Cloudflare Vs. Fastly Stock: Which Is The Better Buy?

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Cloudflare Vs. Fastly Stock: Which Is The Better Buy?

seekingalpha2021-08-05

Summary Cloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential. Fastly is a less good business with, in our view, less potential. ...

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Xxxtaengxx
·2021-08-06
Ok
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2
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- Xxxtaengxx:
  Ok
  2021-08-06
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Atwosome
·2021-08-06
Cool
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2
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- Atwosome:
  ?
  2021-08-06
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Lucky03
·2021-08-06
Agree. Like please
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NgKenny
·2021-08-06
Good
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2
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jingsheng
·2021-08-06
cool
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2
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- Mando88:
  ok
  2021-08-06
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jingsheng
·2021-08-06
cool
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4
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- jingsheng:
  cool
  2021-08-06
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newwen
·2021-08-06
Up
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- EZU:
  C
  2021-08-06
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- Lucky03:
  yes
  2021-08-06
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egbloper
·2021-08-06
Cloudflare has a more diversified business w edge cloud, not just CDN
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Gackky
·2021-08-06
the one that makes the most money for me
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- Jordanbey:
  Nice
  2021-08-06
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- claratan:
  nice
  2021-08-06
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oOoHades
·2021-08-06
Please like and comment thanks
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- oOoHades:
  Thankw
  2021-08-06
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- JAMKKT:
  Ok
  2021-08-06
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手可摘棉花
·2021-08-06
Net has potential to grow but will wait for correction. Will enter fastly below $30
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HF133
·2021-08-06
Like
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- rosatmk:
  Done
  2021-08-06
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- AdaT33:
  ??
  2021-08-06
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- T2C:
  YEs
  2021-08-06
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Zhouqi
·2021-08-06
Ok
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- Firework peh:
  Cloudfare certainly more stable
  2021-08-06
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- thekangReplying toFirework peh:
  yes agreed
  2021-08-06
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- HF133:
  like
  2021-08-06
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ramius75
·2021-08-06
?
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Dearon
·2021-08-06
Please like
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MrMrsBean
·2021-08-06
Please like and comment. Thanks
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- oOoHades:
  [Strong]
  2021-08-06
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Kalpana
·2021-08-06
?
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Sunny0809
·2021-08-06
?
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- Kalpana:
  ?
  2021-08-06
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KelvinChan
·2021-08-06
Like for likes please!
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- Sunny0809:
  ?
  2021-08-06
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- KelvinChan:
  Good
  2021-08-06
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EuGin
·2021-08-06
Like for likes please!
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- knn:
  comment
  2021-08-06
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Fastly Stock: Which Is The Better Buy?","media":"seekingalpha","content":"<div>\nSummary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.\nFastly is a less good business with, in our view, less potential. ...\n\n<a href=\"https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy\">Source Link</a>\n\n</div>\n","source":"seekingalpha","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 Vs. 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Fastly Stock: Which Is The Better Buy?\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-08-05 22:25 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.\nFastly is a less good business with, in our view, less potential. ...\n\n<a href=\"https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy\">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/4444881-cloudflare-vs-fastly-stock-better-buy","article_id":"1197602353","we_media_id":null,"thumbnails":[],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=1197602353","pubTimestamp":1628173558,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Summary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up rec","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"NET":"Cloudflare, Inc.","FSLY":"Fastly, Inc."},"translate_title":"云耀斑vs。快速股票：哪个更好买？","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"FSLY":0.9,"NET":0.9},"content_text":"Summary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.\nFastly is a less good business with, in our view, less potential. Its stock price has cratered of late, as growth has slowed and cash flow worsened.\nBoth stocks are shortly to report their Q2 earnings. We think earnings reaction risk is to the downside on Cloudflare, to the upside on Fastly.\nUltimately, we believe Cloudflare offers more upside for long-term investors, but we own both names in staff personal accounts and intend to add to both on any post-earnings weakness.\nWe would also flag that both companies look to us like they may raise capital soon - if, in the form of new equity, that can hit both stocks.\n\nPing Times May Be Similar But Time To Live Likely Differs\nSince consumer traffic started in earnest to course through the public Internet in the 1990s, content acceleration became important. The initial leader of this market, Akamai (AKAM), grew up in the dot-com era and remains a very solid business today. AKAM's original business model was simple and remains the foundation for content delivery network plays today; buy servers, rent space in telecom companies' datacenters, rent capacity on telecom networks, bill content owners for accelerated delivery of said content. As you can see, the business model is likely to be less cash generative than the now-commonplace cloud application software player, because, one, your gross margin gets hit with the telco pay-aways, and, two, your capex bill is heavy as you have to keep buying server kit. So scaling such a business - meaning, achieve a rate of growth in cash flow faster than the rate of growth in revenue - isn't so easy.\nThe two hot names in content acceleration today are Cloudflare (NET) and Fastly (FSLY). We've covered both of them on multiple occasions here on Seeking Alpha - you can read our past notes on Cloudflare, Inchereand our prior work on Fastlyhere. In addition, we own both stocks in staff personal accounts. We have a much greater allocation to NET than we do to FSLY (in a ratio of approximately 2:1). We have enjoyed an easy ride up on NET with even some poorly-timed averaging-up buys being forgiven by the Trading Gods, whereas we have been battling FSLY to average down our in-costs in the expectation of future gain and our valor has yet to be rewarded. In staff long-term accounts, we presently show a big paper gain on NET and a modest paper loss on FSLY. Along the way, we have also enjoyed separate short-term account gains in NET by buying dips and selling peaks to realize rapid cash gains. (We cover both stocks and our own trades blow by blow in our real-time, real-money Seeking Alpha Marketplace service,Cestrian Fundamentals).\nWhilst Cloudflare and Fastly core services have plenty of overlap, their business models and management styles are very different and this informs our approach to owning the names and our expectations going forward. Allow us to walk you through our views here.\nHow Is Cloudflare Different From Fastly?\nWell, first let's take a look at the similarities. Both offer content acceleration services to content owners, and both offer you something called edge computing, which is in essence the ability to place not just your content (movies, audio, etc.) on a machine near the user (as in, physically and logically near the user on the network - not in a data center thousands of miles away) but also an entire web application or parts thereof. To our investor eye, Cloudflare appears to have more product ambition; taking advantage of its edge network positioning, the company has launched a number of security services, for instance - the goal being to act as a single Internet on-ramp for its customers, a kind of Zscaler (ZS) embedded in the suite offer. If you want to deep-dive into product by product comparison on these two names - and if you do, take a tin hat, for opinions run high - take a look at a couple of engineers-turned-stock-people who cover both stocks in their work.\nNow, putting aside for the moment our own investor view that NET has a superior span of product and indeed more extensive product ambition - let's turn to the numbers.\nSource: Company SEC filings, YCharts.com, Cestrian Analysis\nLot of numbers there. Here are the highlights and lowlights as we see them.\nThe good:\n\nRevenue growth holding steady in the 50% range, gross margin holding steady in the 77% range.\nRemaining performance obligation (RPO) growth of 88% vs. prior year in Q1 2021. RPO is the total order book value, some of which is prepaid, most of which is not. RPO represents just over 90% of TTM recognized revenue so it is material vs. the recognized base, and it is growing faster than the recognized base. So, best guess, NET revenues can accelerate still further.\nAccounting profit in the guise of EBITDA (which we define as operating income, add back depreciation & amortization, add back stock-based compensation) has gone from very negative in 2019 to modestly positive in 2021 - we look at the TTM measure which is slow to respond up or down, it gives you a smoothed-out view of the direction of travel.\n\nThe bad:\n\nActual money-profit in the guise of unlevered pre-tax free cash flow, has gone from horribly negative in 2019 to, er, only very negative in 2021, which in and of itself is good, but, did we mention, cash flow was very negative on a TTM basis to the end of the March 2021 quarter. This is the whole nag with this business model - can they actually become cash flow positive, after capex, after change in working capital? Akamai is, but then it has nothing like the growth ambitions of these names.\nOnly $643m of net cash in the bank at the 31 March point. Given the cash burn, we would not be at all surprised to see the company raise money via an equity or debt placement and, if equity, we would expect a material hit to the stock price on a short-term basis at least. (We are watching closely for this and hope to buy any major dip that comes along).\n\nThe visually challenged:\n\nHuge capital expenditure (\"capex\") bill. Capex as you know is simply money that you spend on stuff that makes a noise when you drop it. Capex at NET, and for that matter FSLY, is mainly computing hardware. We expect significant capex here. But capex as a % of revenue is yet to show a consistent falling pattern - andonlyif we start to see some yield improvements here, some growth without much capex, can we conclude that scale benefits are beginning to flow. Right now the jury is out, and this is a big deal fundamentally.\nTerrible working capital management. This sounds complicated but isn't. If that \"change in working capital\" line was mainly positive, it would mean that in essence, the company collects money from its customers faster than it pays its suppliers. If mainly negative, it pays suppliers faster than it collects cash from its customers. You can see from the numbers that the latter is true. So here we have a business which, already bleeding money into the capex line, further leaks cash into working capital. This again is a big deal fundamentally. Best case, it says the business lacks the management discipline to tell suppliers to wait whilst it chases up customers. Worst case, it means the business is merely a commodity provider of services which can easily be found elsewhere, and they don't chase their customers lest they churn. Now we don'tthinkthat latter point is true; we think NET has a differentiated and sticky set of services - and if that's right, it means management just needs to get religion on cash management. They don't have it today.\n\nAs we shall see in a moment, Cloudflare's stock price flatters its fundamentals. It's not as good a business as its stock trajectory implies.\nFSLY Financials\nFastly, an early huge winner in the immediate response to the Covid crisis, now looks all beaten up if you look at its stock price, to which we shall turn in a moment. But if NET is not as good a business as its stock price implies, FSLY is not as bad a business asitsstock price implies. As investors, we must respect price before all else, everything else is just an input. But fundamentals do sometimes matter - very often you can see value building in the fundamentals that isn't reflected in the stock price, or indeed value waning that is yet to be reflected. Which means that sometimes, just sometimes, you can get ahead of the price game by reading the numbers. (If you read our Cloudflare notes linked above, you can see us making just that argument - hidden value - which did then come to fruition in the stock price).\nLet's take a look at Fastly's numbers.\nSource: Company SEC filings,YCharts.com, Cestrian Analysis\nOK, another lot of numbers. Less numbers though, because the company doesn't disclose its remaining performance obligation in its SEC reports. This is likely because there isn't much of it - they make much of the fact that billing (and by implication contracting) is usage-based and in arrears, so we wouldn't expect a great deal of revenue visibility here.\nTurning to the reported revenue - the deceleration is material, as you can see, and coupled with the lack of visibility, this is what we think is hurting the stock right now. Today's market is positively growth-addled and if your growth is coming down, well, your stock is going to get a beating. That said, it looks to us like folks' expectations just got all ahead of themselves. Look at the TTM revenue line - remember, this is a slow-burn indicator, gives you a smoothed-out look at how things are going. TTM revenue growth peaked at 47% in Q3 2020, and in Q1 2021, it stood at 44%, which isn't really very different if you zoom out far enough. It's just that early Covid Q2 2020 +62% vs Q2 2019 growth rate that got everybody overexcited.\nSkipping around a little here, the valuation stands at 16.5x TTM revenue in exchange for 44% TTM revenue growth. That is positive cheap by current standards.\nCloudflare is asking you to pay 76x TTM revenue in exchange for 51% TTM revenue growth.\nNow don't get us wrong. Cloudflare is a better business. And we like how their management team rolls, all humblebrag-aw-shucks-what-me? whilst quietly stating that their aim is to be the dominant development environment and runtime forInternet 3.0(we paraphrase a little, but yes, that is what their grand plan is, and it might work). But it's notthatmuch better a business.\nBack to FSLY numbers. Remember how NET eats capex and leaks money into working capital? Well, same at FSLY.\nFirst, let's compare their capital expenditures using that slow-burn TTM method.\nThe company has TTM capex standing at 12% of TTM revenue, and is chalking up revenue growth of +44% on a TTM basis. Cloudflare, Inc is spending 18% of TTM revenue on its capex, again on a TTM basis; in exchange for +51% TTM revenue growth. So as a snapshot, FSLY is actually more efficient with its capex. The counter to that is, NET is building a big book of long-term business - as evidenced by its chunky RPO number - and that's what the additional capex is for. This is an interesting-if-true point to make. As in, it might be true and if so, it's a good use of their checkbook. But it has yet to translate into sufficient additional revenue growth vs. the competition to truly justify the expenditure on fundamental grounds.\nNext, margins. FSLY's gross margins are terrible, in the mid-50s%. It resembles Twilio (TWLO) in this regard, a big pay-away to telcos before you even get started. It's the biggest determinant of weak TTM EBITDA margins - which stand at negative 11% vs positive 3% at NET. And whilst those EBITDA margins at NET have been moving up, at FSLY, they have been moving down.\nTurning to cash flow - we've talked about capex already, now let's look at that boring-but-important point, change in working capital. (Remember this is simple. To do this well, pretty much all you have to do is collect cash from customers faster than you pay it to suppliers). If working capital management is bad at NET, and it is, then it is terrible at FSLY. TTM unlevered pre-tax free cash flow margins of negative 33%. This thing just eats money. And again, it has just $166m of net cash on hand vs. a TTM pre-tax pre-debt service cash burn of $104m as of the end of Q1. That means the company is very likely to raise money, via equity or debt placement. And off the back of a weak stock price that's likely to cause more pain in the stock.\nOK. You get the picture. NET is growing a little bit faster and spending more capex to do it; but its gross margins are much better so it has more money to burn in the first place. It appears to be building a big book of forward business in a way that FSLY is not, but right now, that is jam tomorrow, not revenue or earnings today. NET needs to raise capital soon in our view, and FSLY needs to raise capital sooner. So, on fundamentals, NET is a better pick, no question. But the valuation, yikes!\nNET and FSLY Stock Prices\nSince the Cloudflare IPO in 2019, NET has way outperformed FSLY and indeed the Nasdaq (shown here by way of the proxy ETF, Invesco QQQ Trust (QQQ).\nAs we state above, that NET has outperformed FSLY is justified to us on fundamentals. It's a better business with higher growth and more visibility of future growth. But right now, as earnings approaches for each of the stocks (FSLY reports on August 4th, NET on August 5th), which is the better bet for long-term investors? In short ...\nIs Cloudflare or Fastly Stock The Better Buy?\nThis isn't such a simple answer in our view. Allow us to ramble somewhat, and bear in mind, all we are talking about here is our own plans for our own money. You must, of course, do your own work and factor in your own risk appetite, time horizon, etc. But here's our approach.