Consensus estimates point to revenue of just $646.8M for FY21 (Cloudflare guided for $647.5M at the midpoint). Therefore, we believe that the company is undoubtedly still in the early innings of its rapidly-expanding market opportunities.\nCloudflare paying customers. Data source: Company filings\nCloudflare enterprise customers. Data source: Company filings\nCloudflare has scaled so quickly that it has nearly 4M customers globally. In addition, 132K are paying, which grew at a CAGR of 29.3% over the last three years. Notably, it has also gained significant traction in its enterprise base. Its enterprise customers increased to 1,260 in FQ3'21, representing a phenomenal CAGR of 69% over the previous three years. Moreover, Cloudflare emphasized that \"nearly 20% of all websites use Cloudflare today.\"\nSo, what makes Cloudflare's business model so scalable? First of all, investors need to understand that the company designed a complete technology stack that's highly efficient to scale. CFO Thomas Seifert articulated (edited):\n\n The network certainly is the competitive moat we have. The bigger we get in terms of data that moves through the network, the larger the product and service offering that runs on this network, and the faster those flywheels turn. It starts with the hardware stack. It's an off-the-shelf hardware stack. That's why our CapEx efficiency is so incredibly good. And on this hardware stack, we run a completely integrated homogeneous software stack. So this allows us literally to offer every product we have and every service we offer on every server in every city and every location. (5th Annual Virtual Wells Fargo TMT Summit)\n\nIt's such a critical competitive moat that Cloudflare believes its competitors cannot match even if they try to invest. The company's points-of-presence (POP) has expanded to more than 250 cities. As a result, it has gained tremendous clout and influence with the local internet service providers (ISP). Notably, these ISPs depend on Cloudflare to help them optimize their costs. They leverage Cloudflare's superior reliability, latency, and cost-effectiveness of its massive network.\nConsequently, it has allowed Cloudflare to co-locate its hardware in these ISPs' data centers. In addition, it helps the company to significantly \"drive down its bandwidth and co-location expenses.\" Cloudflare emphasized: \"This symbiotic relationship that we have with ISPs and the efficiency of our serverless network architecture allows us to introduce new products on our network at low marginal cost.\"\nGross margins comps (LTM). Data source: S&P Capital IQ\nCloudflare and the CDN leaders Fastly(NYSE:FSLY), and Akamai(NASDAQ:AKAM)(Cloudflare has maintained that it's not a pure-play CDN) recognize network, bandwidth, and co-location costs in their cost of revenue. Readers can quickly glean how its competitive moat has afforded superior gross margins over time. Accordingly, Cloudflare is confident that its competitors cannot easily replicate its advantages by increasing CapEx intensity. Cloudflare emphasized (edited):\n\nThis build-out is not a function of CapEx. So you cannot just replicate that by saying, here is $1 billion, let's be in 250 cities. What makes that network so efficient is that it's the most interconnected network on the planet, with thousands of interconnections to other networks. And this is hard to compete with and replicate because dollars and CapEx are just not going to get you into those interconnects. So, it allows us to continue powering more and more of the infrastructure for the people who are actually accessing the web. And that scalability comes from the technical infrastructure and the way that we have been able to have a very symbiotic relationship with the other network providers around the world in order to connect everywhere. (Wells Fargo TMT and RBC Conference)\n\nCloudflare SG&A and R&D margins. Data source: S&P Capital IQ\nHence, we believe that Cloudflare's strong gross margins give it tremendous flexibility to invest. Readers can observe that its R&D margins accounted for 30.2% of its revenue over the last twelve months (LTM). We believe that such a strong commitment to innovation will keep Cloudflare at the fore of its leadership. While Fastly's LTM R&D margin was higher at 35.3%, the company couldn't match Cloudflare's highly competitive gross margin advantage. Akamai's LTM R&D margin came in at just 13.9%, as the company is focusing more on leveraging profits than growth.\nCloudflare revenue YoY change, and GAAP EBITDA margins. Data source: S&P Capital IQ\nAs such, Cloudflare's exceptional business model has allowed it highly consistent topline growth over the last two years. Notably, it has also been improving its operational efficiencies as it scales. As a result, on a GAAP basis, its EBITDA margin has improved to -8.5% in FQ3'21, compared to -47.5% two years ago.\nCloudflare revenue and adjusted EBITDA margins mean consensus estimates. Data source: S&P Capital IQ\nConsensus estimates also pointed to robust topline expansion over the next three years. Cloudflare's revenue is estimated to increase at a CAGR of 40% from FY20-23. Moreover, its adjusted EBITDA is expected to grow even faster. Cloudflare is projected to post an adjusted EBITDA margin of 11.6% by FY23, compared to just 3.6% in FY20. Hence, Cloudflare is still in the early stages of its massive growth.\nSo, is NET Stock a Buy Now?\nNET stock EV/NTM Revenue 2Y mean.\nWe know that stocks like Cloudflare's would never be cheap. They will likely continue to trade at a premium valuation, given its moat and excellent execution. CEO Matthew Prince and his two other co-founders (COO and CTO, respectively) continue to play an integral role in shaping Cloudflare's future developments. NET stock is trading at an EV/NTM Revenue of 52.7x, markedly above its 2Y mean of 34.5x. Typically, we wouldn't even consider stocks with such a high premium. However, NET stock isn't just another stock. Investors should also consider that the company will gain significant operating leverage moving forward. Therefore, we think a DCF valuation model might provide more clarity within reasonable assumptions.\nNET stock DCF valuation model. Data source: S&P Capital IQ, company filings, author\nTherefore, we believe that the stock has now dropped back into our buy zone. Moreover, it seems to be supported along its 50-week moving average support level, which has been reliable since last year.\nAs such,we revise our rating on NET stock to Buy.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":696935878,"gmtCreate":1640595250535,"gmtModify":1676532466141,"author":{"id":"3527303552443900","authorId":"3527303552443900","name":"Lim89","avatar":"https://static.tigerbbs.com/f21e4020ff962f4d66f99662b584ec1c","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3527303552443900","authorIdStr":"3527303552443900"},"htmlText":"Ok","listText":"Ok","text":"Ok","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":3,"commentSize":2,"repostSize":0,"link":"https://ttm.financial/post/696935878","repostId":1119282541,"repostType":4,"repost":{"id":"1119282541","pubTimestamp":1640592014,"share":"https://ttm.financial/m/news/1119282541?lang=&edition=fundamental","pubTime":"2021-12-27 16:00","market":"us","language":"en","title":"Cloudflare Stock: Momentum Spike Has Fizzled Out - Now Back Within Buy Zone","url":"https://stock-news.laohu8.com/highlight/detail?id=1119282541","media":"Seeking Alpha","summary":"Summary\n\nCloudflare is one of our highest conviction companies.\nCloudflare stock's momentum spike ha","content":"Summary\n<ul>\n <li>Cloudflare is one of our highest conviction companies.</li>\n <li>Cloudflare stock's momentum spike has fizzled out, and it has dropped nicely into our buy zone.</li>\n <li>We discuss why we think long-term investors can consider adding now.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/9fc5ef750ea3016ea632581c55ad066d\" tg-width=\"1536\" tg-height=\"1022\" width=\"100%\" height=\"auto\">Steve Jennings/Getty Images Entertainment\nInvestment Thesis\nCloudflare, Inc.(NYSE:NET)&nbsp;is another of our highest conviction tech companies whose stock recently dropped back into our buy zone. Investors who need an introduction can&nbsp;refer to one of our previous articles. We had also discussed its thesis just before its FQ3 report card was released. We cautioned investors not to follow the momentum spike heading into its earnings&nbsp;with our Neutral call&nbsp;back then. The stock has fallen more than 28% since our article was published. Notably, a robust FQ3 performance also led to us revising our estimates upwards.\nWe also observed that its momentum spike that we cautioned earlier seems to have fizzled out. Therefore, we believe the entry point might be less risky now for investors who have been waiting to add exposure. Consequently, we think it's apt to update why we believe it's back within our buy zone.\nCloudflare Stock YTD Performance\n<img src=\"https://static.tigerbbs.com/7d77d264c8185ed4c2ba14ed0d4ee1c5\" tg-width=\"640\" tg-height=\"331\" width=\"100%\" height=\"auto\">NET stock YTD performance (as of 23 December '21).