\nCloudflare Stock\nAs delighted as we are with the run-up in our NET holdings, and as much as we do in fact think that NET can deliver on some of those Internet 3.0 promises, the price is punchy indeed. So we rate NET at Neutral, meaning we ourselves aren't buying the stock at this point. We have a nice paper gain in long-term accounts and we've cashed a series of gains in short-term accounts along the way. But neither are we selling, because as extended as that stock price is, we think that the stock can move higher, maybe much higher, over the coming years. We think that 5-10 years out, $120/share for NET has every chance of looking like peanuts. We have about the right level of allocation now in those long-term accounts and so we are doing nothing there. If Q2 earnings are anything other than blowout, there is every chance the stock takes a dive and, if it does, we expect to play short-term once again, over and above our long-term holdings. (We keep totally separate accounts for long- and short-term holdings so we never get confused about what game we are playing).\nFastly Stock\nAs much as everybody gottoo excited about FSLY last year, so, we think, has everybody gotten too miserable this year. We have a modest allocation to FSLY in long-term accounts because ultimately we don't think the company will form part of the fabric of Internet 3.0, at least not as an independent. We don't see sufficient force of management personality, sufficiently broad product vision, nor the surround sound of Twitterati talking the thing up. Wedothink thepersistent rumors of FSLY being acquiredhave every chance of playing out and so at any given moment, we see a 20-30% or better premium available should Cisco (CSCO) or another strategic come calling. So, again, long-term holdings, we're doing nothing. We're tempted to add a little right now but with earnings so close, why take the risk? Once again our approach here is to wait for earnings. We are likely to trade it short term on any unjustified stock cratering - and indeed if the fundamentals are improving, as we have a funny feeling they will - look at the below-the-radar improvements in deferred revenue above in the last two quarters for instance - we may well add to our long-term positions at that point. For now, doing nothing before earnings, so, again, Neutral. In each case, a one-word rating doesn't really convey our plans here which is why we lay them out in such wordy detail - now you can shoot them down in flames when doing your own work!","kind":null,"is_publish_news":false,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":899541492,"gmtCreate":1628208067116,"gmtModify":1703503067194,"author":{"id":"3586262821219407","authorId":"3586262821219407","authorIdStr":"3586262821219407","name":"Xxxtaengxx","avatar":"https://static.tigerbbs.com/6f931aa4bcd7d456a210e2c84b56950f","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3586262821219407"},"htmlText":"Ok","listText":"Ok","text":"Ok","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":1,"repostSize":0,"link":"https://ttm.financial/post/899541492","repostId":1197602353,"repostType":4,"repost":{"id":"1197602353","pubTimestamp":1628173558,"share":"https://ttm.financial/m/news/1197602353?lang=&edition=fundamental","pubTime":"2021-08-05 22:25","market":"us","language":"en","title":"Cloudflare Vs. Fastly Stock: Which Is The Better Buy?","url":"https://stock-news.laohu8.com/highlight/detail?id=1197602353","media":"seekingalpha","summary":"Summary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up rec","content":"Summary\n<ul>\n <li>Cloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.</li>\n <li>Fastly is a less good business with, in our view, less potential. Its stock price has cratered of late, as growth has slowed and cash flow worsened.</li>\n <li>Both stocks are shortly to report their Q2 earnings. We think earnings reaction risk is to the downside on Cloudflare, to the upside on Fastly.</li>\n <li>Ultimately, we believe Cloudflare offers more upside for long-term investors, but we own both names in staff personal accounts and intend to add to both on any post-earnings weakness.</li>\n <li>We would also flag that both companies look to us like they may raise capital soon - if, in the form of new equity, that can hit both stocks.</li>\n</ul>\nPing Times May Be Similar But Time To Live Likely Differs\nSince consumer traffic started in earnest to course through the public Internet in the 1990s, content acceleration became important. The initial leader of this market, Akamai (AKAM), grew up in the dot-com era and remains a very solid business today. AKAM's original business model was simple and remains the foundation for content delivery network plays today; buy servers, rent space in telecom companies' datacenters, rent capacity on telecom networks, bill content owners for accelerated delivery of said content. As you can see, the business model is likely to be less cash generative than the now-commonplace cloud application software player, because, one, your gross margin gets hit with the telco pay-aways, and, two, your capex bill is heavy as you have to keep buying server kit. So scaling such a business - meaning, achieve a rate of growth in cash flow faster than the rate of growth in revenue - isn't so easy.\nThe two hot names in content acceleration today are Cloudflare (NET) and Fastly (FSLY). We've covered both of them on multiple occasions here on Seeking Alpha - you can read our past notes on Cloudflare, Inchereand our prior work on Fastlyhere. In addition, we own both stocks in staff personal accounts. We have a much greater allocation to NET than we do to FSLY (in a ratio of approximately 2:1). We have enjoyed an easy ride up on NET with even some poorly-timed averaging-up buys being forgiven by the Trading Gods, whereas we have been battling FSLY to average down our in-costs in the expectation of future gain and our valor has yet to be rewarded. In staff long-term accounts, we presently show a big paper gain on NET and a modest paper loss on FSLY. Along the way, we have also enjoyed separate short-term account gains in NET by buying dips and selling peaks to realize rapid cash gains. (We cover both stocks and our own trades blow by blow in our real-time, real-money Seeking Alpha Marketplace service,Cestrian Fundamentals).\nWhilst Cloudflare and Fastly core services have plenty of overlap, their business models and management styles are very different and this informs our approach to owning the names and our expectations going forward. Allow us to walk you through our views here.\nHow Is Cloudflare Different From Fastly?\nWell, first let's take a look at the similarities. Both offer content acceleration services to content owners, and both offer you something called edge computing, which is in essence the ability to place not just your content (movies, audio, etc.) on a machine near the user (as in, physically and logically near the user on the network - not in a data center thousands of miles away) but also an entire web application or parts thereof. To our investor eye, Cloudflare appears to have more product ambition; taking advantage of its edge network positioning, the company has launched a number of security services, for instance - the goal being to act as a single Internet on-ramp for its customers, a kind of Zscaler (ZS) embedded in the suite offer. If you want to deep-dive into product by product comparison on these two names - and if you do, take a tin hat, for opinions run high - take a look at a couple of engineers-turned-stock-people who cover both stocks in their work.\nNow, putting aside for the moment our own investor view that NET has a superior span of product and indeed more extensive product ambition - let's turn to the numbers.\n<img src=\"https://static.tigerbbs.com/4b54705844ce46a8f48f7d986cd113f4\" tg-width=\"640\" tg-height=\"587\" width=\"100%\" height=\"auto\"><img src=\"https://static.tigerbbs.com/ea25982971170997ab631a0e0e0af99f\" tg-width=\"640\" tg-height=\"220\" width=\"100%\" height=\"auto\">Source: Company SEC filings, YCharts.com, Cestrian Analysis\nLot of numbers there. Here are the highlights and lowlights as we see them.\nThe good:\n<ul>\n <li>Revenue growth holding steady in the 50% range, gross margin holding steady in the 77% range.</li>\n <li>Remaining performance obligation (RPO) growth of 88% vs. prior year in Q1 2021. RPO is the total order book value, some of which is prepaid, most of which is not. RPO represents just over 90% of TTM recognized revenue so it is material vs. the recognized base, and it is growing faster than the recognized base. So, best guess, NET revenues can accelerate still further.</li>\n <li>Accounting profit in the guise of EBITDA (which we define as operating income, add back depreciation &amp; amortization, add back stock-based compensation) has gone from very negative in 2019 to modestly positive in 2021 - we look at the TTM measure which is slow to respond up or down, it gives you a smoothed-out view of the direction of travel.</li>\n</ul>\nThe bad:\n<ul>\n <li>Actual money-profit in the guise of unlevered pre-tax free cash flow, has gone from horribly negative in 2019 to, er, only very negative in 2021, which in and of itself is good, but, did we mention, cash flow was very negative on a TTM basis to the end of the March 2021 quarter. This is the whole nag with this business model - can they actually become cash flow positive, after capex, after change in working capital? Akamai is, but then it has nothing like the growth ambitions of these names.</li>\n <li>Only $643m of net cash in the bank at the 31 March point. Given the cash burn, we would not be at all surprised to see the company raise money via an equity or debt placement and, if equity, we would expect a material hit to the stock price on a short-term basis at least. (We are watching closely for this and hope to buy any major dip that comes along).</li>\n</ul>\nThe visually challenged:\n<ul>\n <li>Huge capital expenditure (\"capex\") bill. Capex as you know is simply money that you spend on stuff that makes a noise when you drop it. Capex at NET, and for that matter FSLY, is mainly computing hardware. We expect significant capex here. But capex as a % of revenue is yet to show a consistent falling pattern - andonlyif we start to see some yield improvements here, some growth without much capex, can we conclude that scale benefits are beginning to flow. Right now the jury is out, and this is a big deal fundamentally.</li>\n <li>Terrible working capital management. This sounds complicated but isn't. If that \"change in working capital\" line was mainly positive, it would mean that in essence, the company collects money from its customers faster than it pays its suppliers. If mainly negative, it pays suppliers faster than it collects cash from its customers. You can see from the numbers that the latter is true. So here we have a business which, already bleeding money into the capex line, further leaks cash into working capital. This again is a big deal fundamentally. Best case, it says the business lacks the management discipline to tell suppliers to wait whilst it chases up customers. Worst case, it means the business is merely a commodity provider of services which can easily be found elsewhere, and they don't chase their customers lest they churn. Now we don'tthinkthat latter point is true; we think NET has a differentiated and sticky set of services - and if that's right, it means management just needs to get religion on cash management. They don't have it today.</li>\n</ul>\nAs we shall see in a moment, Cloudflare's stock price flatters its fundamentals. It's not as good a business as its stock trajectory implies.\nFSLY Financials\nFastly, an early huge winner in the immediate response to the Covid crisis, now looks all beaten up if you look at its stock price, to which we shall turn in a moment. But if NET is not as good a business as its stock price implies, FSLY is not as bad a business asitsstock price implies. As investors, we must respect price before all else, everything else is just an input. But fundamentals do sometimes matter - very often you can see value building in the fundamentals that isn't reflected in the stock price, or indeed value waning that is yet to be reflected. Which means that sometimes, just sometimes, you can get ahead of the price game by reading the numbers. (If you read our Cloudflare notes linked above, you can see us making just that argument - hidden value - which did then come to fruition in the stock price).\nLet's take a look at Fastly's numbers.\n<img src=\"https://static.tigerbbs.com/c3aa249a8140f7dea48136c586415d87\" tg-width=\"640\" tg-height=\"621\" width=\"100%\" height=\"auto\">Source: Company SEC filings,YCharts.com, Cestrian Analysis\nOK, another lot of numbers. Less numbers though, because the company doesn't disclose its remaining performance obligation in its SEC reports. This is likely because there isn't much of it - they make much of the fact that billing (and by implication contracting) is usage-based and in arrears, so we wouldn't expect a great deal of revenue visibility here.\nTurning to the reported revenue - the deceleration is material, as you can see, and coupled with the lack of visibility, this is what we think is hurting the stock right now. Today's market is positively growth-addled and if your growth is coming down, well, your stock is going to get a beating. That said, it looks to us like folks' expectations just got all ahead of themselves. Look at the TTM revenue line - remember, this is a slow-burn indicator, gives you a smoothed-out look at how things are going. TTM revenue growth peaked at 47% in Q3 2020, and in Q1 2021, it stood at 44%, which isn't really very different if you zoom out far enough. It's just that early Covid Q2 2020 +62% vs Q2 2019 growth rate that got everybody overexcited.\nSkipping around a little here, the valuation stands at 16.5x TTM revenue in exchange for 44% TTM revenue growth. That is positive cheap by current standards.\n<img src=\"https://static.tigerbbs.com/5469d429652493191eb4cdcf2efee55e\" tg-width=\"238\" tg-height=\"247\" width=\"100%\" height=\"auto\">Cloudflare is asking you to pay 76x TTM revenue in exchange for 51% TTM revenue growth.\n<img src=\"https://static.tigerbbs.com/d1e47eab4ff42f7649937ad13cab0413\" tg-width=\"235\" tg-height=\"250\" width=\"100%\" height=\"auto\">Now don't get us wrong. Cloudflare is a better business. And we like how their management team rolls, all humblebrag-aw-shucks-what-me? whilst quietly stating that their aim is to be the dominant development environment and runtime forInternet 3.0(we paraphrase a little, but yes, that is what their grand plan is, and it might work). But it's notthatmuch better a business.\nBack to FSLY numbers. Remember how NET eats capex and leaks money into working capital? Well, same at FSLY.\nFirst, let's compare their capital expenditures using that slow-burn TTM method.\n<img src=\"https://static.tigerbbs.com/e8e760e2b8fb4ed434bfb9dec30b547b\" tg-width=\"640\" tg-height=\"89\" width=\"100%\" height=\"auto\"><img src=\"https://static.tigerbbs.com/04bb88b1b8d8d2722a84dfc263eefaec\" tg-width=\"640\" tg-height=\"91\" width=\"100%\" height=\"auto\">The company has TTM capex standing at 12% of TTM revenue, and is chalking up revenue growth of +44% on a TTM basis. Cloudflare, Inc is spending 18% of TTM revenue on its capex, again on a TTM basis; in exchange for +51% TTM revenue growth. So as a snapshot, FSLY is actually more efficient with its capex. The counter to that is, NET is building a big book of long-term business - as evidenced by its chunky RPO number - and that's what the additional capex is for. This is an interesting-if-true point to make. As in, it might be true and if so, it's a good use of their checkbook. But it has yet to translate into sufficient additional revenue growth vs. the competition to truly justify the expenditure on fundamental grounds.\nNext, margins. FSLY's gross margins are terrible, in the mid-50s%. It resembles Twilio (TWLO) in this regard, a big pay-away to telcos before you even get started. It's the biggest determinant of weak TTM EBITDA margins - which stand at negative 11% vs positive 3% at NET. And whilst those EBITDA margins at NET have been moving up, at FSLY, they have been moving down.\nTurning to cash flow - we've talked about capex already, now let's look at that boring-but-important point, change in working capital. (Remember this is simple. To do this well, pretty much all you have to do is collect cash from customers faster than you pay it to suppliers). If working capital management is bad at NET, and it is, then it is terrible at FSLY. TTM unlevered pre-tax free cash flow margins of negative 33%. This thing just eats money. And again, it has just $166m of net cash on hand vs. a TTM pre-tax pre-debt service cash burn of $104m as of the end of Q1. That means the company is very likely to raise money, via equity or debt placement. And off the back of a weak stock price that's likely to cause more pain in the stock.\nOK. You get the picture. NET is growing a little bit faster and spending more capex to do it; but its gross margins are much better so it has more money to burn in the first place. It appears to be building a big book of forward business in a way that FSLY is not, but right now, that is jam tomorrow, not revenue or earnings today. NET needs to raise capital soon in our view, and FSLY needs to raise capital sooner. So, on fundamentals, NET is a better pick, no question. But the valuation, yikes!\nNET and FSLY Stock Prices\nSince the Cloudflare IPO in 2019, NET has way outperformed FSLY and indeed the Nasdaq (shown here by way of the proxy ETF, Invesco QQQ Trust (QQQ).\n<img src=\"https://static.tigerbbs.com/89d1f9e65c0e2e7398b5ec7b053631ec\" tg-width=\"640\" tg-height=\"378\" width=\"100%\" height=\"auto\">As we state above, that NET has outperformed FSLY is justified to us on fundamentals. It's a better business with higher growth and more visibility of future growth. But right now, as earnings approaches for each of the stocks (FSLY reports on August 4th, NET on August 5th), which is the better bet for long-term investors? In short ...\nIs Cloudflare or Fastly Stock The Better Buy?\nThis isn't such a simple answer in our view. Allow us to ramble somewhat, and bear in mind, all we are talking about here is our own plans for our own money. You must, of course, do your own work and factor in your own risk appetite, time horizon, etc. But here's our approach.\nCloudflare Stock\nAs delighted as we are with the run-up in our NET holdings, and as much as we do in fact think that NET can deliver on some of those Internet 3.0 promises, the price is punchy indeed. So we rate NET at Neutral, meaning we ourselves aren't buying the stock at this point. We have a nice paper gain in long-term accounts and we've cashed a series of gains in short-term accounts along the way. But neither are we selling, because as extended as that stock price is, we think that the stock can move higher, maybe much higher, over the coming years. We think that 5-10 years out, $120/share for NET has every chance of looking like peanuts. We have about the right level of allocation now in those long-term accounts and so we are doing nothing there. If Q2 earnings are anything other than blowout, there is every chance the stock takes a dive and, if it does, we expect to play short-term once again, over and above our long-term holdings. (We keep totally separate accounts for long- and short-term holdings so we never get confused about what game we are playing).\nFastly Stock\nAs much as everybody gottoo excited about FSLY last year, so, we think, has everybody gotten too miserable this year. We have a modest allocation to FSLY in long-term accounts because ultimately we don't think the company will form part of the fabric of Internet 3.0, at least not as an independent. We don't see sufficient force of management personality, sufficiently broad product vision, nor the surround sound of Twitterati talking the thing up. Wedothink thepersistent rumors of FSLY being acquiredhave every chance of playing out and so at any given moment, we see a 20-30% or better premium available should Cisco (CSCO) or another strategic come calling. So, again, long-term holdings, we're doing nothing. We're tempted to add a little right now but with earnings so close, why take the risk? Once again our approach here is to wait for earnings. We are likely to trade it short term on any unjustified stock cratering - and indeed if the fundamentals are improving, as we have a funny feeling they will - look at the below-the-radar improvements in deferred revenue above in the last two quarters for instance - we may well add to our long-term positions at that point. For now, doing nothing before earnings, so, again, Neutral. In each case, a one-word rating doesn't really convey our plans here which is why we lay them out in such wordy detail - now you can shoot them down in flames when doing your own work!","source":"seekingalpha","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 Vs. Fastly Stock: Which Is The Better Buy?</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 Vs. Fastly Stock: Which Is The Better Buy?\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-08-05 22:25 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.\nFastly is a less good business with, in our view, less potential. ...\n\n<a href=\"https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy\">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.","FSLY":"Fastly, Inc."},"source_url":"https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1197602353","content_text":"Summary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.\nFastly is a less good business with, in our view, less potential. Its stock price has cratered of late, as growth has slowed and cash flow worsened.\nBoth stocks are shortly to report their Q2 earnings. We think earnings reaction risk is to the downside on Cloudflare, to the upside on Fastly.\nUltimately, we believe Cloudflare offers more upside for long-term investors, but we own both names in staff personal accounts and intend to add to both on any post-earnings weakness.\nWe would also flag that both companies look to us like they may raise capital soon - if, in the form of new equity, that can hit both stocks.\n\nPing Times May Be Similar But Time To Live Likely Differs\nSince consumer traffic started in earnest to course through the public Internet in the 1990s, content acceleration became important. The initial leader of this market, Akamai (AKAM), grew up in the dot-com era and remains a very solid business today. AKAM's original business model was simple and remains the foundation for content delivery network plays today; buy servers, rent space in telecom companies' datacenters, rent capacity on telecom networks, bill content owners for accelerated delivery of said content. As you can see, the business model is likely to be less cash generative than the now-commonplace cloud application software player, because, one, your gross margin gets hit with the telco pay-aways, and, two, your capex bill is heavy as you have to keep buying server kit. So scaling such a business - meaning, achieve a rate of growth in cash flow faster than the rate of growth in revenue - isn't so easy.\nThe two hot names in content acceleration today are Cloudflare (NET) and Fastly (FSLY). We've covered both of them on multiple occasions here on Seeking Alpha - you can read our past notes on Cloudflare, Inchereand our prior work on Fastlyhere. In addition, we own both stocks in staff personal accounts. We have a much greater allocation to NET than we do to FSLY (in a ratio of approximately 2:1). We have enjoyed an easy ride up on NET with even some poorly-timed averaging-up buys being forgiven by the Trading Gods, whereas we have been battling FSLY to average down our in-costs in the expectation of future gain and our valor has yet to be rewarded. In staff long-term accounts, we presently show a big paper gain on NET and a modest paper loss on FSLY. Along the way, we have also enjoyed separate short-term account gains in NET by buying dips and selling peaks to realize rapid cash gains. (We cover both stocks and our own trades blow by blow in our real-time, real-money Seeking Alpha Marketplace service,Cestrian Fundamentals).\nWhilst Cloudflare and Fastly core services have plenty of overlap, their business models and management styles are very different and this informs our approach to owning the names and our expectations going forward. Allow us to walk you through our views here.\nHow Is Cloudflare Different From Fastly?\nWell, first let's take a look at the similarities. Both offer content acceleration services to content owners, and both offer you something called edge computing, which is in essence the ability to place not just your content (movies, audio, etc.) on a machine near the user (as in, physically and logically near the user on the network - not in a data center thousands of miles away) but also an entire web application or parts thereof. To our investor eye, Cloudflare appears to have more product ambition; taking advantage of its edge network positioning, the company has launched a number of security services, for instance - the goal being to act as a single Internet on-ramp for its customers, a kind of Zscaler (ZS) embedded in the suite offer. If you want to deep-dive into product by product comparison on these two names - and if you do, take a tin hat, for opinions run high - take a look at a couple of engineers-turned-stock-people who cover both stocks in their work.\nNow, putting aside for the moment our own investor view that NET has a superior span of product and indeed more extensive product ambition - let's turn to the numbers.\nSource: Company SEC filings, YCharts.com, Cestrian Analysis\nLot of numbers there. Here are the highlights and lowlights as we see them.\nThe good:\n\nRevenue growth holding steady in the 50% range, gross margin holding steady in the 77% range.\nRemaining performance obligation (RPO) growth of 88% vs. prior year in Q1 2021. RPO is the total order book value, some of which is prepaid, most of which is not. RPO represents just over 90% of TTM recognized revenue so it is material vs. the recognized base, and it is growing faster than the recognized base. So, best guess, NET revenues can accelerate still further.\nAccounting profit in the guise of EBITDA (which we define as operating income, add back depreciation & amortization, add back stock-based compensation) has gone from very negative in 2019 to modestly positive in 2021 - we look at the TTM measure which is slow to respond up or down, it gives you a smoothed-out view of the direction of travel.\n\nThe bad:\n\nActual money-profit in the guise of unlevered pre-tax free cash flow, has gone from horribly negative in 2019 to, er, only very negative in 2021, which in and of itself is good, but, did we mention, cash flow was very negative on a TTM basis to the end of the March 2021 quarter. This is the whole nag with this business model - can they actually become cash flow positive, after capex, after change in working capital? Akamai is, but then it has nothing like the growth ambitions of these names.\nOnly $643m of net cash in the bank at the 31 March point. Given the cash burn, we would not be at all surprised to see the company raise money via an equity or debt placement and, if equity, we would expect a material hit to the stock price on a short-term basis at least. (We are watching closely for this and hope to buy any major dip that comes along).\n\nThe visually challenged:\n\nHuge capital expenditure (\"capex\") bill. Capex as you know is simply money that you spend on stuff that makes a noise when you drop it. Capex at NET, and for that matter FSLY, is mainly computing hardware. We expect significant capex here. But capex as a % of revenue is yet to show a consistent falling pattern - andonlyif we start to see some yield improvements here, some growth without much capex, can we conclude that scale benefits are beginning to flow. Right now the jury is out, and this is a big deal fundamentally.\nTerrible working capital management. This sounds complicated but isn't. If that \"change in working capital\" line was mainly positive, it would mean that in essence, the company collects money from its customers faster than it pays its suppliers. If mainly negative, it pays suppliers faster than it collects cash from its customers. You can see from the numbers that the latter is true. So here we have a business which, already bleeding money into the capex line, further leaks cash into working capital. This again is a big deal fundamentally. Best case, it says the business lacks the management discipline to tell suppliers to wait whilst it chases up customers. Worst case, it means the business is merely a commodity provider of services which can easily be found elsewhere, and they don't chase their customers lest they churn. Now we don'tthinkthat latter point is true; we think NET has a differentiated and sticky set of services - and if that's right, it means management just needs to get religion on cash management. They don't have it today.\n\nAs we shall see in a moment, Cloudflare's stock price flatters its fundamentals. It's not as good a business as its stock trajectory implies.\nFSLY Financials\nFastly, an early huge winner in the immediate response to the Covid crisis, now looks all beaten up if you look at its stock price, to which we shall turn in a moment. But if NET is not as good a business as its stock price implies, FSLY is not as bad a business asitsstock price implies. As investors, we must respect price before all else, everything else is just an input. But fundamentals do sometimes matter - very often you can see value building in the fundamentals that isn't reflected in the stock price, or indeed value waning that is yet to be reflected. Which means that sometimes, just sometimes, you can get ahead of the price game by reading the numbers. (If you read our Cloudflare notes linked above, you can see us making just that argument - hidden value - which did then come to fruition in the stock price).\nLet's take a look at Fastly's numbers.\nSource: Company SEC filings,YCharts.com, Cestrian Analysis\nOK, another lot of numbers. Less numbers though, because the company doesn't disclose its remaining performance obligation in its SEC reports. This is likely because there isn't much of it - they make much of the fact that billing (and by implication contracting) is usage-based and in arrears, so we wouldn't expect a great deal of revenue visibility here.\nTurning to the reported revenue - the deceleration is material, as you can see, and coupled with the lack of visibility, this is what we think is hurting the stock right now. Today's market is positively growth-addled and if your growth is coming down, well, your stock is going to get a beating. That said, it looks to us like folks' expectations just got all ahead of themselves. Look at the TTM revenue line - remember, this is a slow-burn indicator, gives you a smoothed-out look at how things are going. TTM revenue growth peaked at 47% in Q3 2020, and in Q1 2021, it stood at 44%, which isn't really very different if you zoom out far enough. It's just that early Covid Q2 2020 +62% vs Q2 2019 growth rate that got everybody overexcited.\nSkipping around a little here, the valuation stands at 16.5x TTM revenue in exchange for 44% TTM revenue growth. That is positive cheap by current standards.\nCloudflare is asking you to pay 76x TTM revenue in exchange for 51% TTM revenue growth.\nNow don't get us wrong. Cloudflare is a better business. And we like how their management team rolls, all humblebrag-aw-shucks-what-me? whilst quietly stating that their aim is to be the dominant development environment and runtime forInternet 3.0(we paraphrase a little, but yes, that is what their grand plan is, and it might work). But it's notthatmuch better a business.\nBack to FSLY numbers. Remember how NET eats capex and leaks money into working capital? Well, same at FSLY.\nFirst, let's compare their capital expenditures using that slow-burn TTM method.\nThe company has TTM capex standing at 12% of TTM revenue, and is chalking up revenue growth of +44% on a TTM basis. Cloudflare, Inc is spending 18% of TTM revenue on its capex, again on a TTM basis; in exchange for +51% TTM revenue growth. So as a snapshot, FSLY is actually more efficient with its capex. The counter to that is, NET is building a big book of long-term business - as evidenced by its chunky RPO number - and that's what the additional capex is for. This is an interesting-if-true point to make. As in, it might be true and if so, it's a good use of their checkbook. But it has yet to translate into sufficient additional revenue growth vs. the competition to truly justify the expenditure on fundamental grounds.\nNext, margins. FSLY's gross margins are terrible, in the mid-50s%. It resembles Twilio (TWLO) in this regard, a big pay-away to telcos before you even get started. It's the biggest determinant of weak TTM EBITDA margins - which stand at negative 11% vs positive 3% at NET. And whilst those EBITDA margins at NET have been moving up, at FSLY, they have been moving down.\nTurning to cash flow - we've talked about capex already, now let's look at that boring-but-important point, change in working capital. (Remember this is simple. To do this well, pretty much all you have to do is collect cash from customers faster than you pay it to suppliers). If working capital management is bad at NET, and it is, then it is terrible at FSLY. TTM unlevered pre-tax free cash flow margins of negative 33%. This thing just eats money. And again, it has just $166m of net cash on hand vs. a TTM pre-tax pre-debt service cash burn of $104m as of the end of Q1. That means the company is very likely to raise money, via equity or debt placement. And off the back of a weak stock price that's likely to cause more pain in the stock.\nOK. You get the picture. NET is growing a little bit faster and spending more capex to do it; but its gross margins are much better so it has more money to burn in the first place. It appears to be building a big book of forward business in a way that FSLY is not, but right now, that is jam tomorrow, not revenue or earnings today. NET needs to raise capital soon in our view, and FSLY needs to raise capital sooner. So, on fundamentals, NET is a better pick, no question. But the valuation, yikes!\nNET and FSLY Stock Prices\nSince the Cloudflare IPO in 2019, NET has way outperformed FSLY and indeed the Nasdaq (shown here by way of the proxy ETF, Invesco QQQ Trust (QQQ).\nAs we state above, that NET has outperformed FSLY is justified to us on fundamentals. It's a better business with higher growth and more visibility of future growth. But right now, as earnings approaches for each of the stocks (FSLY reports on August 4th, NET on August 5th), which is the better bet for long-term investors? In short ...\nIs Cloudflare or Fastly Stock The Better Buy?\nThis isn't such a simple answer in our view. Allow us to ramble somewhat, and bear in mind, all we are talking about here is our own plans for our own money. You must, of course, do your own work and factor in your own risk appetite, time horizon, etc. But here's our approach.\nCloudflare Stock\nAs delighted as we are with the run-up in our NET holdings, and as much as we do in fact think that NET can deliver on some of those Internet 3.0 promises, the price is punchy indeed. So we rate NET at Neutral, meaning we ourselves aren't buying the stock at this point. We have a nice paper gain in long-term accounts and we've cashed a series of gains in short-term accounts along the way. But neither are we selling, because as extended as that stock price is, we think that the stock can move higher, maybe much higher, over the coming years. We think that 5-10 years out, $120/share for NET has every chance of looking like peanuts. We have about the right level of allocation now in those long-term accounts and so we are doing nothing there. If Q2 earnings are anything other than blowout, there is every chance the stock takes a dive and, if it does, we expect to play short-term once again, over and above our long-term holdings. (We keep totally separate accounts for long- and short-term holdings so we never get confused about what game we are playing).\nFastly Stock\nAs much as everybody gottoo excited about FSLY last year, so, we think, has everybody gotten too miserable this year. We have a modest allocation to FSLY in long-term accounts because ultimately we don't think the company will form part of the fabric of Internet 3.0, at least not as an independent. We don't see sufficient force of management personality, sufficiently broad product vision, nor the surround sound of Twitterati talking the thing up. Wedothink thepersistent rumors of FSLY being acquiredhave every chance of playing out and so at any given moment, we see a 20-30% or better premium available should Cisco (CSCO) or another strategic come calling. So, again, long-term holdings, we're doing nothing. We're tempted to add a little right now but with earnings so close, why take the risk? Once again our approach here is to wait for earnings. We are likely to trade it short term on any unjustified stock cratering - and indeed if the fundamentals are improving, as we have a funny feeling they will - look at the below-the-radar improvements in deferred revenue above in the last two quarters for instance - we may well add to our long-term positions at that point. For now, doing nothing before earnings, so, again, Neutral. In each case, a one-word rating doesn't really convey our plans here which is why we lay them out in such wordy detail - now you can shoot them down in flames when doing your own work!","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":5440797,"gmtCreate":1628208076741,"gmtModify":1663231990931,"authorId":3586262821219407,"author":{"id":3586262821219407,"authorId":3586262821219407,"name":"Xxxtaengxx","avatar":"https://static.tigerbbs.com/6f931aa4bcd7d456a210e2c84b56950f","vip":1,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":899541492,"type":1,"supId":0,"prevId":0,"content":"Ok","text":"Ok","html":"Ok"}],"langContent":"EN"},{"id":899583960,"gmtCreate":1628206404450,"gmtModify":1703503007913,"author":{"id":"3571305152732730","authorId":"3571305152732730","authorIdStr":"3571305152732730","name":"Atwosome","avatar":"https://static.tigerbbs.com/2085a92415ef32924f70d916d490adce","vip":1,"hat":"https://static.tigerbbs.com/b0a2963eb37c60c5d6d4a8dbcd266952","crmLevel":8,"crmLevelSwitch":1,"idStr":"3571305152732730"},"htmlText":"Cool","listText":"Cool","text":"Cool","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":1,"repostSize":0,"link":"https://ttm.financial/post/899583960","repostId":1197602353,"repostType":4,"repost":{"id":"1197602353","pubTimestamp":1628173558,"share":"https://ttm.financial/m/news/1197602353?lang=&edition=fundamental","pubTime":"2021-08-05 22:25","market":"us","language":"en","title":"Cloudflare Vs. Fastly Stock: Which Is The Better Buy?","url":"https://stock-news.laohu8.com/highlight/detail?id=1197602353","media":"seekingalpha","summary":"Summary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up rec","content":"Summary\n<ul>\n <li>Cloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.</li>\n <li>Fastly is a less good business with, in our view, less potential. Its stock price has cratered of late, as growth has slowed and cash flow worsened.