\nNET stock has had a spectacular year so far. When its upward momentum spiked in November, its YTD returns reached 180%. However, the recent retracement in growth stocks has also lowered its price to more reasonable levels. Consequently, its YTD gains have also compressed dramatically, down to 80.6%. Nonetheless, it's still well ahead of the broad market, making it a fantastic year for NET investors.\nWhy is Cloudflare One of Our Highest Conviction Companies?\nKeen investors should be aware that the company has often telegraphed that it's a networking company. Its software-defined architecture is capable of supporting both on-premise and cloud workloads. It's also capable of delivering solutions for both hybrid and multi-cloud environments. Therefore, the company operates a highly scalable business model. Its capability has also allowed it to compete effectively across multiple spectrums against legacy on-premise and cloud-native peers.\nNET may have started serving the long-tail small-and-medium businesses (SMB). However, it has gained significant traction in the enterprise space as it penetrates with remarkable effectiveness. Therefore, it has also allowed Cloudflare to scale its TAM from $32B in 2018 to $100B by 2024. Consensus estimates point to revenue of just $646.8M for FY21 (Cloudflare guided for $647.5M at the midpoint). Therefore, we believe that the company is undoubtedly still in the early innings of its rapidly-expanding market opportunities.\n<img src=\"https://static.tigerbbs.com/eb7cddd302c8b3166c4bbb9c4f6ce858\" tg-width=\"640\" tg-height=\"396\" width=\"100%\" height=\"auto\">Cloudflare paying customers. Data source: Company filings\n<img src=\"https://static.tigerbbs.com/571e5f97779f0b582bf7c05534eadbb1\" tg-width=\"640\" tg-height=\"396\" width=\"100%\" height=\"auto\">Cloudflare enterprise customers. Data source: Company filings\nCloudflare has scaled so quickly that it has nearly 4M customers globally. In addition, 132K are paying, which grew at a CAGR of 29.3% over the last three years. Notably, it has also gained significant traction in its enterprise base. Its enterprise customers increased to 1,260 in FQ3'21, representing a phenomenal CAGR of 69% over the previous three years. Moreover, Cloudflare emphasized that \"nearly 20% of all websites&nbsp;use Cloudflare today.\"\nSo, what makes Cloudflare's business model so scalable? First of all, investors need to understand that the company designed a complete technology stack that's highly efficient to scale. CFO Thomas Seifert articulated (edited):\n<blockquote>\n The network certainly is the competitive moat we have. The bigger we get in terms of data that moves through the network, the larger the product and service offering that runs on this network, and the faster those flywheels turn. It starts with the hardware stack. It's an off-the-shelf hardware stack. That's why our CapEx efficiency is so incredibly good. And on this hardware stack, we run a completely integrated homogeneous software stack. So this allows us literally to offer every product we have and every service we offer on every server in every city and every location. (5th Annual Virtual Wells Fargo TMT Summit)\n</blockquote>\nIt's such a critical competitive moat that Cloudflare believes its competitors cannot match even if they try to invest. The company's points-of-presence (POP) has expanded to more than 250 cities. As a result, it has gained tremendous clout and influence with the local internet service providers (ISP). Notably, these ISPs depend on Cloudflare to help them optimize their costs. They leverage Cloudflare's superior reliability, latency, and cost-effectiveness of its massive network.\nConsequently, it has allowed Cloudflare to co-locate its hardware in these ISPs' data centers. In addition, it helps the company to significantly \"drive down its bandwidth and co-location expenses.\" Cloudflare emphasized: \"This symbiotic relationship&nbsp;that we have with ISPs and the efficiency of our serverless network architecture allows us to introduce new products on our network at low marginal cost.\"\n<img src=\"https://static.tigerbbs.com/f39da1f0d583ef247df4df47a02a9bbb\" tg-width=\"640\" tg-height=\"396\" width=\"100%\" height=\"auto\">Gross margins comps (LTM). Data source: S&amp;P Capital IQ\nCloudflare and the CDN leaders Fastly(NYSE:FSLY), and Akamai(NASDAQ:AKAM)(Cloudflare has maintained that it's not a pure-play CDN) recognize network, bandwidth, and co-location costs in their cost of revenue. Readers can quickly glean how its competitive moat has afforded superior gross margins over time. Accordingly, Cloudflare is confident that its competitors cannot easily replicate its advantages by increasing CapEx intensity. Cloudflare emphasized (edited):\n<blockquote>\n This build-out is not a function of CapEx. So you cannot just replicate that by saying, here is $1 billion, let's be in 250 cities. What makes that network so efficient is that it's the most interconnected network on the planet, with thousands of interconnections to other networks. And this is hard to compete with and replicate because dollars and CapEx are just not going to get you into those interconnects. So, it allows us to continue powering more and more of the infrastructure for the people who are actually accessing the web. And that scalability comes from the technical infrastructure and the way that we have been able to have a very symbiotic relationship with the other network providers around the world in order to connect everywhere. (Wells Fargo TMT and RBC Conference)\n</blockquote>\n<img src=\"https://static.tigerbbs.com/f52c039f93892b0942acf170ab0cb93e\" tg-width=\"640\" tg-height=\"396\" width=\"100%\" height=\"auto\">Cloudflare SG&amp;A and R&amp;D margins. Data source: S&amp;P Capital IQ\nHence, we believe that Cloudflare's strong gross margins give it tremendous flexibility to invest. Readers can observe that its R&amp;D margins accounted for 30.2% of its revenue over the last twelve months (LTM). We believe that such a strong commitment to innovation will keep Cloudflare at the fore of its leadership. While Fastly's LTM R&amp;D margin was higher at 35.3%, the company couldn't match Cloudflare's highly competitive gross margin advantage. Akamai's LTM R&amp;D margin came in at just 13.9%, as the company is focusing more on leveraging profits than growth.\n<img src=\"https://static.tigerbbs.com/8523463296f548f472ba8d2252e272c4\" tg-width=\"640\" tg-height=\"396\" width=\"100%\" height=\"auto\">Cloudflare revenue YoY change, and GAAP EBITDA margins. Data source: S&amp;P Capital IQ\nAs such, Cloudflare's exceptional business model has allowed it highly consistent topline growth over the last two years. Notably, it has also been improving its operational efficiencies as it scales. As a result, on a GAAP basis, its EBITDA margin has improved to -8.5% in FQ3'21, compared to -47.5% two years ago.\n<img src=\"https://static.tigerbbs.com/03d98ef1d4addcabcbc0b865cb981606\" tg-width=\"640\" tg-height=\"395\" width=\"100%\" height=\"auto\">Cloudflare revenue and adjusted EBITDA margins mean consensus estimates. Data source: S&amp;P Capital IQ\nConsensus estimates also pointed to robust topline expansion over the next three years. Cloudflare's revenue is estimated to increase at a CAGR of 40% from FY20-23. Moreover, its adjusted EBITDA is expected to grow even faster. Cloudflare is projected to post an adjusted EBITDA margin of 11.6% by FY23, compared to just 3.6% in FY20. Hence, Cloudflare is still in the early stages of its massive growth.\nSo, is NET Stock a Buy Now?\n<img src=\"https://static.tigerbbs.com/cd5cf860d8b13e68290ca0adbe54eafa\" tg-width=\"640\" tg-height=\"384\" width=\"100%\" height=\"auto\">NET stock EV/NTM Revenue 2Y mean.\nWe know that stocks like Cloudflare's would never be cheap. They will likely continue to trade at a premium valuation, given its moat and excellent execution. CEO Matthew Prince and his two other co-founders (COO and CTO, respectively) continue to play an integral role in shaping Cloudflare's future developments. NET stock is trading at an EV/NTM Revenue of 52.7x, markedly above its 2Y mean of 34.5x. Typically, we wouldn't even consider stocks with such a high premium. However, NET stock isn't just another stock. Investors should also consider that the company will gain significant operating leverage moving forward. Therefore, we think a DCF valuation model might provide more clarity within reasonable assumptions.\n<img src=\"https://static.tigerbbs.com/44aa88643408f3ce0ad33a44efb7f7bc\" tg-width=\"901\" tg-height=\"595\" width=\"100%\" height=\"auto\">NET stock DCF valuation model. Data source: S&amp;P Capital IQ, company filings, author\nTherefore, we believe that the stock has now dropped back into our buy zone. Moreover, it seems to be supported along its 50-week moving average support level, which has been reliable since last year.