</li>\n <li>Both stocks are shortly to report their Q2 earnings. We think earnings reaction risk is to the downside on Cloudflare, to the upside on Fastly.</li>\n <li>Ultimately, we believe Cloudflare offers more upside for long-term investors, but we own both names in staff personal accounts and intend to add to both on any post-earnings weakness.</li>\n <li>We would also flag that both companies look to us like they may raise capital soon - if, in the form of new equity, that can hit both stocks.</li>\n</ul>\nPing Times May Be Similar But Time To Live Likely Differs\nSince consumer traffic started in earnest to course through the public Internet in the 1990s, content acceleration became important. The initial leader of this market, Akamai (AKAM), grew up in the dot-com era and remains a very solid business today. AKAM's original business model was simple and remains the foundation for content delivery network plays today; buy servers, rent space in telecom companies' datacenters, rent capacity on telecom networks, bill content owners for accelerated delivery of said content. As you can see, the business model is likely to be less cash generative than the now-commonplace cloud application software player, because, one, your gross margin gets hit with the telco pay-aways, and, two, your capex bill is heavy as you have to keep buying server kit. So scaling such a business - meaning, achieve a rate of growth in cash flow faster than the rate of growth in revenue - isn't so easy.\nThe two hot names in content acceleration today are Cloudflare (NET) and Fastly (FSLY). We've covered both of them on multiple occasions here on Seeking Alpha - you can read our past notes on Cloudflare, Inchereand our prior work on Fastlyhere. In addition, we own both stocks in staff personal accounts. We have a much greater allocation to NET than we do to FSLY (in a ratio of approximately 2:1). We have enjoyed an easy ride up on NET with even some poorly-timed averaging-up buys being forgiven by the Trading Gods, whereas we have been battling FSLY to average down our in-costs in the expectation of future gain and our valor has yet to be rewarded. In staff long-term accounts, we presently show a big paper gain on NET and a modest paper loss on FSLY. Along the way, we have also enjoyed separate short-term account gains in NET by buying dips and selling peaks to realize rapid cash gains. (We cover both stocks and our own trades blow by blow in our real-time, real-money Seeking Alpha Marketplace service,Cestrian Fundamentals).\nWhilst Cloudflare and Fastly core services have plenty of overlap, their business models and management styles are very different and this informs our approach to owning the names and our expectations going forward. Allow us to walk you through our views here.\nHow Is Cloudflare Different From Fastly?\nWell, first let's take a look at the similarities. Both offer content acceleration services to content owners, and both offer you something called edge computing, which is in essence the ability to place not just your content (movies, audio, etc.) on a machine near the user (as in, physically and logically near the user on the network - not in a data center thousands of miles away) but also an entire web application or parts thereof. To our investor eye, Cloudflare appears to have more product ambition; taking advantage of its edge network positioning, the company has launched a number of security services, for instance - the goal being to act as a single Internet on-ramp for its customers, a kind of Zscaler (ZS) embedded in the suite offer. If you want to deep-dive into product by product comparison on these two names - and if you do, take a tin hat, for opinions run high - take a look at a couple of engineers-turned-stock-people who cover both stocks in their work.\nNow, putting aside for the moment our own investor view that NET has a superior span of product and indeed more extensive product ambition - let's turn to the numbers.\n<img src=\"https://static.tigerbbs.com/4b54705844ce46a8f48f7d986cd113f4\" tg-width=\"640\" tg-height=\"587\" width=\"100%\" height=\"auto\"><img src=\"https://static.tigerbbs.com/ea25982971170997ab631a0e0e0af99f\" tg-width=\"640\" tg-height=\"220\" width=\"100%\" height=\"auto\">Source: Company SEC filings, YCharts.com, Cestrian Analysis\nLot of numbers there. Here are the highlights and lowlights as we see them.\nThe good:\n<ul>\n <li>Revenue growth holding steady in the 50% range, gross margin holding steady in the 77% range.</li>\n <li>Remaining performance obligation (RPO) growth of 88% vs. prior year in Q1 2021. RPO is the total order book value, some of which is prepaid, most of which is not. RPO represents just over 90% of TTM recognized revenue so it is material vs. the recognized base, and it is growing faster than the recognized base. So, best guess, NET revenues can accelerate still further.</li>\n <li>Accounting profit in the guise of EBITDA (which we define as operating income, add back depreciation &amp; amortization, add back stock-based compensation) has gone from very negative in 2019 to modestly positive in 2021 - we look at the TTM measure which is slow to respond up or down, it gives you a smoothed-out view of the direction of travel.</li>\n</ul>\nThe bad:\n<ul>\n <li>Actual money-profit in the guise of unlevered pre-tax free cash flow, has gone from horribly negative in 2019 to, er, only very negative in 2021, which in and of itself is good, but, did we mention, cash flow was very negative on a TTM basis to the end of the March 2021 quarter. This is the whole nag with this business model - can they actually become cash flow positive, after capex, after change in working capital? Akamai is, but then it has nothing like the growth ambitions of these names.</li>\n <li>Only $643m of net cash in the bank at the 31 March point. Given the cash burn, we would not be at all surprised to see the company raise money via an equity or debt placement and, if equity, we would expect a material hit to the stock price on a short-term basis at least. (We are watching closely for this and hope to buy any major dip that comes along).</li>\n</ul>\nThe visually challenged:\n<ul>\n <li>Huge capital expenditure (\"capex\") bill. Capex as you know is simply money that you spend on stuff that makes a noise when you drop it. Capex at NET, and for that matter FSLY, is mainly computing hardware. We expect significant capex here. But capex as a % of revenue is yet to show a consistent falling pattern - andonlyif we start to see some yield improvements here, some growth without much capex, can we conclude that scale benefits are beginning to flow. Right now the jury is out, and this is a big deal fundamentally.</li>\n <li>Terrible working capital management. This sounds complicated but isn't. If that \"change in working capital\" line was mainly positive, it would mean that in essence, the company collects money from its customers faster than it pays its suppliers. If mainly negative, it pays suppliers faster than it collects cash from its customers. You can see from the numbers that the latter is true. So here we have a business which, already bleeding money into the capex line, further leaks cash into working capital. This again is a big deal fundamentally. Best case, it says the business lacks the management discipline to tell suppliers to wait whilst it chases up customers. Worst case, it means the business is merely a commodity provider of services which can easily be found elsewhere, and they don't chase their customers lest they churn. Now we don'tthinkthat latter point is true; we think NET has a differentiated and sticky set of services - and if that's right, it means management just needs to get religion on cash management. They don't have it today.</li>\n</ul>\nAs we shall see in a moment, Cloudflare's stock price flatters its fundamentals. It's not as good a business as its stock trajectory implies.\nFSLY Financials\nFastly, an early huge winner in the immediate response to the Covid crisis, now looks all beaten up if you look at its stock price, to which we shall turn in a moment. But if NET is not as good a business as its stock price implies, FSLY is not as bad a business asitsstock price implies. As investors, we must respect price before all else, everything else is just an input. But fundamentals do sometimes matter - very often you can see value building in the fundamentals that isn't reflected in the stock price, or indeed value waning that is yet to be reflected. Which means that sometimes, just sometimes, you can get ahead of the price game by reading the numbers. (If you read our Cloudflare notes linked above, you can see us making just that argument - hidden value - which did then come to fruition in the stock price).\nLet's take a look at Fastly's numbers.\n<img src=\"https://static.tigerbbs.com/c3aa249a8140f7dea48136c586415d87\" tg-width=\"640\" tg-height=\"621\" width=\"100%\" height=\"auto\">Source: Company SEC filings,YCharts.com, Cestrian Analysis\nOK, another lot of numbers. Less numbers though, because the company doesn't disclose its remaining performance obligation in its SEC reports. This is likely because there isn't much of it - they make much of the fact that billing (and by implication contracting) is usage-based and in arrears, so we wouldn't expect a great deal of revenue visibility here.\nTurning to the reported revenue - the deceleration is material, as you can see, and coupled with the lack of visibility, this is what we think is hurting the stock right now. Today's market is positively growth-addled and if your growth is coming down, well, your stock is going to get a beating. That said, it looks to us like folks' expectations just got all ahead of themselves. Look at the TTM revenue line - remember, this is a slow-burn indicator, gives you a smoothed-out look at how things are going. TTM revenue growth peaked at 47% in Q3 2020, and in Q1 2021, it stood at 44%, which isn't really very different if you zoom out far enough. It's just that early Covid Q2 2020 +62% vs Q2 2019 growth rate that got everybody overexcited.\nSkipping around a little here, the valuation stands at 16.5x TTM revenue in exchange for 44% TTM revenue growth. That is positive cheap by current standards.\n<img src=\"https://static.tigerbbs.com/5469d429652493191eb4cdcf2efee55e\" tg-width=\"238\" tg-height=\"247\" width=\"100%\" height=\"auto\">Cloudflare is asking you to pay 76x TTM revenue in exchange for 51% TTM revenue growth.\n<img src=\"https://static.tigerbbs.com/d1e47eab4ff42f7649937ad13cab0413\" tg-width=\"235\" tg-height=\"250\" width=\"100%\" height=\"auto\">Now don't get us wrong. Cloudflare is a better business. And we like how their management team rolls, all humblebrag-aw-shucks-what-me? whilst quietly stating that their aim is to be the dominant development environment and runtime forInternet 3.0(we paraphrase a little, but yes, that is what their grand plan is, and it might work). But it's notthatmuch better a business.\nBack to FSLY numbers. Remember how NET eats capex and leaks money into working capital? Well, same at FSLY.\nFirst, let's compare their capital expenditures using that slow-burn TTM method.\n<img src=\"https://static.tigerbbs.com/e8e760e2b8fb4ed434bfb9dec30b547b\" tg-width=\"640\" tg-height=\"89\" width=\"100%\" height=\"auto\"><img src=\"https://static.tigerbbs.com/04bb88b1b8d8d2722a84dfc263eefaec\" tg-width=\"640\" tg-height=\"91\" width=\"100%\" height=\"auto\">The company has TTM capex standing at 12% of TTM revenue, and is chalking up revenue growth of +44% on a TTM basis. Cloudflare, Inc is spending 18% of TTM revenue on its capex, again on a TTM basis; in exchange for +51% TTM revenue growth. So as a snapshot, FSLY is actually more efficient with its capex. The counter to that is, NET is building a big book of long-term business - as evidenced by its chunky RPO number - and that's what the additional capex is for. This is an interesting-if-true point to make. As in, it might be true and if so, it's a good use of their checkbook. But it has yet to translate into sufficient additional revenue growth vs. the competition to truly justify the expenditure on fundamental grounds.\nNext, margins. FSLY's gross margins are terrible, in the mid-50s%. It resembles Twilio (TWLO) in this regard, a big pay-away to telcos before you even get started. It's the biggest determinant of weak TTM EBITDA margins - which stand at negative 11% vs positive 3% at NET. And whilst those EBITDA margins at NET have been moving up, at FSLY, they have been moving down.\nTurning to cash flow - we've talked about capex already, now let's look at that boring-but-important point, change in working capital. (Remember this is simple. To do this well, pretty much all you have to do is collect cash from customers faster than you pay it to suppliers). If working capital management is bad at NET, and it is, then it is terrible at FSLY. TTM unlevered pre-tax free cash flow margins of negative 33%. This thing just eats money. And again, it has just $166m of net cash on hand vs. a TTM pre-tax pre-debt service cash burn of $104m as of the end of Q1. That means the company is very likely to raise money, via equity or debt placement. And off the back of a weak stock price that's likely to cause more pain in the stock.\nOK. You get the picture. NET is growing a little bit faster and spending more capex to do it; but its gross margins are much better so it has more money to burn in the first place. It appears to be building a big book of forward business in a way that FSLY is not, but right now, that is jam tomorrow, not revenue or earnings today. NET needs to raise capital soon in our view, and FSLY needs to raise capital sooner. So, on fundamentals, NET is a better pick, no question. But the valuation, yikes!\nNET and FSLY Stock Prices\nSince the Cloudflare IPO in 2019, NET has way outperformed FSLY and indeed the Nasdaq (shown here by way of the proxy ETF, Invesco QQQ Trust (QQQ).\n<img src=\"https://static.tigerbbs.com/89d1f9e65c0e2e7398b5ec7b053631ec\" tg-width=\"640\" tg-height=\"378\" width=\"100%\" height=\"auto\">As we state above, that NET has outperformed FSLY is justified to us on fundamentals. It's a better business with higher growth and more visibility of future growth. But right now, as earnings approaches for each of the stocks (FSLY reports on August 4th, NET on August 5th), which is the better bet for long-term investors? In short ...\nIs Cloudflare or Fastly Stock The Better Buy?\nThis isn't such a simple answer in our view. Allow us to ramble somewhat, and bear in mind, all we are talking about here is our own plans for our own money. You must, of course, do your own work and factor in your own risk appetite, time horizon, etc. But here's our approach.\nCloudflare Stock\nAs delighted as we are with the run-up in our NET holdings, and as much as we do in fact think that NET can deliver on some of those Internet 3.0 promises, the price is punchy indeed. So we rate NET at Neutral, meaning we ourselves aren't buying the stock at this point. We have a nice paper gain in long-term accounts and we've cashed a series of gains in short-term accounts along the way. But neither are we selling, because as extended as that stock price is, we think that the stock can move higher, maybe much higher, over the coming years. We think that 5-10 years out, $120/share for NET has every chance of looking like peanuts. We have about the right level of allocation now in those long-term accounts and so we are doing nothing there. If Q2 earnings are anything other than blowout, there is every chance the stock takes a dive and, if it does, we expect to play short-term once again, over and above our long-term holdings. (We keep totally separate accounts for long- and short-term holdings so we never get confused about what game we are playing).\nFastly Stock\nAs much as everybody gottoo excited about FSLY last year, so, we think, has everybody gotten too miserable this year. We have a modest allocation to FSLY in long-term accounts because ultimately we don't think the company will form part of the fabric of Internet 3.0, at least not as an independent. We don't see sufficient force of management personality, sufficiently broad product vision, nor the surround sound of Twitterati talking the thing up. Wedothink thepersistent rumors of FSLY being acquiredhave every chance of playing out and so at any given moment, we see a 20-30% or better premium available should Cisco (CSCO) or another strategic come calling. So, again, long-term holdings, we're doing nothing. We're tempted to add a little right now but with earnings so close, why take the risk? Once again our approach here is to wait for earnings. We are likely to trade it short term on any unjustified stock cratering - and indeed if the fundamentals are improving, as we have a funny feeling they will - look at the below-the-radar improvements in deferred revenue above in the last two quarters for instance - we may well add to our long-term positions at that point. For now, doing nothing before earnings, so, again, Neutral. In each case, a one-word rating doesn't really convey our plans here which is why we lay them out in such wordy detail - now you can shoot them down in flames when doing your own work!","source":"seekingalpha","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 Vs. Fastly Stock: Which Is The Better Buy?</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 Vs. Fastly Stock: Which Is The Better Buy?\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-08-05 22:25 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.\nFastly is a less good business with, in our view, less potential. ...\n\n<a href=\"https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy\">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.","FSLY":"Fastly, Inc."},"source_url":"https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1197602353","content_text":"Summary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.\nFastly is a less good business with, in our view, less potential. Its stock price has cratered of late, as growth has slowed and cash flow worsened.\nBoth stocks are shortly to report their Q2 earnings. We think earnings reaction risk is to the downside on Cloudflare, to the upside on Fastly.\nUltimately, we believe Cloudflare offers more upside for long-term investors, but we own both names in staff personal accounts and intend to add to both on any post-earnings weakness.\nWe would also flag that both companies look to us like they may raise capital soon - if, in the form of new equity, that can hit both stocks.\n\nPing Times May Be Similar But Time To Live Likely Differs\nSince consumer traffic started in earnest to course through the public Internet in the 1990s, content acceleration became important. The initial leader of this market, Akamai (AKAM), grew up in the dot-com era and remains a very solid business today. AKAM's original business model was simple and remains the foundation for content delivery network plays today; buy servers, rent space in telecom companies' datacenters, rent capacity on telecom networks, bill content owners for accelerated delivery of said content. As you can see, the business model is likely to be less cash generative than the now-commonplace cloud application software player, because, one, your gross margin gets hit with the telco pay-aways, and, two, your capex bill is heavy as you have to keep buying server kit. So scaling such a business - meaning, achieve a rate of growth in cash flow faster than the rate of growth in revenue - isn't so easy.