\nAs such,we revise our rating on NET stock to Buy.","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Cloudflare Stock: Momentum Spike Has Fizzled Out - Now Back Within Buy Zone</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nCloudflare Stock: Momentum Spike Has Fizzled Out - Now Back Within Buy Zone\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-12-27 16:00 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4476832-cloudflare-stock-now-back-within-buy-zone>Seeking Alpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nCloudflare is one of our highest conviction companies.\nCloudflare stock's momentum spike has fizzled out, and it has dropped nicely into our buy zone.\nWe discuss why we think long-term ...\n\n<a href=\"https://seekingalpha.com/article/4476832-cloudflare-stock-now-back-within-buy-zone\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"NET":"Cloudflare, Inc."},"source_url":"https://seekingalpha.com/article/4476832-cloudflare-stock-now-back-within-buy-zone","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1119282541","content_text":"Summary\n\nCloudflare is one of our highest conviction companies.\nCloudflare stock's momentum spike has fizzled out, and it has dropped nicely into our buy zone.\nWe discuss why we think long-term investors can consider adding now.\n\nSteve Jennings/Getty Images Entertainment\nInvestment Thesis\nCloudflare, Inc.(NYSE:NET) is another of our highest conviction tech companies whose stock recently dropped back into our buy zone. Investors who need an introduction can refer to one of our previous articles. We had also discussed its thesis just before its FQ3 report card was released. We cautioned investors not to follow the momentum spike heading into its earnings with our Neutral call back then. The stock has fallen more than 28% since our article was published. Notably, a robust FQ3 performance also led to us revising our estimates upwards.\nWe also observed that its momentum spike that we cautioned earlier seems to have fizzled out. Therefore, we believe the entry point might be less risky now for investors who have been waiting to add exposure. Consequently, we think it's apt to update why we believe it's back within our buy zone.\nCloudflare Stock YTD Performance\nNET stock YTD performance (as of 23 December '21).\nNET stock has had a spectacular year so far. When its upward momentum spiked in November, its YTD returns reached 180%. However, the recent retracement in growth stocks has also lowered its price to more reasonable levels. Consequently, its YTD gains have also compressed dramatically, down to 80.6%. Nonetheless, it's still well ahead of the broad market, making it a fantastic year for NET investors.\nWhy is Cloudflare One of Our Highest Conviction Companies?\nKeen investors should be aware that the company has often telegraphed that it's a networking company. Its software-defined architecture is capable of supporting both on-premise and cloud workloads. It's also capable of delivering solutions for both hybrid and multi-cloud environments. Therefore, the company operates a highly scalable business model. Its capability has also allowed it to compete effectively across multiple spectrums against legacy on-premise and cloud-native peers.\nNET may have started serving the long-tail small-and-medium businesses (SMB). However, it has gained significant traction in the enterprise space as it penetrates with remarkable effectiveness. Therefore, it has also allowed Cloudflare to scale its TAM from $32B in 2018 to $100B by 2024. Consensus estimates point to revenue of just $646.8M for FY21 (Cloudflare guided for $647.5M at the midpoint). Therefore, we believe that the company is undoubtedly still in the early innings of its rapidly-expanding market opportunities.\nCloudflare paying customers. Data source: Company filings\nCloudflare enterprise customers. Data source: Company filings\nCloudflare has scaled so quickly that it has nearly 4M customers globally. In addition, 132K are paying, which grew at a CAGR of 29.3% over the last three years. Notably, it has also gained significant traction in its enterprise base. Its enterprise customers increased to 1,260 in FQ3'21, representing a phenomenal CAGR of 69% over the previous three years. Moreover, Cloudflare emphasized that \"nearly 20% of all websites use Cloudflare today.\"\nSo, what makes Cloudflare's business model so scalable? First of all, investors need to understand that the company designed a complete technology stack that's highly efficient to scale. CFO Thomas Seifert articulated (edited):\n\n The network certainly is the competitive moat we have. The bigger we get in terms of data that moves through the network, the larger the product and service offering that runs on this network, and the faster those flywheels turn. It starts with the hardware stack. It's an off-the-shelf hardware stack. That's why our CapEx efficiency is so incredibly good. And on this hardware stack, we run a completely integrated homogeneous software stack. So this allows us literally to offer every product we have and every service we offer on every server in every city and every location. (5th Annual Virtual Wells Fargo TMT Summit)\n\nIt's such a critical competitive moat that Cloudflare believes its competitors cannot match even if they try to invest. The company's points-of-presence (POP) has expanded to more than 250 cities. As a result, it has gained tremendous clout and influence with the local internet service providers (ISP). Notably, these ISPs depend on Cloudflare to help them optimize their costs. They leverage Cloudflare's superior reliability, latency, and cost-effectiveness of its massive network.\nConsequently, it has allowed Cloudflare to co-locate its hardware in these ISPs' data centers. In addition, it helps the company to significantly \"drive down its bandwidth and co-location expenses.\" Cloudflare emphasized: \"This symbiotic relationship that we have with ISPs and the efficiency of our serverless network architecture allows us to introduce new products on our network at low marginal cost.\"\nGross margins comps (LTM). Data source: S&P Capital IQ\nCloudflare and the CDN leaders Fastly(NYSE:FSLY), and Akamai(NASDAQ:AKAM)(Cloudflare has maintained that it's not a pure-play CDN) recognize network, bandwidth, and co-location costs in their cost of revenue. Readers can quickly glean how its competitive moat has afforded superior gross margins over time. Accordingly, Cloudflare is confident that its competitors cannot easily replicate its advantages by increasing CapEx intensity. Cloudflare emphasized (edited):\n\nThis build-out is not a function of CapEx. So you cannot just replicate that by saying, here is $1 billion, let's be in 250 cities. What makes that network so efficient is that it's the most interconnected network on the planet, with thousands of interconnections to other networks. And this is hard to compete with and replicate because dollars and CapEx are just not going to get you into those interconnects. So, it allows us to continue powering more and more of the infrastructure for the people who are actually accessing the web. And that scalability comes from the technical infrastructure and the way that we have been able to have a very symbiotic relationship with the other network providers around the world in order to connect everywhere. (Wells Fargo TMT and RBC Conference)\n\nCloudflare SG&A and R&D margins. Data source: S&P Capital IQ\nHence, we believe that Cloudflare's strong gross margins give it tremendous flexibility to invest. Readers can observe that its R&D margins accounted for 30.2% of its revenue over the last twelve months (LTM). We believe that such a strong commitment to innovation will keep Cloudflare at the fore of its leadership. While Fastly's LTM R&D margin was higher at 35.3%, the company couldn't match Cloudflare's highly competitive gross margin advantage. Akamai's LTM R&D margin came in at just 13.9%, as the company is focusing more on leveraging profits than growth.\nCloudflare revenue YoY change, and GAAP EBITDA margins. Data source: S&P Capital IQ\nAs such, Cloudflare's exceptional business model has allowed it highly consistent topline growth over the last two years. Notably, it has also been improving its operational efficiencies as it scales. As a result, on a GAAP basis, its EBITDA margin has improved to -8.5% in FQ3'21, compared to -47.5% two years ago.\nCloudflare revenue and adjusted EBITDA margins mean consensus estimates. Data source: S&P Capital IQ\nConsensus estimates also pointed to robust topline expansion over the next three years. Cloudflare's revenue is estimated to increase at a CAGR of 40% from FY20-23. Moreover, its adjusted EBITDA is expected to grow even faster. Cloudflare is projected to post an adjusted EBITDA margin of 11.6% by FY23, compared to just 3.6% in FY20. Hence, Cloudflare is still in the early stages of its massive growth.\nSo, is NET Stock a Buy Now?\nNET stock EV/NTM Revenue 2Y mean.\nWe know that stocks like Cloudflare's would never be cheap. They will likely continue to trade at a premium valuation, given its moat and excellent execution. CEO Matthew Prince and his two other co-founders (COO and CTO, respectively) continue to play an integral role in shaping Cloudflare's future developments. NET stock is trading at an EV/NTM Revenue of 52.7x, markedly above its 2Y mean of 34.5x. Typically, we wouldn't even consider stocks with such a high premium. However, NET stock isn't just another stock. Investors should also consider that the company will gain significant operating leverage moving forward. Therefore, we think a DCF valuation model might provide more clarity within reasonable assumptions.\nNET stock DCF valuation model. Data source: S&P Capital IQ, company filings, author\nTherefore, we believe that the stock has now dropped back into our buy zone. Moreover, it seems to be supported along its 50-week moving average support level, which has been reliable since last year.\nAs such,we revise our rating on NET stock to Buy.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":100042833,"gmtCreate":1640645254936,"gmtModify":1663241608437,"authorId":3572096066148633,"author":{"id":3572096066148633,"idStr":"3572096066148633","authorId":3572096066148633,"name":"Nicholwong","avatar":"https://static.tigerbbs.com/ce088d172d04c6a0fc4c339c8d803ceb","vip":1,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":696935878,"type":1,"supId":7118241,"prevId":0,"content":"Ok","text":"Ok","html":"Ok"},{"id":7118241,"gmtCreate":1640595255753,"gmtModify":1663239224628,"authorId":3527303552443900,"author":{"id":3527303552443900,"idStr":"3527303552443900","authorId":3527303552443900,"name":"Lim89","avatar":"https://static.tigerbbs.com/f21e4020ff962f4d66f99662b584ec1c","vip":1,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":696935878,"type":1,"supId":0,"prevId":0,"content":"Ya","text":"Ya","html":"Ya"}],"langContent":"CN"},{"id":696939526,"gmtCreate":1640593246771,"gmtModify":1676532465990,"author":{"id":"3581678664547146","authorId":"3581678664547146","name":"nelson21","avatar":"https://static.tigerbbs.com/f3bfb16048c75dbf023d98c18914333e","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3581678664547146","authorIdStr":"3581678664547146"},"htmlText":"Pls like","listText":"Pls like","text":"Pls like","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":3,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/696939526","repostId":1119282541,"repostType":4,"repost":{"id":"1119282541","pubTimestamp":1640592014,"share":"https://ttm.financial/m/news/1119282541?lang=&edition=fundamental","pubTime":"2021-12-27 16:00","market":"us","language":"en","title":"Cloudflare Stock: Momentum Spike Has Fizzled Out - Now Back Within Buy Zone","url":"https://stock-news.laohu8.com/highlight/detail?id=1119282541","media":"Seeking Alpha","summary":"Summary\n\nCloudflare is one of our highest conviction companies.\nCloudflare stock's momentum spike ha","content":"Summary\n<ul>\n <li>Cloudflare is one of our highest conviction companies.</li>\n <li>Cloudflare stock's momentum spike has fizzled out, and it has dropped nicely into our buy zone.</li>\n <li>We discuss why we think long-term investors can consider adding now.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/9fc5ef750ea3016ea632581c55ad066d\" tg-width=\"1536\" tg-height=\"1022\" width=\"100%\" height=\"auto\">Steve Jennings/Getty Images Entertainment\nInvestment Thesis\nCloudflare, Inc.(NYSE:NET)&nbsp;is another of our highest conviction tech companies whose stock recently dropped back into our buy zone. Investors who need an introduction can&nbsp;refer to one of our previous articles. We had also discussed its thesis just before its FQ3 report card was released. We cautioned investors not to follow the momentum spike heading into its earnings&nbsp;with our Neutral call&nbsp;back then. The stock has fallen more than 28% since our article was published. Notably, a robust FQ3 performance also led to us revising our estimates upwards.\nWe also observed that its momentum spike that we cautioned earlier seems to have fizzled out. Therefore, we believe the entry point might be less risky now for investors who have been waiting to add exposure. Consequently, we think it's apt to update why we believe it's back within our buy zone.\nCloudflare Stock YTD Performance\n<img src=\"https://static.tigerbbs.com/7d77d264c8185ed4c2ba14ed0d4ee1c5\" tg-width=\"640\" tg-height=\"331\" width=\"100%\" height=\"auto\">NET stock YTD performance (as of 23 December '21).\nNET stock has had a spectacular year so far. When its upward momentum spiked in November, its YTD returns reached 180%. However, the recent retracement in growth stocks has also lowered its price to more reasonable levels. Consequently, its YTD gains have also compressed dramatically, down to 80.6%. Nonetheless, it's still well ahead of the broad market, making it a fantastic year for NET investors.\nWhy is Cloudflare One of Our Highest Conviction Companies?\nKeen investors should be aware that the company has often telegraphed that it's a networking company. Its software-defined architecture is capable of supporting both on-premise and cloud workloads. It's also capable of delivering solutions for both hybrid and multi-cloud environments. Therefore, the company operates a highly scalable business model. Its capability has also allowed it to compete effectively across multiple spectrums against legacy on-premise and cloud-native peers.\nNET may have started serving the long-tail small-and-medium businesses (SMB). However, it has gained significant traction in the enterprise space as it penetrates with remarkable effectiveness. Therefore, it has also allowed Cloudflare to scale its TAM from $32B in 2018 to $100B by 2024. Consensus estimates point to revenue of just $646.8M for FY21 (Cloudflare guided for $647.5M at the midpoint). Therefore, we believe that the company is undoubtedly still in the early innings of its rapidly-expanding market opportunities.\n<img src=\"https://static.tigerbbs.com/eb7cddd302c8b3166c4bbb9c4f6ce858\" tg-width=\"640\" tg-height=\"396\" width=\"100%\" height=\"auto\">Cloudflare paying customers. Data source: Company filings\n<img src=\"https://static.tigerbbs.com/571e5f97779f0b582bf7c05534eadbb1\" tg-width=\"640\" tg-height=\"396\" width=\"100%\" height=\"auto\">Cloudflare enterprise customers. Data source: Company filings\nCloudflare has scaled so quickly that it has nearly 4M customers globally. In addition, 132K are paying, which grew at a CAGR of 29.3% over the last three years. Notably, it has also gained significant traction in its enterprise base. Its enterprise customers increased to 1,260 in FQ3'21, representing a phenomenal CAGR of 69% over the previous three years. Moreover, Cloudflare emphasized that \"nearly 20% of all websites&nbsp;use Cloudflare today.\"\nSo, what makes Cloudflare's business model so scalable? First of all, investors need to understand that the company designed a complete technology stack that's highly efficient to scale. CFO Thomas Seifert articulated (edited):\n<blockquote>\n The network certainly is the competitive moat we have. The bigger we get in terms of data that moves through the network, the larger the product and service offering that runs on this network, and the faster those flywheels turn. It starts with the hardware stack. It's an off-the-shelf hardware stack. That's why our CapEx efficiency is so incredibly good. And on this hardware stack, we run a completely integrated homogeneous software stack. So this allows us literally to offer every product we have and every service we offer on every server in every city and every location. (5th Annual Virtual Wells Fargo TMT Summit)\n</blockquote>\nIt's such a critical competitive moat that Cloudflare believes its competitors cannot match even if they try to invest. The company's points-of-presence (POP) has expanded to more than 250 cities. As a result, it has gained tremendous clout and influence with the local internet service providers (ISP). Notably, these ISPs depend on Cloudflare to help them optimize their costs. They leverage Cloudflare's superior reliability, latency, and cost-effectiveness of its massive network.\nConsequently, it has allowed Cloudflare to co-locate its hardware in these ISPs' data centers. In addition, it helps the company to significantly \"drive down its bandwidth and co-location expenses.\" Cloudflare emphasized: \"This symbiotic relationship&nbsp;that we have with ISPs and the efficiency of our serverless network architecture allows us to introduce new products on our network at low marginal cost.