\nThe two hot names in content acceleration today are Cloudflare (NET) and Fastly (FSLY). We've covered both of them on multiple occasions here on Seeking Alpha - you can read our past notes on Cloudflare, Inchereand our prior work on Fastlyhere. In addition, we own both stocks in staff personal accounts. We have a much greater allocation to NET than we do to FSLY (in a ratio of approximately 2:1). We have enjoyed an easy ride up on NET with even some poorly-timed averaging-up buys being forgiven by the Trading Gods, whereas we have been battling FSLY to average down our in-costs in the expectation of future gain and our valor has yet to be rewarded. In staff long-term accounts, we presently show a big paper gain on NET and a modest paper loss on FSLY. Along the way, we have also enjoyed separate short-term account gains in NET by buying dips and selling peaks to realize rapid cash gains. (We cover both stocks and our own trades blow by blow in our real-time, real-money Seeking Alpha Marketplace service,Cestrian Fundamentals).\nWhilst Cloudflare and Fastly core services have plenty of overlap, their business models and management styles are very different and this informs our approach to owning the names and our expectations going forward. Allow us to walk you through our views here.\nHow Is Cloudflare Different From Fastly?\nWell, first let's take a look at the similarities. Both offer content acceleration services to content owners, and both offer you something called edge computing, which is in essence the ability to place not just your content (movies, audio, etc.) on a machine near the user (as in, physically and logically near the user on the network - not in a data center thousands of miles away) but also an entire web application or parts thereof. To our investor eye, Cloudflare appears to have more product ambition; taking advantage of its edge network positioning, the company has launched a number of security services, for instance - the goal being to act as a single Internet on-ramp for its customers, a kind of Zscaler (ZS) embedded in the suite offer. If you want to deep-dive into product by product comparison on these two names - and if you do, take a tin hat, for opinions run high - take a look at a couple of engineers-turned-stock-people who cover both stocks in their work.\nNow, putting aside for the moment our own investor view that NET has a superior span of product and indeed more extensive product ambition - let's turn to the numbers.\nSource: Company SEC filings, YCharts.com, Cestrian Analysis\nLot of numbers there. Here are the highlights and lowlights as we see them.\nThe good:\n\nRevenue growth holding steady in the 50% range, gross margin holding steady in the 77% range.\nRemaining performance obligation (RPO) growth of 88% vs. prior year in Q1 2021. RPO is the total order book value, some of which is prepaid, most of which is not. RPO represents just over 90% of TTM recognized revenue so it is material vs. the recognized base, and it is growing faster than the recognized base. So, best guess, NET revenues can accelerate still further.\nAccounting profit in the guise of EBITDA (which we define as operating income, add back depreciation & amortization, add back stock-based compensation) has gone from very negative in 2019 to modestly positive in 2021 - we look at the TTM measure which is slow to respond up or down, it gives you a smoothed-out view of the direction of travel.\n\nThe bad:\n\nActual money-profit in the guise of unlevered pre-tax free cash flow, has gone from horribly negative in 2019 to, er, only very negative in 2021, which in and of itself is good, but, did we mention, cash flow was very negative on a TTM basis to the end of the March 2021 quarter. This is the whole nag with this business model - can they actually become cash flow positive, after capex, after change in working capital? Akamai is, but then it has nothing like the growth ambitions of these names.\nOnly $643m of net cash in the bank at the 31 March point. Given the cash burn, we would not be at all surprised to see the company raise money via an equity or debt placement and, if equity, we would expect a material hit to the stock price on a short-term basis at least. (We are watching closely for this and hope to buy any major dip that comes along).\n\nThe visually challenged:\n\nHuge capital expenditure (\"capex\") bill. Capex as you know is simply money that you spend on stuff that makes a noise when you drop it. Capex at NET, and for that matter FSLY, is mainly computing hardware. We expect significant capex here. But capex as a % of revenue is yet to show a consistent falling pattern - andonlyif we start to see some yield improvements here, some growth without much capex, can we conclude that scale benefits are beginning to flow. Right now the jury is out, and this is a big deal fundamentally.\nTerrible working capital management. This sounds complicated but isn't. If that \"change in working capital\" line was mainly positive, it would mean that in essence, the company collects money from its customers faster than it pays its suppliers. If mainly negative, it pays suppliers faster than it collects cash from its customers. You can see from the numbers that the latter is true. So here we have a business which, already bleeding money into the capex line, further leaks cash into working capital. This again is a big deal fundamentally. Best case, it says the business lacks the management discipline to tell suppliers to wait whilst it chases up customers. Worst case, it means the business is merely a commodity provider of services which can easily be found elsewhere, and they don't chase their customers lest they churn. Now we don'tthinkthat latter point is true; we think NET has a differentiated and sticky set of services - and if that's right, it means management just needs to get religion on cash management. They don't have it today.\n\nAs we shall see in a moment, Cloudflare's stock price flatters its fundamentals. It's not as good a business as its stock trajectory implies.\nFSLY Financials\nFastly, an early huge winner in the immediate response to the Covid crisis, now looks all beaten up if you look at its stock price, to which we shall turn in a moment. But if NET is not as good a business as its stock price implies, FSLY is not as bad a business asitsstock price implies. As investors, we must respect price before all else, everything else is just an input. But fundamentals do sometimes matter - very often you can see value building in the fundamentals that isn't reflected in the stock price, or indeed value waning that is yet to be reflected. Which means that sometimes, just sometimes, you can get ahead of the price game by reading the numbers. (If you read our Cloudflare notes linked above, you can see us making just that argument - hidden value - which did then come to fruition in the stock price).\nLet's take a look at Fastly's numbers.\nSource: Company SEC filings,YCharts.com, Cestrian Analysis\nOK, another lot of numbers. Less numbers though, because the company doesn't disclose its remaining performance obligation in its SEC reports. This is likely because there isn't much of it - they make much of the fact that billing (and by implication contracting) is usage-based and in arrears, so we wouldn't expect a great deal of revenue visibility here.\nTurning to the reported revenue - the deceleration is material, as you can see, and coupled with the lack of visibility, this is what we think is hurting the stock right now. Today's market is positively growth-addled and if your growth is coming down, well, your stock is going to get a beating. That said, it looks to us like folks' expectations just got all ahead of themselves. Look at the TTM revenue line - remember, this is a slow-burn indicator, gives you a smoothed-out look at how things are going. TTM revenue growth peaked at 47% in Q3 2020, and in Q1 2021, it stood at 44%, which isn't really very different if you zoom out far enough. It's just that early Covid Q2 2020 +62% vs Q2 2019 growth rate that got everybody overexcited.\nSkipping around a little here, the valuation stands at 16.5x TTM revenue in exchange for 44% TTM revenue growth. That is positive cheap by current standards.\nCloudflare is asking you to pay 76x TTM revenue in exchange for 51% TTM revenue growth.\nNow don't get us wrong. Cloudflare is a better business. And we like how their management team rolls, all humblebrag-aw-shucks-what-me? whilst quietly stating that their aim is to be the dominant development environment and runtime forInternet 3.0(we paraphrase a little, but yes, that is what their grand plan is, and it might work). But it's notthatmuch better a business.\nBack to FSLY numbers. Remember how NET eats capex and leaks money into working capital? Well, same at FSLY.\nFirst, let's compare their capital expenditures using that slow-burn TTM method.\nThe company has TTM capex standing at 12% of TTM revenue, and is chalking up revenue growth of +44% on a TTM basis. Cloudflare, Inc is spending 18% of TTM revenue on its capex, again on a TTM basis; in exchange for +51% TTM revenue growth. So as a snapshot, FSLY is actually more efficient with its capex. The counter to that is, NET is building a big book of long-term business - as evidenced by its chunky RPO number - and that's what the additional capex is for. This is an interesting-if-true point to make. As in, it might be true and if so, it's a good use of their checkbook. But it has yet to translate into sufficient additional revenue growth vs. the competition to truly justify the expenditure on fundamental grounds.\nNext, margins. FSLY's gross margins are terrible, in the mid-50s%. It resembles Twilio (TWLO) in this regard, a big pay-away to telcos before you even get started. It's the biggest determinant of weak TTM EBITDA margins - which stand at negative 11% vs positive 3% at NET. And whilst those EBITDA margins at NET have been moving up, at FSLY, they have been moving down.\nTurning to cash flow - we've talked about capex already, now let's look at that boring-but-important point, change in working capital. (Remember this is simple. To do this well, pretty much all you have to do is collect cash from customers faster than you pay it to suppliers). If working capital management is bad at NET, and it is, then it is terrible at FSLY. TTM unlevered pre-tax free cash flow margins of negative 33%. This thing just eats money. And again, it has just $166m of net cash on hand vs. a TTM pre-tax pre-debt service cash burn of $104m as of the end of Q1. That means the company is very likely to raise money, via equity or debt placement. And off the back of a weak stock price that's likely to cause more pain in the stock.\nOK. You get the picture. NET is growing a little bit faster and spending more capex to do it; but its gross margins are much better so it has more money to burn in the first place. It appears to be building a big book of forward business in a way that FSLY is not, but right now, that is jam tomorrow, not revenue or earnings today. NET needs to raise capital soon in our view, and FSLY needs to raise capital sooner. So, on fundamentals, NET is a better pick, no question. But the valuation, yikes!\nNET and FSLY Stock Prices\nSince the Cloudflare IPO in 2019, NET has way outperformed FSLY and indeed the Nasdaq (shown here by way of the proxy ETF, Invesco QQQ Trust (QQQ).\nAs we state above, that NET has outperformed FSLY is justified to us on fundamentals. It's a better business with higher growth and more visibility of future growth. But right now, as earnings approaches for each of the stocks (FSLY reports on August 4th, NET on August 5th), which is the better bet for long-term investors? In short ...\nIs Cloudflare or Fastly Stock The Better Buy?\nThis isn't such a simple answer in our view. Allow us to ramble somewhat, and bear in mind, all we are talking about here is our own plans for our own money. You must, of course, do your own work and factor in your own risk appetite, time horizon, etc. But here's our approach.\nCloudflare Stock\nAs delighted as we are with the run-up in our NET holdings, and as much as we do in fact think that NET can deliver on some of those Internet 3.0 promises, the price is punchy indeed. So we rate NET at Neutral, meaning we ourselves aren't buying the stock at this point. We have a nice paper gain in long-term accounts and we've cashed a series of gains in short-term accounts along the way. But neither are we selling, because as extended as that stock price is, we think that the stock can move higher, maybe much higher, over the coming years. We think that 5-10 years out, $120/share for NET has every chance of looking like peanuts. We have about the right level of allocation now in those long-term accounts and so we are doing nothing there. If Q2 earnings are anything other than blowout, there is every chance the stock takes a dive and, if it does, we expect to play short-term once again, over and above our long-term holdings. (We keep totally separate accounts for long- and short-term holdings so we never get confused about what game we are playing).\nFastly Stock\nAs much as everybody gottoo excited about FSLY last year, so, we think, has everybody gotten too miserable this year. We have a modest allocation to FSLY in long-term accounts because ultimately we don't think the company will form part of the fabric of Internet 3.0, at least not as an independent. We don't see sufficient force of management personality, sufficiently broad product vision, nor the surround sound of Twitterati talking the thing up. Wedothink thepersistent rumors of FSLY being acquiredhave every chance of playing out and so at any given moment, we see a 20-30% or better premium available should Cisco (CSCO) or another strategic come calling. So, again, long-term holdings, we're doing nothing. We're tempted to add a little right now but with earnings so close, why take the risk? Once again our approach here is to wait for earnings. We are likely to trade it short term on any unjustified stock cratering - and indeed if the fundamentals are improving, as we have a funny feeling they will - look at the below-the-radar improvements in deferred revenue above in the last two quarters for instance - we may well add to our long-term positions at that point. For now, doing nothing before earnings, so, again, Neutral. In each case, a one-word rating doesn't really convey our plans here which is why we lay them out in such wordy detail - now you can shoot them down in flames when doing your own work!","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":5440369,"gmtCreate":1628206414602,"gmtModify":1663231991144,"authorId":3571305152732730,"author":{"id":3571305152732730,"authorId":3571305152732730,"name":"Atwosome","avatar":"https://static.tigerbbs.com/2085a92415ef32924f70d916d490adce","vip":1,"currentWearingBadge":{"badgeId":"44212b71d0be4ec88898348dbe882e03-3","templateUuid":"44212b71d0be4ec88898348dbe882e03","name":"President Tiger","description":"The transaction amount of the securities account reaches $1,000,000","bigImgUrl":"https://static.tigerbbs.com/fbeac6bb240db7da8b972e5183d050ba","smallImgUrl":"https://static.tigerbbs.com/436cdf80292b99f0a992e78750ac4e3a","grayImgUrl":"https://static.tigerbbs.com/506a259a7b456f037592c3b23c779599","redirectLinkEnabled":0,"hasAllocated":1,"isWearing":1,"stampPosition":0,"hasStamp":0,"allocationCount":1,"allocatedDate":"2023.03.31","exceedPercentage":"93.73%","individualDisplayEnabled":0,"individualDisplaySort":0,"categoryType":1101},"crmLevel":8,"crmLevelSwitch":1,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":899583960,"type":1,"supId":0,"prevId":0,"content":"?","text":"?","html":"?"}],"langContent":"EN"},{"id":899517529,"gmtCreate":1628206258261,"gmtModify":1703503004998,"author":{"id":"3575593817551674","authorId":"3575593817551674","authorIdStr":"3575593817551674","name":"Lucky03","avatar":"https://static.tigerbbs.com/759e5ab6a4a94b481569511ac2bfe116","vip":1,"hat":"https://static.tigerbbs.com/a3dee1aa3a3a3c1814833a4d3f8a5669","crmLevel":1,"crmLevelSwitch":0,"idStr":"3575593817551674"},"htmlText":"Agree. Like please&nbsp;","listText":"Agree. Like please&nbsp;","text":"Agree. Like please","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":3,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/899517529","repostId":1197602353,"repostType":4,"repost":{"id":"1197602353","pubTimestamp":1628173558,"share":"https://ttm.financial/m/news/1197602353?lang=&edition=fundamental","pubTime":"2021-08-05 22:25","market":"us","language":"en","title":"Cloudflare Vs. Fastly Stock: Which Is The Better Buy?","url":"https://stock-news.laohu8.com/highlight/detail?id=1197602353","media":"seekingalpha","summary":"Summary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up rec","content":"Summary\n<ul>\n <li>Cloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.</li>\n <li>Fastly is a less good business with, in our view, less potential. Its stock price has cratered of late, as growth has slowed and cash flow worsened.</li>\n <li>Both stocks are shortly to report their Q2 earnings. We think earnings reaction risk is to the downside on Cloudflare, to the upside on Fastly.</li>\n <li>Ultimately, we believe Cloudflare offers more upside for long-term investors, but we own both names in staff personal accounts and intend to add to both on any post-earnings weakness.</li>\n <li>We would also flag that both companies look to us like they may raise capital soon - if, in the form of new equity, that can hit both stocks.</li>\n</ul>\nPing Times May Be Similar But Time To Live Likely Differs\nSince consumer traffic started in earnest to course through the public Internet in the 1990s, content acceleration became important. The initial leader of this market, Akamai (AKAM), grew up in the dot-com era and remains a very solid business today. AKAM's original business model was simple and remains the foundation for content delivery network plays today; buy servers, rent space in telecom companies' datacenters, rent capacity on telecom networks, bill content owners for accelerated delivery of said content. As you can see, the business model is likely to be less cash generative than the now-commonplace cloud application software player, because, one, your gross margin gets hit with the telco pay-aways, and, two, your capex bill is heavy as you have to keep buying server kit. So scaling such a business - meaning, achieve a rate of growth in cash flow faster than the rate of growth in revenue - isn't so easy.\nThe two hot names in content acceleration today are Cloudflare (NET) and Fastly (FSLY). We've covered both of them on multiple occasions here on Seeking Alpha - you can read our past notes on Cloudflare, Inchereand our prior work on Fastlyhere. In addition, we own both stocks in staff personal accounts. We have a much greater allocation to NET than we do to FSLY (in a ratio of approximately 2:1). We have enjoyed an easy ride up on NET with even some poorly-timed averaging-up buys being forgiven by the Trading Gods, whereas we have been battling FSLY to average down our in-costs in the expectation of future gain and our valor has yet to be rewarded. In staff long-term accounts, we presently show a big paper gain on NET and a modest paper loss on FSLY. Along the way, we have also enjoyed separate short-term account gains in NET by buying dips and selling peaks to realize rapid cash gains. (We cover both stocks and our own trades blow by blow in our real-time, real-money Seeking Alpha Marketplace service,Cestrian Fundamentals).\nWhilst Cloudflare and Fastly core services have plenty of overlap, their business models and management styles are very different and this informs our approach to owning the names and our expectations going forward. Allow us to walk you through our views here.\nHow Is Cloudflare Different From Fastly?