\"\n<img src=\"https://static.tigerbbs.com/f39da1f0d583ef247df4df47a02a9bbb\" tg-width=\"640\" tg-height=\"396\" width=\"100%\" height=\"auto\">Gross margins comps (LTM). Data source: S&amp;P Capital IQ\nCloudflare and the CDN leaders Fastly(NYSE:FSLY), and Akamai(NASDAQ:AKAM)(Cloudflare has maintained that it's not a pure-play CDN) recognize network, bandwidth, and co-location costs in their cost of revenue. Readers can quickly glean how its competitive moat has afforded superior gross margins over time. Accordingly, Cloudflare is confident that its competitors cannot easily replicate its advantages by increasing CapEx intensity. Cloudflare emphasized (edited):\n<blockquote>\n This build-out is not a function of CapEx. So you cannot just replicate that by saying, here is $1 billion, let's be in 250 cities. What makes that network so efficient is that it's the most interconnected network on the planet, with thousands of interconnections to other networks. And this is hard to compete with and replicate because dollars and CapEx are just not going to get you into those interconnects. So, it allows us to continue powering more and more of the infrastructure for the people who are actually accessing the web. And that scalability comes from the technical infrastructure and the way that we have been able to have a very symbiotic relationship with the other network providers around the world in order to connect everywhere. (Wells Fargo TMT and RBC Conference)\n</blockquote>\n<img src=\"https://static.tigerbbs.com/f52c039f93892b0942acf170ab0cb93e\" tg-width=\"640\" tg-height=\"396\" width=\"100%\" height=\"auto\">Cloudflare SG&amp;A and R&amp;D margins. Data source: S&amp;P Capital IQ\nHence, we believe that Cloudflare's strong gross margins give it tremendous flexibility to invest. Readers can observe that its R&amp;D margins accounted for 30.2% of its revenue over the last twelve months (LTM). We believe that such a strong commitment to innovation will keep Cloudflare at the fore of its leadership. While Fastly's LTM R&amp;D margin was higher at 35.3%, the company couldn't match Cloudflare's highly competitive gross margin advantage. Akamai's LTM R&amp;D margin came in at just 13.9%, as the company is focusing more on leveraging profits than growth.\n<img src=\"https://static.tigerbbs.com/8523463296f548f472ba8d2252e272c4\" tg-width=\"640\" tg-height=\"396\" width=\"100%\" height=\"auto\">Cloudflare revenue YoY change, and GAAP EBITDA margins. Data source: S&amp;P Capital IQ\nAs such, Cloudflare's exceptional business model has allowed it highly consistent topline growth over the last two years. Notably, it has also been improving its operational efficiencies as it scales. As a result, on a GAAP basis, its EBITDA margin has improved to -8.5% in FQ3'21, compared to -47.5% two years ago.\n<img src=\"https://static.tigerbbs.com/03d98ef1d4addcabcbc0b865cb981606\" tg-width=\"640\" tg-height=\"395\" width=\"100%\" height=\"auto\">Cloudflare revenue and adjusted EBITDA margins mean consensus estimates. Data source: S&amp;P Capital IQ\nConsensus estimates also pointed to robust topline expansion over the next three years. Cloudflare's revenue is estimated to increase at a CAGR of 40% from FY20-23. Moreover, its adjusted EBITDA is expected to grow even faster. Cloudflare is projected to post an adjusted EBITDA margin of 11.6% by FY23, compared to just 3.6% in FY20. Hence, Cloudflare is still in the early stages of its massive growth.\nSo, is NET Stock a Buy Now?\n<img src=\"https://static.tigerbbs.com/cd5cf860d8b13e68290ca0adbe54eafa\" tg-width=\"640\" tg-height=\"384\" width=\"100%\" height=\"auto\">NET stock EV/NTM Revenue 2Y mean.\nWe know that stocks like Cloudflare's would never be cheap. They will likely continue to trade at a premium valuation, given its moat and excellent execution. CEO Matthew Prince and his two other co-founders (COO and CTO, respectively) continue to play an integral role in shaping Cloudflare's future developments. NET stock is trading at an EV/NTM Revenue of 52.7x, markedly above its 2Y mean of 34.5x. Typically, we wouldn't even consider stocks with such a high premium. However, NET stock isn't just another stock. Investors should also consider that the company will gain significant operating leverage moving forward. Therefore, we think a DCF valuation model might provide more clarity within reasonable assumptions.\n<img src=\"https://static.tigerbbs.com/44aa88643408f3ce0ad33a44efb7f7bc\" tg-width=\"901\" tg-height=\"595\" width=\"100%\" height=\"auto\">NET stock DCF valuation model. Data source: S&amp;P Capital IQ, company filings, author\nTherefore, we believe that the stock has now dropped back into our buy zone. Moreover, it seems to be supported along its 50-week moving average support level, which has been reliable since last year.\nAs such,we revise our rating on NET stock to Buy.","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Cloudflare Stock: Momentum Spike Has Fizzled Out - Now Back Within Buy Zone</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nCloudflare Stock: Momentum Spike Has Fizzled Out - Now Back Within Buy Zone\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-12-27 16:00 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4476832-cloudflare-stock-now-back-within-buy-zone>Seeking Alpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nCloudflare is one of our highest conviction companies.\nCloudflare stock's momentum spike has fizzled out, and it has dropped nicely into our buy zone.\nWe discuss why we think long-term ...\n\n<a href=\"https://seekingalpha.com/article/4476832-cloudflare-stock-now-back-within-buy-zone\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"NET":"Cloudflare, Inc."},"source_url":"https://seekingalpha.com/article/4476832-cloudflare-stock-now-back-within-buy-zone","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1119282541","content_text":"Summary\n\nCloudflare is one of our highest conviction companies.\nCloudflare stock's momentum spike has fizzled out, and it has dropped nicely into our buy zone.\nWe discuss why we think long-term investors can consider adding now.\n\nSteve Jennings/Getty Images Entertainment\nInvestment Thesis\nCloudflare, Inc.(NYSE:NET) is another of our highest conviction tech companies whose stock recently dropped back into our buy zone. Investors who need an introduction can refer to one of our previous articles. We had also discussed its thesis just before its FQ3 report card was released. We cautioned investors not to follow the momentum spike heading into its earnings with our Neutral call back then. The stock has fallen more than 28% since our article was published. Notably, a robust FQ3 performance also led to us revising our estimates upwards.\nWe also observed that its momentum spike that we cautioned earlier seems to have fizzled out. Therefore, we believe the entry point might be less risky now for investors who have been waiting to add exposure. Consequently, we think it's apt to update why we believe it's back within our buy zone.\nCloudflare Stock YTD Performance\nNET stock YTD performance (as of 23 December '21).\nNET stock has had a spectacular year so far. When its upward momentum spiked in November, its YTD returns reached 180%. However, the recent retracement in growth stocks has also lowered its price to more reasonable levels. Consequently, its YTD gains have also compressed dramatically, down to 80.6%. Nonetheless, it's still well ahead of the broad market, making it a fantastic year for NET investors.\nWhy is Cloudflare One of Our Highest Conviction Companies?\nKeen investors should be aware that the company has often telegraphed that it's a networking company. Its software-defined architecture is capable of supporting both on-premise and cloud workloads. It's also capable of delivering solutions for both hybrid and multi-cloud environments. Therefore, the company operates a highly scalable business model. Its capability has also allowed it to compete effectively across multiple spectrums against legacy on-premise and cloud-native peers.\nNET may have started serving the long-tail small-and-medium businesses (SMB). However, it has gained significant traction in the enterprise space as it penetrates with remarkable effectiveness. Therefore, it has also allowed Cloudflare to scale its TAM from $32B in 2018 to $100B by 2024. Consensus estimates point to revenue of just $646.8M for FY21 (Cloudflare guided for $647.5M at the midpoint). Therefore, we believe that the company is undoubtedly still in the early innings of its rapidly-expanding market opportunities.\nCloudflare paying customers. Data source: Company filings\nCloudflare enterprise customers. Data source: Company filings\nCloudflare has scaled so quickly that it has nearly 4M customers globally. In addition, 132K are paying, which grew at a CAGR of 29.3% over the last three years. Notably, it has also gained significant traction in its enterprise base. Its enterprise customers increased to 1,260 in FQ3'21, representing a phenomenal CAGR of 69% over the previous three years. Moreover, Cloudflare emphasized that \"nearly 20% of all websites use Cloudflare today.\"\nSo, what makes Cloudflare's business model so scalable? First of all, investors need to understand that the company designed a complete technology stack that's highly efficient to scale. CFO Thomas Seifert articulated (edited):\n\n The network certainly is the competitive moat we have. The bigger we get in terms of data that moves through the network, the larger the product and service offering that runs on this network, and the faster those flywheels turn. It starts with the hardware stack. It's an off-the-shelf hardware stack. That's why our CapEx efficiency is so incredibly good. And on this hardware stack, we run a completely integrated homogeneous software stack. So this allows us literally to offer every product we have and every service we offer on every server in every city and every location. (5th Annual Virtual Wells Fargo TMT Summit)\n\nIt's such a critical competitive moat that Cloudflare believes its competitors cannot match even if they try to invest. The company's points-of-presence (POP) has expanded to more than 250 cities. As a result, it has gained tremendous clout and influence with the local internet service providers (ISP). Notably, these ISPs depend on Cloudflare to help them optimize their costs. They leverage Cloudflare's superior reliability, latency, and cost-effectiveness of its massive network.\nConsequently, it has allowed Cloudflare to co-locate its hardware in these ISPs' data centers. In addition, it helps the company to significantly \"drive down its bandwidth and co-location expenses.\" Cloudflare emphasized: \"This symbiotic relationship that we have with ISPs and the efficiency of our serverless network architecture allows us to introduce new products on our network at low marginal cost.\"\nGross margins comps (LTM). Data source: S&P Capital IQ\nCloudflare and the CDN leaders Fastly(NYSE:FSLY), and Akamai(NASDAQ:AKAM)(Cloudflare has maintained that it's not a pure-play CDN) recognize network, bandwidth, and co-location costs in their cost of revenue. Readers can quickly glean how its competitive moat has afforded superior gross margins over time. Accordingly, Cloudflare is confident that its competitors cannot easily replicate its advantages by increasing CapEx intensity. Cloudflare emphasized (edited):\n\nThis build-out is not a function of CapEx. So you cannot just replicate that by saying, here is $1 billion, let's be in 250 cities. What makes that network so efficient is that it's the most interconnected network on the planet, with thousands of interconnections to other networks. And this is hard to compete with and replicate because dollars and CapEx are just not going to get you into those interconnects. So, it allows us to continue powering more and more of the infrastructure for the people who are actually accessing the web. And that scalability comes from the technical infrastructure and the way that we have been able to have a very symbiotic relationship with the other network providers around the world in order to connect everywhere. (Wells Fargo TMT and RBC Conference)\n\nCloudflare SG&A and R&D margins. Data source: S&P Capital IQ\nHence, we believe that Cloudflare's strong gross margins give it tremendous flexibility to invest. Readers can observe that its R&D margins accounted for 30.2% of its revenue over the last twelve months (LTM). We believe that such a strong commitment to innovation will keep Cloudflare at the fore of its leadership. While Fastly's LTM R&D margin was higher at 35.3%, the company couldn't match Cloudflare's highly competitive gross margin advantage. Akamai's LTM R&D margin came in at just 13.9%, as the company is focusing more on leveraging profits than growth.\nCloudflare revenue YoY change, and GAAP EBITDA margins. Data source: S&P Capital IQ\nAs such, Cloudflare's exceptional business model has allowed it highly consistent topline growth over the last two years. Notably, it has also been improving its operational efficiencies as it scales. As a result, on a GAAP basis, its EBITDA margin has improved to -8.5% in FQ3'21, compared to -47.5% two years ago.\nCloudflare revenue and adjusted EBITDA margins mean consensus estimates. Data source: S&P Capital IQ\nConsensus estimates also pointed to robust topline expansion over the next three years. Cloudflare's revenue is estimated to increase at a CAGR of 40% from FY20-23. Moreover, its adjusted EBITDA is expected to grow even faster. Cloudflare is projected to post an adjusted EBITDA margin of 11.6% by FY23, compared to just 3.6% in FY20. Hence, Cloudflare is still in the early stages of its massive growth.\nSo, is NET Stock a Buy Now?\nNET stock EV/NTM Revenue 2Y mean.\nWe know that stocks like Cloudflare's would never be cheap. They will likely continue to trade at a premium valuation, given its moat and excellent execution. CEO Matthew Prince and his two other co-founders (COO and CTO, respectively) continue to play an integral role in shaping Cloudflare's future developments. NET stock is trading at an EV/NTM Revenue of 52.7x, markedly above its 2Y mean of 34.5x. Typically, we wouldn't even consider stocks with such a high premium. However, NET stock isn't just another stock. Investors should also consider that the company will gain significant operating leverage moving forward. Therefore, we think a DCF valuation model might provide more clarity within reasonable assumptions.\nNET stock DCF valuation model. Data source: S&P Capital IQ, company filings, author\nTherefore, we believe that the stock has now dropped back into our buy zone. Moreover, it seems to be supported along its 50-week moving average support level, which has been reliable since last year.\nAs such,we revise our rating on NET stock to Buy.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"CN"},{"id":9009890130,"gmtCreate":1640592296740,"gmtModify":1676533527962,"author":{"id":"4089085863454690","authorId":"4089085863454690","name":"Keez","avatar":"https://static.itradeup.com/news/50ca1de8e0d9b1984d987c9a235af23a","vip":1,"hat":"https://static.tigerbbs.com/b0a2963eb37c60c5d6d4a8dbcd266952","crmLevel":3,"crmLevelSwitch":1,"idStr":"4089085863454690","authorIdStr":"4089085863454690"},"htmlText":"Ok","listText":"Ok","text":"Ok","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9009890130","repostId":1119282541,"repostType":4,"repost":{"id":"1119282541","pubTimestamp":1640592014,"share":"https://ttm.financial/m/news/1119282541?lang=&edition=fundamental","pubTime":"2021-12-27 16:00","market":"us","language":"en","title":"Cloudflare Stock: Momentum Spike Has Fizzled Out - Now Back Within Buy Zone","url":"https://stock-news.laohu8.com/highlight/detail?id=1119282541","media":"Seeking Alpha","summary":"Summary\n\nCloudflare is one of our highest conviction companies.\nCloudflare stock's momentum spike ha","content":"Summary\n<ul>\n <li>Cloudflare is one of our highest conviction companies.</li>\n <li>Cloudflare stock's momentum spike has fizzled out, and it has dropped nicely into our buy zone.</li>\n <li>We discuss why we think long-term investors can consider adding now.</li>\n</ul>\n<img src=\"https://static.tigerbbs.com/9fc5ef750ea3016ea632581c55ad066d\" tg-width=\"1536\" tg-height=\"1022\" width=\"100%\" height=\"auto\">Steve Jennings/Getty Images Entertainment\nInvestment Thesis\nCloudflare, Inc.(NYSE:NET)&nbsp;is another of our highest conviction tech companies whose stock recently dropped back into our buy zone. Investors who need an introduction can&nbsp;refer to one of our previous articles. We had also discussed its thesis just before its FQ3 report card was released. We cautioned investors not to follow the momentum spike heading into its earnings&nbsp;with our Neutral call&nbsp;back then. The stock has fallen more than 28% since our article was published. Notably, a robust FQ3 performance also led to us revising our estimates upwards.\nWe also observed that its momentum spike that we cautioned earlier seems to have fizzled out. Therefore, we believe the entry point might be less risky now for investors who have been waiting to add exposure. Consequently, we think it's apt to update why we believe it's back within our buy zone.\nCloudflare Stock YTD Performance\n<img src=\"https://static.tigerbbs.com/7d77d264c8185ed4c2ba14ed0d4ee1c5\" tg-width=\"640\" tg-height=\"331\" width=\"100%\" height=\"auto\">NET stock YTD performance (as of 23 December '21).\nNET stock has had a spectacular year so far. When its upward momentum spiked in November, its YTD returns reached 180%. However, the recent retracement in growth stocks has also lowered its price to more reasonable levels. Consequently, its YTD gains have also compressed dramatically, down to 80.6%. Nonetheless, it's still well ahead of the broad market, making it a fantastic year for NET investors.\nWhy is Cloudflare One of Our Highest Conviction Companies?\nKeen investors should be aware that the company has often telegraphed that it's a networking company. Its software-defined architecture is capable of supporting both on-premise and cloud workloads. It's also capable of delivering solutions for both hybrid and multi-cloud environments. Therefore, the company operates a highly scalable business model. Its capability has also allowed it to compete effectively across multiple spectrums against legacy on-premise and cloud-native peers.