\nWell, first let's take a look at the similarities. Both offer content acceleration services to content owners, and both offer you something called edge computing, which is in essence the ability to place not just your content (movies, audio, etc.) on a machine near the user (as in, physically and logically near the user on the network - not in a data center thousands of miles away) but also an entire web application or parts thereof. To our investor eye, Cloudflare appears to have more product ambition; taking advantage of its edge network positioning, the company has launched a number of security services, for instance - the goal being to act as a single Internet on-ramp for its customers, a kind of Zscaler (ZS) embedded in the suite offer. If you want to deep-dive into product by product comparison on these two names - and if you do, take a tin hat, for opinions run high - take a look at a couple of engineers-turned-stock-people who cover both stocks in their work.\nNow, putting aside for the moment our own investor view that NET has a superior span of product and indeed more extensive product ambition - let's turn to the numbers.\n<img src=\"https://static.tigerbbs.com/4b54705844ce46a8f48f7d986cd113f4\" tg-width=\"640\" tg-height=\"587\" width=\"100%\" height=\"auto\"><img src=\"https://static.tigerbbs.com/ea25982971170997ab631a0e0e0af99f\" tg-width=\"640\" tg-height=\"220\" width=\"100%\" height=\"auto\">Source: Company SEC filings, YCharts.com, Cestrian Analysis\nLot of numbers there. Here are the highlights and lowlights as we see them.\nThe good:\n<ul>\n <li>Revenue growth holding steady in the 50% range, gross margin holding steady in the 77% range.</li>\n <li>Remaining performance obligation (RPO) growth of 88% vs. prior year in Q1 2021. RPO is the total order book value, some of which is prepaid, most of which is not. RPO represents just over 90% of TTM recognized revenue so it is material vs. the recognized base, and it is growing faster than the recognized base. So, best guess, NET revenues can accelerate still further.</li>\n <li>Accounting profit in the guise of EBITDA (which we define as operating income, add back depreciation &amp; amortization, add back stock-based compensation) has gone from very negative in 2019 to modestly positive in 2021 - we look at the TTM measure which is slow to respond up or down, it gives you a smoothed-out view of the direction of travel.</li>\n</ul>\nThe bad:\n<ul>\n <li>Actual money-profit in the guise of unlevered pre-tax free cash flow, has gone from horribly negative in 2019 to, er, only very negative in 2021, which in and of itself is good, but, did we mention, cash flow was very negative on a TTM basis to the end of the March 2021 quarter. This is the whole nag with this business model - can they actually become cash flow positive, after capex, after change in working capital? Akamai is, but then it has nothing like the growth ambitions of these names.</li>\n <li>Only $643m of net cash in the bank at the 31 March point. Given the cash burn, we would not be at all surprised to see the company raise money via an equity or debt placement and, if equity, we would expect a material hit to the stock price on a short-term basis at least. (We are watching closely for this and hope to buy any major dip that comes along).</li>\n</ul>\nThe visually challenged:\n<ul>\n <li>Huge capital expenditure (\"capex\") bill. Capex as you know is simply money that you spend on stuff that makes a noise when you drop it. Capex at NET, and for that matter FSLY, is mainly computing hardware. We expect significant capex here. But capex as a % of revenue is yet to show a consistent falling pattern - andonlyif we start to see some yield improvements here, some growth without much capex, can we conclude that scale benefits are beginning to flow. Right now the jury is out, and this is a big deal fundamentally.</li>\n <li>Terrible working capital management. This sounds complicated but isn't. If that \"change in working capital\" line was mainly positive, it would mean that in essence, the company collects money from its customers faster than it pays its suppliers. If mainly negative, it pays suppliers faster than it collects cash from its customers. You can see from the numbers that the latter is true. So here we have a business which, already bleeding money into the capex line, further leaks cash into working capital. This again is a big deal fundamentally. Best case, it says the business lacks the management discipline to tell suppliers to wait whilst it chases up customers. Worst case, it means the business is merely a commodity provider of services which can easily be found elsewhere, and they don't chase their customers lest they churn. Now we don'tthinkthat latter point is true; we think NET has a differentiated and sticky set of services - and if that's right, it means management just needs to get religion on cash management. They don't have it today.</li>\n</ul>\nAs we shall see in a moment, Cloudflare's stock price flatters its fundamentals. It's not as good a business as its stock trajectory implies.\nFSLY Financials\nFastly, an early huge winner in the immediate response to the Covid crisis, now looks all beaten up if you look at its stock price, to which we shall turn in a moment. But if NET is not as good a business as its stock price implies, FSLY is not as bad a business asitsstock price implies. As investors, we must respect price before all else, everything else is just an input. But fundamentals do sometimes matter - very often you can see value building in the fundamentals that isn't reflected in the stock price, or indeed value waning that is yet to be reflected. Which means that sometimes, just sometimes, you can get ahead of the price game by reading the numbers. (If you read our Cloudflare notes linked above, you can see us making just that argument - hidden value - which did then come to fruition in the stock price).\nLet's take a look at Fastly's numbers.\n<img src=\"https://static.tigerbbs.com/c3aa249a8140f7dea48136c586415d87\" tg-width=\"640\" tg-height=\"621\" width=\"100%\" height=\"auto\">Source: Company SEC filings,YCharts.com, Cestrian Analysis\nOK, another lot of numbers. Less numbers though, because the company doesn't disclose its remaining performance obligation in its SEC reports. This is likely because there isn't much of it - they make much of the fact that billing (and by implication contracting) is usage-based and in arrears, so we wouldn't expect a great deal of revenue visibility here.\nTurning to the reported revenue - the deceleration is material, as you can see, and coupled with the lack of visibility, this is what we think is hurting the stock right now. Today's market is positively growth-addled and if your growth is coming down, well, your stock is going to get a beating. That said, it looks to us like folks' expectations just got all ahead of themselves. Look at the TTM revenue line - remember, this is a slow-burn indicator, gives you a smoothed-out look at how things are going. TTM revenue growth peaked at 47% in Q3 2020, and in Q1 2021, it stood at 44%, which isn't really very different if you zoom out far enough. It's just that early Covid Q2 2020 +62% vs Q2 2019 growth rate that got everybody overexcited.\nSkipping around a little here, the valuation stands at 16.5x TTM revenue in exchange for 44% TTM revenue growth. That is positive cheap by current standards.\n<img src=\"https://static.tigerbbs.com/5469d429652493191eb4cdcf2efee55e\" tg-width=\"238\" tg-height=\"247\" width=\"100%\" height=\"auto\">Cloudflare is asking you to pay 76x TTM revenue in exchange for 51% TTM revenue growth.\n<img src=\"https://static.tigerbbs.com/d1e47eab4ff42f7649937ad13cab0413\" tg-width=\"235\" tg-height=\"250\" width=\"100%\" height=\"auto\">Now don't get us wrong. Cloudflare is a better business. And we like how their management team rolls, all humblebrag-aw-shucks-what-me? whilst quietly stating that their aim is to be the dominant development environment and runtime forInternet 3.0(we paraphrase a little, but yes, that is what their grand plan is, and it might work). But it's notthatmuch better a business.\nBack to FSLY numbers. Remember how NET eats capex and leaks money into working capital? Well, same at FSLY.\nFirst, let's compare their capital expenditures using that slow-burn TTM method.\n<img src=\"https://static.tigerbbs.com/e8e760e2b8fb4ed434bfb9dec30b547b\" tg-width=\"640\" tg-height=\"89\" width=\"100%\" height=\"auto\"><img src=\"https://static.tigerbbs.com/04bb88b1b8d8d2722a84dfc263eefaec\" tg-width=\"640\" tg-height=\"91\" width=\"100%\" height=\"auto\">The company has TTM capex standing at 12% of TTM revenue, and is chalking up revenue growth of +44% on a TTM basis. Cloudflare, Inc is spending 18% of TTM revenue on its capex, again on a TTM basis; in exchange for +51% TTM revenue growth. So as a snapshot, FSLY is actually more efficient with its capex. The counter to that is, NET is building a big book of long-term business - as evidenced by its chunky RPO number - and that's what the additional capex is for. This is an interesting-if-true point to make. As in, it might be true and if so, it's a good use of their checkbook. But it has yet to translate into sufficient additional revenue growth vs. the competition to truly justify the expenditure on fundamental grounds.\nNext, margins. FSLY's gross margins are terrible, in the mid-50s%. It resembles Twilio (TWLO) in this regard, a big pay-away to telcos before you even get started. It's the biggest determinant of weak TTM EBITDA margins - which stand at negative 11% vs positive 3% at NET. And whilst those EBITDA margins at NET have been moving up, at FSLY, they have been moving down.\nTurning to cash flow - we've talked about capex already, now let's look at that boring-but-important point, change in working capital. (Remember this is simple. To do this well, pretty much all you have to do is collect cash from customers faster than you pay it to suppliers). If working capital management is bad at NET, and it is, then it is terrible at FSLY. TTM unlevered pre-tax free cash flow margins of negative 33%. This thing just eats money. And again, it has just $166m of net cash on hand vs. a TTM pre-tax pre-debt service cash burn of $104m as of the end of Q1. That means the company is very likely to raise money, via equity or debt placement. And off the back of a weak stock price that's likely to cause more pain in the stock.\nOK. You get the picture. NET is growing a little bit faster and spending more capex to do it; but its gross margins are much better so it has more money to burn in the first place. It appears to be building a big book of forward business in a way that FSLY is not, but right now, that is jam tomorrow, not revenue or earnings today. NET needs to raise capital soon in our view, and FSLY needs to raise capital sooner. So, on fundamentals, NET is a better pick, no question. But the valuation, yikes!\nNET and FSLY Stock Prices\nSince the Cloudflare IPO in 2019, NET has way outperformed FSLY and indeed the Nasdaq (shown here by way of the proxy ETF, Invesco QQQ Trust (QQQ).\n<img src=\"https://static.tigerbbs.com/89d1f9e65c0e2e7398b5ec7b053631ec\" tg-width=\"640\" tg-height=\"378\" width=\"100%\" height=\"auto\">As we state above, that NET has outperformed FSLY is justified to us on fundamentals. It's a better business with higher growth and more visibility of future growth. But right now, as earnings approaches for each of the stocks (FSLY reports on August 4th, NET on August 5th), which is the better bet for long-term investors? In short ...\nIs Cloudflare or Fastly Stock The Better Buy?\nThis isn't such a simple answer in our view. Allow us to ramble somewhat, and bear in mind, all we are talking about here is our own plans for our own money. You must, of course, do your own work and factor in your own risk appetite, time horizon, etc. But here's our approach.\nCloudflare Stock\nAs delighted as we are with the run-up in our NET holdings, and as much as we do in fact think that NET can deliver on some of those Internet 3.0 promises, the price is punchy indeed. So we rate NET at Neutral, meaning we ourselves aren't buying the stock at this point. We have a nice paper gain in long-term accounts and we've cashed a series of gains in short-term accounts along the way. But neither are we selling, because as extended as that stock price is, we think that the stock can move higher, maybe much higher, over the coming years. We think that 5-10 years out, $120/share for NET has every chance of looking like peanuts. We have about the right level of allocation now in those long-term accounts and so we are doing nothing there. If Q2 earnings are anything other than blowout, there is every chance the stock takes a dive and, if it does, we expect to play short-term once again, over and above our long-term holdings. (We keep totally separate accounts for long- and short-term holdings so we never get confused about what game we are playing).\nFastly Stock\nAs much as everybody gottoo excited about FSLY last year, so, we think, has everybody gotten too miserable this year. We have a modest allocation to FSLY in long-term accounts because ultimately we don't think the company will form part of the fabric of Internet 3.0, at least not as an independent. We don't see sufficient force of management personality, sufficiently broad product vision, nor the surround sound of Twitterati talking the thing up. Wedothink thepersistent rumors of FSLY being acquiredhave every chance of playing out and so at any given moment, we see a 20-30% or better premium available should Cisco (CSCO) or another strategic come calling. So, again, long-term holdings, we're doing nothing. We're tempted to add a little right now but with earnings so close, why take the risk? Once again our approach here is to wait for earnings. We are likely to trade it short term on any unjustified stock cratering - and indeed if the fundamentals are improving, as we have a funny feeling they will - look at the below-the-radar improvements in deferred revenue above in the last two quarters for instance - we may well add to our long-term positions at that point. For now, doing nothing before earnings, so, again, Neutral. In each case, a one-word rating doesn't really convey our plans here which is why we lay them out in such wordy detail - now you can shoot them down in flames when doing your own work!","source":"seekingalpha","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 Vs. Fastly Stock: Which Is The Better Buy?</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 Vs. Fastly Stock: Which Is The Better Buy?\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-08-05 22:25 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.\nFastly is a less good business with, in our view, less potential. ...\n\n<a href=\"https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy\">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.","FSLY":"Fastly, Inc."},"source_url":"https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1197602353","content_text":"Summary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.\nFastly is a less good business with, in our view, less potential. Its stock price has cratered of late, as growth has slowed and cash flow worsened.\nBoth stocks are shortly to report their Q2 earnings. We think earnings reaction risk is to the downside on Cloudflare, to the upside on Fastly.\nUltimately, we believe Cloudflare offers more upside for long-term investors, but we own both names in staff personal accounts and intend to add to both on any post-earnings weakness.\nWe would also flag that both companies look to us like they may raise capital soon - if, in the form of new equity, that can hit both stocks.\n\nPing Times May Be Similar But Time To Live Likely Differs\nSince consumer traffic started in earnest to course through the public Internet in the 1990s, content acceleration became important. The initial leader of this market, Akamai (AKAM), grew up in the dot-com era and remains a very solid business today. AKAM's original business model was simple and remains the foundation for content delivery network plays today; buy servers, rent space in telecom companies' datacenters, rent capacity on telecom networks, bill content owners for accelerated delivery of said content. As you can see, the business model is likely to be less cash generative than the now-commonplace cloud application software player, because, one, your gross margin gets hit with the telco pay-aways, and, two, your capex bill is heavy as you have to keep buying server kit. So scaling such a business - meaning, achieve a rate of growth in cash flow faster than the rate of growth in revenue - isn't so easy.\nThe two hot names in content acceleration today are Cloudflare (NET) and Fastly (FSLY). We've covered both of them on multiple occasions here on Seeking Alpha - you can read our past notes on Cloudflare, Inchereand our prior work on Fastlyhere. In addition, we own both stocks in staff personal accounts. We have a much greater allocation to NET than we do to FSLY (in a ratio of approximately 2:1). We have enjoyed an easy ride up on NET with even some poorly-timed averaging-up buys being forgiven by the Trading Gods, whereas we have been battling FSLY to average down our in-costs in the expectation of future gain and our valor has yet to be rewarded. In staff long-term accounts, we presently show a big paper gain on NET and a modest paper loss on FSLY. Along the way, we have also enjoyed separate short-term account gains in NET by buying dips and selling peaks to realize rapid cash gains. (We cover both stocks and our own trades blow by blow in our real-time, real-money Seeking Alpha Marketplace service,Cestrian Fundamentals).\nWhilst Cloudflare and Fastly core services have plenty of overlap, their business models and management styles are very different and this informs our approach to owning the names and our expectations going forward. Allow us to walk you through our views here.\nHow Is Cloudflare Different From Fastly?\nWell, first let's take a look at the similarities. Both offer content acceleration services to content owners, and both offer you something called edge computing, which is in essence the ability to place not just your content (movies, audio, etc.) on a machine near the user (as in, physically and logically near the user on the network - not in a data center thousands of miles away) but also an entire web application or parts thereof. To our investor eye, Cloudflare appears to have more product ambition; taking advantage of its edge network positioning, the company has launched a number of security services, for instance - the goal being to act as a single Internet on-ramp for its customers, a kind of Zscaler (ZS) embedded in the suite offer. If you want to deep-dive into product by product comparison on these two names - and if you do, take a tin hat, for opinions run high - take a look at a couple of engineers-turned-stock-people who cover both stocks in their work.\nNow, putting aside for the moment our own investor view that NET has a superior span of product and indeed more extensive product ambition - let's turn to the numbers.\nSource: Company SEC filings, YCharts.com, Cestrian Analysis\nLot of numbers there. Here are the highlights and lowlights as we see them.\nThe good:\n\nRevenue growth holding steady in the 50% range, gross margin holding steady in the 77% range.\nRemaining performance obligation (RPO) growth of 88% vs. prior year in Q1 2021. RPO is the total order book value, some of which is prepaid, most of which is not. RPO represents just over 90% of TTM recognized revenue so it is material vs. the recognized base, and it is growing faster than the recognized base. So, best guess, NET revenues can accelerate still further.\nAccounting profit in the guise of EBITDA (which we define as operating income, add back depreciation & amortization, add back stock-based compensation) has gone from very negative in 2019 to modestly positive in 2021 - we look at the TTM measure which is slow to respond up or down, it gives you a smoothed-out view of the direction of travel.\n\nThe bad:\n\nActual money-profit in the guise of unlevered pre-tax free cash flow, has gone from horribly negative in 2019 to, er, only very negative in 2021, which in and of itself is good, but, did we mention, cash flow was very negative on a TTM basis to the end of the March 2021 quarter. This is the whole nag with this business model - can they actually become cash flow positive, after capex, after change in working capital? Akamai is, but then it has nothing like the growth ambitions of these names.\nOnly $643m of net cash in the bank at the 31 March point. Given the cash burn, we would not be at all surprised to see the company raise money via an equity or debt placement and, if equity, we would expect a material hit to the stock price on a short-term basis at least. (We are watching closely for this and hope to buy any major dip that comes along).\n\nThe visually challenged:\n\nHuge capital expenditure (\"capex\") bill. Capex as you know is simply money that you spend on stuff that makes a noise when you drop it. Capex at NET, and for that matter FSLY, is mainly computing hardware. We expect significant capex here. But capex as a % of revenue is yet to show a consistent falling pattern - andonlyif we start to see some yield improvements here, some growth without much capex, can we conclude that scale benefits are beginning to flow. Right now the jury is out, and this is a big deal fundamentally.\nTerrible working capital management. This sounds complicated but isn't. If that \"change in working capital\" line was mainly positive, it would mean that in essence, the company collects money from its customers faster than it pays its suppliers. If mainly negative, it pays suppliers faster than it collects cash from its customers. You can see from the numbers that the latter is true. So here we have a business which, already bleeding money into the capex line, further leaks cash into working capital. This again is a big deal fundamentally. Best case, it says the business lacks the management discipline to tell suppliers to wait whilst it chases up customers. Worst case, it means the business is merely a commodity provider of services which can easily be found elsewhere, and they don't chase their customers lest they churn. Now we don'tthinkthat latter point is true; we think NET has a differentiated and sticky set of services - and if that's right, it means management just needs to get religion on cash management. They don't have it today.\n\nAs we shall see in a moment, Cloudflare's stock price flatters its fundamentals. It's not as good a business as its stock trajectory implies.\nFSLY Financials\nFastly, an early huge winner in the immediate response to the Covid crisis, now looks all beaten up if you look at its stock price, to which we shall turn in a moment. But if NET is not as good a business as its stock price implies, FSLY is not as bad a business asitsstock price implies. As investors, we must respect price before all else, everything else is just an input. But fundamentals do sometimes matter - very often you can see value building in the fundamentals that isn't reflected in the stock price, or indeed value waning that is yet to be reflected. Which means that sometimes, just sometimes, you can get ahead of the price game by reading the numbers. (If you read our Cloudflare notes linked above, you can see us making just that argument - hidden value - which did then come to fruition in the stock price).\nLet's take a look at Fastly's numbers.\nSource: Company SEC filings,YCharts.com, Cestrian Analysis\nOK, another lot of numbers. Less numbers though, because the company doesn't disclose its remaining performance obligation in its SEC reports. This is likely because there isn't much of it - they make much of the fact that billing (and by implication contracting) is usage-based and in arrears, so we wouldn't expect a great deal of revenue visibility here.\nTurning to the reported revenue - the deceleration is material, as you can see, and coupled with the lack of visibility, this is what we think is hurting the stock right now. Today's market is positively growth-addled and if your growth is coming down, well, your stock is going to get a beating. That said, it looks to us like folks' expectations just got all ahead of themselves. Look at the TTM revenue line - remember, this is a slow-burn indicator, gives you a smoothed-out look at how things are going. TTM revenue growth peaked at 47% in Q3 2020, and in Q1 2021, it stood at 44%, which isn't really very different if you zoom out far enough. It's just that early Covid Q2 2020 +62% vs Q2 2019 growth rate that got everybody overexcited.\nSkipping around a little here, the valuation stands at 16.5x TTM revenue in exchange for 44% TTM revenue growth. That is positive cheap by current standards.\nCloudflare is asking you to pay 76x TTM revenue in exchange for 51% TTM revenue growth.\nNow don't get us wrong. Cloudflare is a better business. And we like how their management team rolls, all humblebrag-aw-shucks-what-me? whilst quietly stating that their aim is to be the dominant development environment and runtime forInternet 3.0(we paraphrase a little, but yes, that is what their grand plan is, and it might work). But it's notthatmuch better a business.\nBack to FSLY numbers. Remember how NET eats capex and leaks money into working capital? Well, same at FSLY.\nFirst, let's compare their capital expenditures using that slow-burn TTM method.\nThe company has TTM capex standing at 12% of TTM revenue, and is chalking up revenue growth of +44% on a TTM basis. Cloudflare, Inc is spending 18% of TTM revenue on its capex, again on a TTM basis; in exchange for +51% TTM revenue growth. So as a snapshot, FSLY is actually more efficient with its capex. The counter to that is, NET is building a big book of long-term business - as evidenced by its chunky RPO number - and that's what the additional capex is for. This is an interesting-if-true point to make. As in, it might be true and if so, it's a good use of their checkbook. But it has yet to translate into sufficient additional revenue growth vs. the competition to truly justify the expenditure on fundamental grounds.\nNext, margins. FSLY's gross margins are terrible, in the mid-50s%. It resembles Twilio (TWLO) in this regard, a big pay-away to telcos before you even get started. It's the biggest determinant of weak TTM EBITDA margins - which stand at negative 11% vs positive 3% at NET. And whilst those EBITDA margins at NET have been moving up, at FSLY, they have been moving down.\nTurning to cash flow - we've talked about capex already, now let's look at that boring-but-important point, change in working capital. (Remember this is simple. To do this well, pretty much all you have to do is collect cash from customers faster than you pay it to suppliers). If working capital management is bad at NET, and it is, then it is terrible at FSLY. TTM unlevered pre-tax free cash flow margins of negative 33%. This thing just eats money. And again, it has just $166m of net cash on hand vs. a TTM pre-tax pre-debt service cash burn of $104m as of the end of Q1. That means the company is very likely to raise money, via equity or debt placement. And off the back of a weak stock price that's likely to cause more pain in the stock.\nOK. You get the picture. NET is growing a little bit faster and spending more capex to do it; but its gross margins are much better so it has more money to burn in the first place. It appears to be building a big book of forward business in a way that FSLY is not, but right now, that is jam tomorrow, not revenue or earnings today. NET needs to raise capital soon in our view, and FSLY needs to raise capital sooner. So, on fundamentals, NET is a better pick, no question. But the valuation, yikes!\nNET and FSLY Stock Prices\nSince the Cloudflare IPO in 2019, NET has way outperformed FSLY and indeed the Nasdaq (shown here by way of the proxy ETF, Invesco QQQ Trust (QQQ).\nAs we state above, that NET has outperformed FSLY is justified to us on fundamentals. It's a better business with higher growth and more visibility of future growth. But right now, as earnings approaches for each of the stocks (FSLY reports on August 4th, NET on August 5th), which is the better bet for long-term investors? In short ...\nIs Cloudflare or Fastly Stock The Better Buy?\nThis isn't such a simple answer in our view. Allow us to ramble somewhat, and bear in mind, all we are talking about here is our own plans for our own money. You must, of course, do your own work and factor in your own risk appetite, time horizon, etc. But here's our approach.\nCloudflare Stock\nAs delighted as we are with the run-up in our NET holdings, and as much as we do in fact think that NET can deliver on some of those Internet 3.0 promises, the price is punchy indeed. So we rate NET at Neutral, meaning we ourselves aren't buying the stock at this point. We have a nice paper gain in long-term accounts and we've cashed a series of gains in short-term accounts along the way. But neither are we selling, because as extended as that stock price is, we think that the stock can move higher, maybe much higher, over the coming years. We think that 5-10 years out, $120/share for NET has every chance of looking like peanuts. We have about the right level of allocation now in those long-term accounts and so we are doing nothing there. If Q2 earnings are anything other than blowout, there is every chance the stock takes a dive and, if it does, we expect to play short-term once again, over and above our long-term holdings. (We keep totally separate accounts for long- and short-term holdings so we never get confused about what game we are playing).\nFastly Stock\nAs much as everybody gottoo excited about FSLY last year, so, we think, has everybody gotten too miserable this year. We have a modest allocation to FSLY in long-term accounts because ultimately we don't think the company will form part of the fabric of Internet 3.0, at least not as an independent. We don't see sufficient force of management personality, sufficiently broad product vision, nor the surround sound of Twitterati talking the thing up. Wedothink thepersistent rumors of FSLY being acquiredhave every chance of playing out and so at any given moment, we see a 20-30% or better premium available should Cisco (CSCO) or another strategic come calling. So, again, long-term holdings, we're doing nothing. We're tempted to add a little right now but with earnings so close, why take the risk? Once again our approach here is to wait for earnings. We are likely to trade it short term on any unjustified stock cratering - and indeed if the fundamentals are improving, as we have a funny feeling they will - look at the below-the-radar improvements in deferred revenue above in the last two quarters for instance - we may well add to our long-term positions at that point. For now, doing nothing before earnings, so, again, Neutral. In each case, a one-word rating doesn't really convey our plans here which is why we lay them out in such wordy detail - now you can shoot them down in flames when doing your own work!","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":899518351,"gmtCreate":1628206036773,"gmtModify":1703502997273,"author":{"id":"3582778356971864","authorId":"3582778356971864","authorIdStr":"3582778356971864","name":"NgKenny","avatar":"https://static.tigerbbs.com/4fdae3e0bdca8d3a33e7f9d619f0dc88","vip":1,"hat":"https://static.tigerbbs.com/b073a07f77dbe6b3bec6b12311fde6bd","crmLevel":2,"crmLevelSwitch":1,"idStr":"3582778356971864"},"htmlText":"Good","listText":"Good","text":"Good","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/899518351","repostId":1197602353,"repostType":4,"repost":{"id":"1197602353","pubTimestamp":1628173558,"share":"https://ttm.financial/m/news/1197602353?lang=&edition=fundamental","pubTime":"2021-08-05 22:25","market":"us","language":"en","title":"Cloudflare Vs. Fastly Stock: Which Is The Better Buy?","url":"https://stock-news.laohu8.com/highlight/detail?id=1197602353","media":"seekingalpha","summary":"Summary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up rec","content":"Summary\n<ul>\n <li>Cloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.</li>\n <li>Fastly is a less good business with, in our view, less potential. Its stock price has cratered of late, as growth has slowed and cash flow worsened.</li>\n <li>Both stocks are shortly to report their Q2 earnings. We think earnings reaction risk is to the downside on Cloudflare, to the upside on Fastly.</li>\n <li>Ultimately, we believe Cloudflare offers more upside for long-term investors, but we own both names in staff personal accounts and intend to add to both on any post-earnings weakness.</li>\n <li>We would also flag that both companies look to us like they may raise capital soon - if, in the form of new equity, that can hit both stocks.</li>\n</ul>\nPing Times May Be Similar But Time To Live Likely Differs\nSince consumer traffic started in earnest to course through the public Internet in the 1990s, content acceleration became important. The initial leader of this market, Akamai (AKAM), grew up in the dot-com era and remains a very solid business today. AKAM's original business model was simple and remains the foundation for content delivery network plays today; buy servers, rent space in telecom companies' datacenters, rent capacity on telecom networks, bill content owners for accelerated delivery of said content. As you can see, the business model is likely to be less cash generative than the now-commonplace cloud application software player, because, one, your gross margin gets hit with the telco pay-aways, and, two, your capex bill is heavy as you have to keep buying server kit. So scaling such a business - meaning, achieve a rate of growth in cash flow faster than the rate of growth in revenue - isn't so easy.\nThe two hot names in content acceleration today are Cloudflare (NET) and Fastly (FSLY). We've covered both of them on multiple occasions here on Seeking Alpha - you can read our past notes on Cloudflare, Inchereand our prior work on Fastlyhere. In addition, we own both stocks in staff personal accounts. We have a much greater allocation to NET than we do to FSLY (in a ratio of approximately 2:1). We have enjoyed an easy ride up on NET with even some poorly-timed averaging-up buys being forgiven by the Trading Gods, whereas we have been battling FSLY to average down our in-costs in the expectation of future gain and our valor has yet to be rewarded. In staff long-term accounts, we presently show a big paper gain on NET and a modest paper loss on FSLY. Along the way, we have also enjoyed separate short-term account gains in NET by buying dips and selling peaks to realize rapid cash gains. (We cover both stocks and our own trades blow by blow in our real-time, real-money Seeking Alpha Marketplace service,Cestrian Fundamentals).\nWhilst Cloudflare and Fastly core services have plenty of overlap, their business models and management styles are very different and this informs our approach to owning the names and our expectations going forward. Allow us to walk you through our views here.\nHow Is Cloudflare Different From Fastly?\nWell, first let's take a look at the similarities. Both offer content acceleration services to content owners, and both offer you something called edge computing, which is in essence the ability to place not just your content (movies, audio, etc.) on a machine near the user (as in, physically and logically near the user on the network - not in a data center thousands of miles away) but also an entire web application or parts thereof. To our investor eye, Cloudflare appears to have more product ambition; taking advantage of its edge network positioning, the company has launched a number of security services, for instance - the goal being to act as a single Internet on-ramp for its customers, a kind of Zscaler (ZS) embedded in the suite offer. If you want to deep-dive into product by product comparison on these two names - and if you do, take a tin hat, for opinions run high - take a look at a couple of engineers-turned-stock-people who cover both stocks in their work.\nNow, putting aside for the moment our own investor view that NET has a superior span of product and indeed more extensive product ambition - let's turn to the numbers.\n<img src=\"https://static.tigerbbs.com/4b54705844ce46a8f48f7d986cd113f4\" tg-width=\"640\" tg-height=\"587\" width=\"100%\" height=\"auto\"><img src=\"https://static.tigerbbs.com/ea25982971170997ab631a0e0e0af99f\" tg-width=\"640\" tg-height=\"220\" width=\"100%\" height=\"auto\">Source: Company SEC filings, YCharts.com, Cestrian Analysis\nLot of numbers there. Here are the highlights and lowlights as we see them.\nThe good:\n<ul>\n <li>Revenue growth holding steady in the 50% range, gross margin holding steady in the 77% range.</li>\n <li>Remaining performance obligation (RPO) growth of 88% vs. prior year in Q1 2021. RPO is the total order book value, some of which is prepaid, most of which is not. RPO represents just over 90% of TTM recognized revenue so it is material vs. the recognized base, and it is growing faster than the recognized base. So, best guess, NET revenues can accelerate still further.</li>\n <li>Accounting profit in the guise of EBITDA (which we define as operating income, add back depreciation &amp; amortization, add back stock-based compensation) has gone from very negative in 2019 to modestly positive in 2021 - we look at the TTM measure which is slow to respond up or down, it gives you a smoothed-out view of the direction of travel.</li>\n</ul>\nThe bad:\n<ul>\n <li>Actual money-profit in the guise of unlevered pre-tax free cash flow, has gone from horribly negative in 2019 to, er, only very negative in 2021, which in and of itself is good, but, did we mention, cash flow was very negative on a TTM basis to the end of the March 2021 quarter. This is the whole nag with this business model - can they actually become cash flow positive, after capex, after change in working capital? Akamai is, but then it has nothing like the growth ambitions of these names.</li>\n <li>Only $643m of net cash in the bank at the 31 March point. Given the cash burn, we would not be at all surprised to see the company raise money via an equity or debt placement and, if equity, we would expect a material hit to the stock price on a short-term basis at least. (We are watching closely for this and hope to buy any major dip that comes along).</li>\n</ul>\nThe visually challenged:\n<ul>\n <li>Huge capital expenditure (\"capex\") bill. Capex as you know is simply money that you spend on stuff that makes a noise when you drop it. Capex at NET, and for that matter FSLY, is mainly computing hardware. We expect significant capex here. But capex as a % of revenue is yet to show a consistent falling pattern - andonlyif we start to see some yield improvements here, some growth without much capex, can we conclude that scale benefits are beginning to flow. Right now the jury is out, and this is a big deal fundamentally.