\nNET may have started serving the long-tail small-and-medium businesses (SMB). However, it has gained significant traction in the enterprise space as it penetrates with remarkable effectiveness. Therefore, it has also allowed Cloudflare to scale its TAM from $32B in 2018 to $100B by 2024. Consensus estimates point to revenue of just $646.8M for FY21 (Cloudflare guided for $647.5M at the midpoint). Therefore, we believe that the company is undoubtedly still in the early innings of its rapidly-expanding market opportunities.\n<img src=\"https://static.tigerbbs.com/eb7cddd302c8b3166c4bbb9c4f6ce858\" tg-width=\"640\" tg-height=\"396\" width=\"100%\" height=\"auto\">Cloudflare paying customers. Data source: Company filings\n<img src=\"https://static.tigerbbs.com/571e5f97779f0b582bf7c05534eadbb1\" tg-width=\"640\" tg-height=\"396\" width=\"100%\" height=\"auto\">Cloudflare enterprise customers. Data source: Company filings\nCloudflare has scaled so quickly that it has nearly 4M customers globally. In addition, 132K are paying, which grew at a CAGR of 29.3% over the last three years. Notably, it has also gained significant traction in its enterprise base. Its enterprise customers increased to 1,260 in FQ3'21, representing a phenomenal CAGR of 69% over the previous three years. Moreover, Cloudflare emphasized that \"nearly 20% of all websites&nbsp;use Cloudflare today.\"\nSo, what makes Cloudflare's business model so scalable? First of all, investors need to understand that the company designed a complete technology stack that's highly efficient to scale. CFO Thomas Seifert articulated (edited):\n<blockquote>\n The network certainly is the competitive moat we have. The bigger we get in terms of data that moves through the network, the larger the product and service offering that runs on this network, and the faster those flywheels turn. It starts with the hardware stack. It's an off-the-shelf hardware stack. That's why our CapEx efficiency is so incredibly good. And on this hardware stack, we run a completely integrated homogeneous software stack. So this allows us literally to offer every product we have and every service we offer on every server in every city and every location. (5th Annual Virtual Wells Fargo TMT Summit)\n</blockquote>\nIt's such a critical competitive moat that Cloudflare believes its competitors cannot match even if they try to invest. The company's points-of-presence (POP) has expanded to more than 250 cities. As a result, it has gained tremendous clout and influence with the local internet service providers (ISP). Notably, these ISPs depend on Cloudflare to help them optimize their costs. They leverage Cloudflare's superior reliability, latency, and cost-effectiveness of its massive network.\nConsequently, it has allowed Cloudflare to co-locate its hardware in these ISPs' data centers. In addition, it helps the company to significantly \"drive down its bandwidth and co-location expenses.\" Cloudflare emphasized: \"This symbiotic relationship&nbsp;that we have with ISPs and the efficiency of our serverless network architecture allows us to introduce new products on our network at low marginal cost.\"\n<img src=\"https://static.tigerbbs.com/f39da1f0d583ef247df4df47a02a9bbb\" tg-width=\"640\" tg-height=\"396\" width=\"100%\" height=\"auto\">Gross margins comps (LTM). Data source: S&amp;P Capital IQ\nCloudflare and the CDN leaders Fastly(NYSE:FSLY), and Akamai(NASDAQ:AKAM)(Cloudflare has maintained that it's not a pure-play CDN) recognize network, bandwidth, and co-location costs in their cost of revenue. Readers can quickly glean how its competitive moat has afforded superior gross margins over time. Accordingly, Cloudflare is confident that its competitors cannot easily replicate its advantages by increasing CapEx intensity. Cloudflare emphasized (edited):\n<blockquote>\n This build-out is not a function of CapEx. So you cannot just replicate that by saying, here is $1 billion, let's be in 250 cities. What makes that network so efficient is that it's the most interconnected network on the planet, with thousands of interconnections to other networks. And this is hard to compete with and replicate because dollars and CapEx are just not going to get you into those interconnects. So, it allows us to continue powering more and more of the infrastructure for the people who are actually accessing the web. And that scalability comes from the technical infrastructure and the way that we have been able to have a very symbiotic relationship with the other network providers around the world in order to connect everywhere. (Wells Fargo TMT and RBC Conference)\n</blockquote>\n<img src=\"https://static.tigerbbs.com/f52c039f93892b0942acf170ab0cb93e\" tg-width=\"640\" tg-height=\"396\" width=\"100%\" height=\"auto\">Cloudflare SG&amp;A and R&amp;D margins. Data source: S&amp;P Capital IQ\nHence, we believe that Cloudflare's strong gross margins give it tremendous flexibility to invest. Readers can observe that its R&amp;D margins accounted for 30.2% of its revenue over the last twelve months (LTM). We believe that such a strong commitment to innovation will keep Cloudflare at the fore of its leadership. While Fastly's LTM R&amp;D margin was higher at 35.3%, the company couldn't match Cloudflare's highly competitive gross margin advantage. Akamai's LTM R&amp;D margin came in at just 13.9%, as the company is focusing more on leveraging profits than growth.\n<img src=\"https://static.tigerbbs.com/8523463296f548f472ba8d2252e272c4\" tg-width=\"640\" tg-height=\"396\" width=\"100%\" height=\"auto\">Cloudflare revenue YoY change, and GAAP EBITDA margins. Data source: S&amp;P Capital IQ\nAs such, Cloudflare's exceptional business model has allowed it highly consistent topline growth over the last two years. Notably, it has also been improving its operational efficiencies as it scales. As a result, on a GAAP basis, its EBITDA margin has improved to -8.5% in FQ3'21, compared to -47.5% two years ago.\n<img src=\"https://static.tigerbbs.com/03d98ef1d4addcabcbc0b865cb981606\" tg-width=\"640\" tg-height=\"395\" width=\"100%\" height=\"auto\">Cloudflare revenue and adjusted EBITDA margins mean consensus estimates. Data source: S&amp;P Capital IQ\nConsensus estimates also pointed to robust topline expansion over the next three years. Cloudflare's revenue is estimated to increase at a CAGR of 40% from FY20-23. Moreover, its adjusted EBITDA is expected to grow even faster. Cloudflare is projected to post an adjusted EBITDA margin of 11.6% by FY23, compared to just 3.6% in FY20. Hence, Cloudflare is still in the early stages of its massive growth.\nSo, is NET Stock a Buy Now?\n<img src=\"https://static.tigerbbs.com/cd5cf860d8b13e68290ca0adbe54eafa\" tg-width=\"640\" tg-height=\"384\" width=\"100%\" height=\"auto\">NET stock EV/NTM Revenue 2Y mean.\nWe know that stocks like Cloudflare's would never be cheap. They will likely continue to trade at a premium valuation, given its moat and excellent execution. CEO Matthew Prince and his two other co-founders (COO and CTO, respectively) continue to play an integral role in shaping Cloudflare's future developments. NET stock is trading at an EV/NTM Revenue of 52.7x, markedly above its 2Y mean of 34.5x. Typically, we wouldn't even consider stocks with such a high premium. However, NET stock isn't just another stock. Investors should also consider that the company will gain significant operating leverage moving forward. Therefore, we think a DCF valuation model might provide more clarity within reasonable assumptions.\n<img src=\"https://static.tigerbbs.com/44aa88643408f3ce0ad33a44efb7f7bc\" tg-width=\"901\" tg-height=\"595\" width=\"100%\" height=\"auto\">NET stock DCF valuation model. Data source: S&amp;P Capital IQ, company filings, author\nTherefore, we believe that the stock has now dropped back into our buy zone. Moreover, it seems to be supported along its 50-week moving average support level, which has been reliable since last year.\nAs such,we revise our rating on NET stock to Buy.","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Cloudflare Stock: Momentum Spike Has Fizzled Out - Now Back Within Buy Zone</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nCloudflare Stock: Momentum Spike Has Fizzled Out - Now Back Within Buy Zone\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-12-27 16:00 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4476832-cloudflare-stock-now-back-within-buy-zone>Seeking Alpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nCloudflare is one of our highest conviction companies.\nCloudflare stock's momentum spike has fizzled out, and it has dropped nicely into our buy zone.\nWe discuss why we think long-term ...\n\n<a href=\"https://seekingalpha.com/article/4476832-cloudflare-stock-now-back-within-buy-zone\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"NET":"Cloudflare, Inc."},"source_url":"https://seekingalpha.com/article/4476832-cloudflare-stock-now-back-within-buy-zone","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1119282541","content_text":"Summary\n\nCloudflare is one of our highest conviction companies.\nCloudflare stock's momentum spike has fizzled out, and it has dropped nicely into our buy zone.\nWe discuss why we think long-term investors can consider adding now.\n\nSteve Jennings/Getty Images Entertainment\nInvestment Thesis\nCloudflare, Inc.(NYSE:NET) is another of our highest conviction tech companies whose stock recently dropped back into our buy zone. Investors who need an introduction can refer to one of our previous articles. We had also discussed its thesis just before its FQ3 report card was released. We cautioned investors not to follow the momentum spike heading into its earnings with our Neutral call back then. The stock has fallen more than 28% since our article was published. Notably, a robust FQ3 performance also led to us revising our estimates upwards.\nWe also observed that its momentum spike that we cautioned earlier seems to have fizzled out. Therefore, we believe the entry point might be less risky now for investors who have been waiting to add exposure. Consequently, we think it's apt to update why we believe it's back within our buy zone.\nCloudflare Stock YTD Performance\nNET stock YTD performance (as of 23 December '21).\nNET stock has had a spectacular year so far. When its upward momentum spiked in November, its YTD returns reached 180%. However, the recent retracement in growth stocks has also lowered its price to more reasonable levels. Consequently, its YTD gains have also compressed dramatically, down to 80.6%. Nonetheless, it's still well ahead of the broad market, making it a fantastic year for NET investors.\nWhy is Cloudflare One of Our Highest Conviction Companies?\nKeen investors should be aware that the company has often telegraphed that it's a networking company. Its software-defined architecture is capable of supporting both on-premise and cloud workloads. It's also capable of delivering solutions for both hybrid and multi-cloud environments. Therefore, the company operates a highly scalable business model. Its capability has also allowed it to compete effectively across multiple spectrums against legacy on-premise and cloud-native peers.\nNET may have started serving the long-tail small-and-medium businesses (SMB). However, it has gained significant traction in the enterprise space as it penetrates with remarkable effectiveness. Therefore, it has also allowed Cloudflare to scale its TAM from $32B in 2018 to $100B by 2024. Consensus estimates point to revenue of just $646.8M for FY21 (Cloudflare guided for $647.5M at the midpoint). Therefore, we believe that the company is undoubtedly still in the early innings of its rapidly-expanding market opportunities.\nCloudflare paying customers. Data source: Company filings\nCloudflare enterprise customers. Data source: Company filings\nCloudflare has scaled so quickly that it has nearly 4M customers globally. In addition, 132K are paying, which grew at a CAGR of 29.3% over the last three years. Notably, it has also gained significant traction in its enterprise base. Its enterprise customers increased to 1,260 in FQ3'21, representing a phenomenal CAGR of 69% over the previous three years. Moreover, Cloudflare emphasized that \"nearly 20% of all websites use Cloudflare today.\"\nSo, what makes Cloudflare's business model so scalable? First of all, investors need to understand that the company designed a complete technology stack that's highly efficient to scale. CFO Thomas Seifert articulated (edited):\n\n The network certainly is the competitive moat we have. The bigger we get in terms of data that moves through the network, the larger the product and service offering that runs on this network, and the faster those flywheels turn. It starts with the hardware stack. It's an off-the-shelf hardware stack. That's why our CapEx efficiency is so incredibly good. And on this hardware stack, we run a completely integrated homogeneous software stack. So this allows us literally to offer every product we have and every service we offer on every server in every city and every location. (5th Annual Virtual Wells Fargo TMT Summit)\n\nIt's such a critical competitive moat that Cloudflare believes its competitors cannot match even if they try to invest. The company's points-of-presence (POP) has expanded to more than 250 cities. As a result, it has gained tremendous clout and influence with the local internet service providers (ISP). Notably, these ISPs depend on Cloudflare to help them optimize their costs. They leverage Cloudflare's superior reliability, latency, and cost-effectiveness of its massive network.\nConsequently, it has allowed Cloudflare to co-locate its hardware in these ISPs' data centers. In addition, it helps the company to significantly \"drive down its bandwidth and co-location expenses.\" Cloudflare emphasized: \"This symbiotic relationship that we have with ISPs and the efficiency of our serverless network architecture allows us to introduce new products on our network at low marginal cost.\"\nGross margins comps (LTM). Data source: S&P Capital IQ\nCloudflare and the CDN leaders Fastly(NYSE:FSLY), and Akamai(NASDAQ:AKAM)(Cloudflare has maintained that it's not a pure-play CDN) recognize network, bandwidth, and co-location costs in their cost of revenue. Readers can quickly glean how its competitive moat has afforded superior gross margins over time. Accordingly, Cloudflare is confident that its competitors cannot easily replicate its advantages by increasing CapEx intensity. Cloudflare emphasized (edited):\n\nThis build-out is not a function of CapEx. So you cannot just replicate that by saying, here is $1 billion, let's be in 250 cities. What makes that network so efficient is that it's the most interconnected network on the planet, with thousands of interconnections to other networks. And this is hard to compete with and replicate because dollars and CapEx are just not going to get you into those interconnects. So, it allows us to continue powering more and more of the infrastructure for the people who are actually accessing the web. And that scalability comes from the technical infrastructure and the way that we have been able to have a very symbiotic relationship with the other network providers around the world in order to connect everywhere. (Wells Fargo TMT and RBC Conference)\n\nCloudflare SG&A and R&D margins. Data source: S&P Capital IQ\nHence, we believe that Cloudflare's strong gross margins give it tremendous flexibility to invest. Readers can observe that its R&D margins accounted for 30.2% of its revenue over the last twelve months (LTM). We believe that such a strong commitment to innovation will keep Cloudflare at the fore of its leadership. While Fastly's LTM R&D margin was higher at 35.3%, the company couldn't match Cloudflare's highly competitive gross margin advantage. Akamai's LTM R&D margin came in at just 13.9%, as the company is focusing more on leveraging profits than growth.\nCloudflare revenue YoY change, and GAAP EBITDA margins. Data source: S&P Capital IQ\nAs such, Cloudflare's exceptional business model has allowed it highly consistent topline growth over the last two years. Notably, it has also been improving its operational efficiencies as it scales. As a result, on a GAAP basis, its EBITDA margin has improved to -8.5% in FQ3'21, compared to -47.5% two years ago.\nCloudflare revenue and adjusted EBITDA margins mean consensus estimates. Data source: S&P Capital IQ\nConsensus estimates also pointed to robust topline expansion over the next three years. Cloudflare's revenue is estimated to increase at a CAGR of 40% from FY20-23. Moreover, its adjusted EBITDA is expected to grow even faster. Cloudflare is projected to post an adjusted EBITDA margin of 11.6% by FY23, compared to just 3.6% in FY20. Hence, Cloudflare is still in the early stages of its massive growth.\nSo, is NET Stock a Buy Now?\nNET stock EV/NTM Revenue 2Y mean.\nWe know that stocks like Cloudflare's would never be cheap. They will likely continue to trade at a premium valuation, given its moat and excellent execution. CEO Matthew Prince and his two other co-founders (COO and CTO, respectively) continue to play an integral role in shaping Cloudflare's future developments. NET stock is trading at an EV/NTM Revenue of 52.7x, markedly above its 2Y mean of 34.5x. Typically, we wouldn't even consider stocks with such a high premium. However, NET stock isn't just another stock. Investors should also consider that the company will gain significant operating leverage moving forward. Therefore, we think a DCF valuation model might provide more clarity within reasonable assumptions.\nNET stock DCF valuation model. Data source: S&P Capital IQ, company filings, author\nTherefore, we believe that the stock has now dropped back into our buy zone. Moreover, it seems to be supported along its 50-week moving average support level, which has been reliable since last year.\nAs such,we revise our rating on NET stock to Buy.","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"hasMoreComments":true,"newsSizeData":{"likeSize":42,"commentSize":5,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false}}