</li>\n <li>Terrible working capital management. This sounds complicated but isn't. If that \"change in working capital\" line was mainly positive, it would mean that in essence, the company collects money from its customers faster than it pays its suppliers. If mainly negative, it pays suppliers faster than it collects cash from its customers. You can see from the numbers that the latter is true. So here we have a business which, already bleeding money into the capex line, further leaks cash into working capital. This again is a big deal fundamentally. Best case, it says the business lacks the management discipline to tell suppliers to wait whilst it chases up customers. Worst case, it means the business is merely a commodity provider of services which can easily be found elsewhere, and they don't chase their customers lest they churn. Now we don'tthinkthat latter point is true; we think NET has a differentiated and sticky set of services - and if that's right, it means management just needs to get religion on cash management. They don't have it today.</li>\n</ul>\nAs we shall see in a moment, Cloudflare's stock price flatters its fundamentals. It's not as good a business as its stock trajectory implies.\nFSLY Financials\nFastly, an early huge winner in the immediate response to the Covid crisis, now looks all beaten up if you look at its stock price, to which we shall turn in a moment. But if NET is not as good a business as its stock price implies, FSLY is not as bad a business asitsstock price implies. As investors, we must respect price before all else, everything else is just an input. But fundamentals do sometimes matter - very often you can see value building in the fundamentals that isn't reflected in the stock price, or indeed value waning that is yet to be reflected. Which means that sometimes, just sometimes, you can get ahead of the price game by reading the numbers. (If you read our Cloudflare notes linked above, you can see us making just that argument - hidden value - which did then come to fruition in the stock price).\nLet's take a look at Fastly's numbers.\n<img src=\"https://static.tigerbbs.com/c3aa249a8140f7dea48136c586415d87\" tg-width=\"640\" tg-height=\"621\" width=\"100%\" height=\"auto\">Source: Company SEC filings,YCharts.com, Cestrian Analysis\nOK, another lot of numbers. Less numbers though, because the company doesn't disclose its remaining performance obligation in its SEC reports. This is likely because there isn't much of it - they make much of the fact that billing (and by implication contracting) is usage-based and in arrears, so we wouldn't expect a great deal of revenue visibility here.\nTurning to the reported revenue - the deceleration is material, as you can see, and coupled with the lack of visibility, this is what we think is hurting the stock right now. Today's market is positively growth-addled and if your growth is coming down, well, your stock is going to get a beating. That said, it looks to us like folks' expectations just got all ahead of themselves. Look at the TTM revenue line - remember, this is a slow-burn indicator, gives you a smoothed-out look at how things are going. TTM revenue growth peaked at 47% in Q3 2020, and in Q1 2021, it stood at 44%, which isn't really very different if you zoom out far enough. It's just that early Covid Q2 2020 +62% vs Q2 2019 growth rate that got everybody overexcited.\nSkipping around a little here, the valuation stands at 16.5x TTM revenue in exchange for 44% TTM revenue growth. That is positive cheap by current standards.\n<img src=\"https://static.tigerbbs.com/5469d429652493191eb4cdcf2efee55e\" tg-width=\"238\" tg-height=\"247\" width=\"100%\" height=\"auto\">Cloudflare is asking you to pay 76x TTM revenue in exchange for 51% TTM revenue growth.\n<img src=\"https://static.tigerbbs.com/d1e47eab4ff42f7649937ad13cab0413\" tg-width=\"235\" tg-height=\"250\" width=\"100%\" height=\"auto\">Now don't get us wrong. Cloudflare is a better business. And we like how their management team rolls, all humblebrag-aw-shucks-what-me? whilst quietly stating that their aim is to be the dominant development environment and runtime forInternet 3.0(we paraphrase a little, but yes, that is what their grand plan is, and it might work). But it's notthatmuch better a business.\nBack to FSLY numbers. Remember how NET eats capex and leaks money into working capital? Well, same at FSLY.\nFirst, let's compare their capital expenditures using that slow-burn TTM method.\n<img src=\"https://static.tigerbbs.com/e8e760e2b8fb4ed434bfb9dec30b547b\" tg-width=\"640\" tg-height=\"89\" width=\"100%\" height=\"auto\"><img src=\"https://static.tigerbbs.com/04bb88b1b8d8d2722a84dfc263eefaec\" tg-width=\"640\" tg-height=\"91\" width=\"100%\" height=\"auto\">The company has TTM capex standing at 12% of TTM revenue, and is chalking up revenue growth of +44% on a TTM basis. Cloudflare, Inc is spending 18% of TTM revenue on its capex, again on a TTM basis; in exchange for +51% TTM revenue growth. So as a snapshot, FSLY is actually more efficient with its capex. The counter to that is, NET is building a big book of long-term business - as evidenced by its chunky RPO number - and that's what the additional capex is for. This is an interesting-if-true point to make. As in, it might be true and if so, it's a good use of their checkbook. But it has yet to translate into sufficient additional revenue growth vs. the competition to truly justify the expenditure on fundamental grounds.\nNext, margins. FSLY's gross margins are terrible, in the mid-50s%. It resembles Twilio (TWLO) in this regard, a big pay-away to telcos before you even get started. It's the biggest determinant of weak TTM EBITDA margins - which stand at negative 11% vs positive 3% at NET. And whilst those EBITDA margins at NET have been moving up, at FSLY, they have been moving down.\nTurning to cash flow - we've talked about capex already, now let's look at that boring-but-important point, change in working capital. (Remember this is simple. To do this well, pretty much all you have to do is collect cash from customers faster than you pay it to suppliers). If working capital management is bad at NET, and it is, then it is terrible at FSLY. TTM unlevered pre-tax free cash flow margins of negative 33%. This thing just eats money. And again, it has just $166m of net cash on hand vs. a TTM pre-tax pre-debt service cash burn of $104m as of the end of Q1. That means the company is very likely to raise money, via equity or debt placement. And off the back of a weak stock price that's likely to cause more pain in the stock.\nOK. You get the picture. NET is growing a little bit faster and spending more capex to do it; but its gross margins are much better so it has more money to burn in the first place. It appears to be building a big book of forward business in a way that FSLY is not, but right now, that is jam tomorrow, not revenue or earnings today. NET needs to raise capital soon in our view, and FSLY needs to raise capital sooner. So, on fundamentals, NET is a better pick, no question. But the valuation, yikes!\nNET and FSLY Stock Prices\nSince the Cloudflare IPO in 2019, NET has way outperformed FSLY and indeed the Nasdaq (shown here by way of the proxy ETF, Invesco QQQ Trust (QQQ).\n<img src=\"https://static.tigerbbs.com/89d1f9e65c0e2e7398b5ec7b053631ec\" tg-width=\"640\" tg-height=\"378\" width=\"100%\" height=\"auto\">As we state above, that NET has outperformed FSLY is justified to us on fundamentals. It's a better business with higher growth and more visibility of future growth. But right now, as earnings approaches for each of the stocks (FSLY reports on August 4th, NET on August 5th), which is the better bet for long-term investors? In short ...\nIs Cloudflare or Fastly Stock The Better Buy?\nThis isn't such a simple answer in our view. Allow us to ramble somewhat, and bear in mind, all we are talking about here is our own plans for our own money. You must, of course, do your own work and factor in your own risk appetite, time horizon, etc. But here's our approach.\nCloudflare Stock\nAs delighted as we are with the run-up in our NET holdings, and as much as we do in fact think that NET can deliver on some of those Internet 3.0 promises, the price is punchy indeed. So we rate NET at Neutral, meaning we ourselves aren't buying the stock at this point. We have a nice paper gain in long-term accounts and we've cashed a series of gains in short-term accounts along the way. But neither are we selling, because as extended as that stock price is, we think that the stock can move higher, maybe much higher, over the coming years. We think that 5-10 years out, $120/share for NET has every chance of looking like peanuts. We have about the right level of allocation now in those long-term accounts and so we are doing nothing there. If Q2 earnings are anything other than blowout, there is every chance the stock takes a dive and, if it does, we expect to play short-term once again, over and above our long-term holdings. (We keep totally separate accounts for long- and short-term holdings so we never get confused about what game we are playing).\nFastly Stock\nAs much as everybody gottoo excited about FSLY last year, so, we think, has everybody gotten too miserable this year. We have a modest allocation to FSLY in long-term accounts because ultimately we don't think the company will form part of the fabric of Internet 3.0, at least not as an independent. We don't see sufficient force of management personality, sufficiently broad product vision, nor the surround sound of Twitterati talking the thing up. Wedothink thepersistent rumors of FSLY being acquiredhave every chance of playing out and so at any given moment, we see a 20-30% or better premium available should Cisco (CSCO) or another strategic come calling. So, again, long-term holdings, we're doing nothing. We're tempted to add a little right now but with earnings so close, why take the risk? Once again our approach here is to wait for earnings. We are likely to trade it short term on any unjustified stock cratering - and indeed if the fundamentals are improving, as we have a funny feeling they will - look at the below-the-radar improvements in deferred revenue above in the last two quarters for instance - we may well add to our long-term positions at that point. For now, doing nothing before earnings, so, again, Neutral. In each case, a one-word rating doesn't really convey our plans here which is why we lay them out in such wordy detail - now you can shoot them down in flames when doing your own work!","source":"seekingalpha","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 Vs. Fastly Stock: Which Is The Better Buy?</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 Vs. Fastly Stock: Which Is The Better Buy?\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-08-05 22:25 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.\nFastly is a less good business with, in our view, less potential. ...\n\n<a href=\"https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy\">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.","FSLY":"Fastly, Inc."},"source_url":"https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1197602353","content_text":"Summary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.\nFastly is a less good business with, in our view, less potential. Its stock price has cratered of late, as growth has slowed and cash flow worsened.\nBoth stocks are shortly to report their Q2 earnings. We think earnings reaction risk is to the downside on Cloudflare, to the upside on Fastly.\nUltimately, we believe Cloudflare offers more upside for long-term investors, but we own both names in staff personal accounts and intend to add to both on any post-earnings weakness.\nWe would also flag that both companies look to us like they may raise capital soon - if, in the form of new equity, that can hit both stocks.\n\nPing Times May Be Similar But Time To Live Likely Differs\nSince consumer traffic started in earnest to course through the public Internet in the 1990s, content acceleration became important. The initial leader of this market, Akamai (AKAM), grew up in the dot-com era and remains a very solid business today. AKAM's original business model was simple and remains the foundation for content delivery network plays today; buy servers, rent space in telecom companies' datacenters, rent capacity on telecom networks, bill content owners for accelerated delivery of said content. As you can see, the business model is likely to be less cash generative than the now-commonplace cloud application software player, because, one, your gross margin gets hit with the telco pay-aways, and, two, your capex bill is heavy as you have to keep buying server kit. So scaling such a business - meaning, achieve a rate of growth in cash flow faster than the rate of growth in revenue - isn't so easy.\nThe two hot names in content acceleration today are Cloudflare (NET) and Fastly (FSLY). We've covered both of them on multiple occasions here on Seeking Alpha - you can read our past notes on Cloudflare, Inchereand our prior work on Fastlyhere. In addition, we own both stocks in staff personal accounts. We have a much greater allocation to NET than we do to FSLY (in a ratio of approximately 2:1). We have enjoyed an easy ride up on NET with even some poorly-timed averaging-up buys being forgiven by the Trading Gods, whereas we have been battling FSLY to average down our in-costs in the expectation of future gain and our valor has yet to be rewarded. In staff long-term accounts, we presently show a big paper gain on NET and a modest paper loss on FSLY. Along the way, we have also enjoyed separate short-term account gains in NET by buying dips and selling peaks to realize rapid cash gains. (We cover both stocks and our own trades blow by blow in our real-time, real-money Seeking Alpha Marketplace service,Cestrian Fundamentals).\nWhilst Cloudflare and Fastly core services have plenty of overlap, their business models and management styles are very different and this informs our approach to owning the names and our expectations going forward. Allow us to walk you through our views here.\nHow Is Cloudflare Different From Fastly?\nWell, first let's take a look at the similarities. Both offer content acceleration services to content owners, and both offer you something called edge computing, which is in essence the ability to place not just your content (movies, audio, etc.) on a machine near the user (as in, physically and logically near the user on the network - not in a data center thousands of miles away) but also an entire web application or parts thereof. To our investor eye, Cloudflare appears to have more product ambition; taking advantage of its edge network positioning, the company has launched a number of security services, for instance - the goal being to act as a single Internet on-ramp for its customers, a kind of Zscaler (ZS) embedded in the suite offer. If you want to deep-dive into product by product comparison on these two names - and if you do, take a tin hat, for opinions run high - take a look at a couple of engineers-turned-stock-people who cover both stocks in their work.\nNow, putting aside for the moment our own investor view that NET has a superior span of product and indeed more extensive product ambition - let's turn to the numbers.\nSource: Company SEC filings, YCharts.com, Cestrian Analysis\nLot of numbers there. Here are the highlights and lowlights as we see them.\nThe good:\n\nRevenue growth holding steady in the 50% range, gross margin holding steady in the 77% range.\nRemaining performance obligation (RPO) growth of 88% vs. prior year in Q1 2021. RPO is the total order book value, some of which is prepaid, most of which is not. RPO represents just over 90% of TTM recognized revenue so it is material vs. the recognized base, and it is growing faster than the recognized base. So, best guess, NET revenues can accelerate still further.\nAccounting profit in the guise of EBITDA (which we define as operating income, add back depreciation & amortization, add back stock-based compensation) has gone from very negative in 2019 to modestly positive in 2021 - we look at the TTM measure which is slow to respond up or down, it gives you a smoothed-out view of the direction of travel.\n\nThe bad:\n\nActual money-profit in the guise of unlevered pre-tax free cash flow, has gone from horribly negative in 2019 to, er, only very negative in 2021, which in and of itself is good, but, did we mention, cash flow was very negative on a TTM basis to the end of the March 2021 quarter. This is the whole nag with this business model - can they actually become cash flow positive, after capex, after change in working capital? Akamai is, but then it has nothing like the growth ambitions of these names.\nOnly $643m of net cash in the bank at the 31 March point. Given the cash burn, we would not be at all surprised to see the company raise money via an equity or debt placement and, if equity, we would expect a material hit to the stock price on a short-term basis at least. (We are watching closely for this and hope to buy any major dip that comes along).\n\nThe visually challenged:\n\nHuge capital expenditure (\"capex\") bill. Capex as you know is simply money that you spend on stuff that makes a noise when you drop it. Capex at NET, and for that matter FSLY, is mainly computing hardware. We expect significant capex here. But capex as a % of revenue is yet to show a consistent falling pattern - andonlyif we start to see some yield improvements here, some growth without much capex, can we conclude that scale benefits are beginning to flow. Right now the jury is out, and this is a big deal fundamentally.\nTerrible working capital management. This sounds complicated but isn't. If that \"change in working capital\" line was mainly positive, it would mean that in essence, the company collects money from its customers faster than it pays its suppliers. If mainly negative, it pays suppliers faster than it collects cash from its customers. You can see from the numbers that the latter is true. So here we have a business which, already bleeding money into the capex line, further leaks cash into working capital. This again is a big deal fundamentally. Best case, it says the business lacks the management discipline to tell suppliers to wait whilst it chases up customers. Worst case, it means the business is merely a commodity provider of services which can easily be found elsewhere, and they don't chase their customers lest they churn. Now we don'tthinkthat latter point is true; we think NET has a differentiated and sticky set of services - and if that's right, it means management just needs to get religion on cash management. They don't have it today.\n\nAs we shall see in a moment, Cloudflare's stock price flatters its fundamentals. It's not as good a business as its stock trajectory implies.\nFSLY Financials\nFastly, an early huge winner in the immediate response to the Covid crisis, now looks all beaten up if you look at its stock price, to which we shall turn in a moment. But if NET is not as good a business as its stock price implies, FSLY is not as bad a business asitsstock price implies. As investors, we must respect price before all else, everything else is just an input. But fundamentals do sometimes matter - very often you can see value building in the fundamentals that isn't reflected in the stock price, or indeed value waning that is yet to be reflected. Which means that sometimes, just sometimes, you can get ahead of the price game by reading the numbers. (If you read our Cloudflare notes linked above, you can see us making just that argument - hidden value - which did then come to fruition in the stock price).\nLet's take a look at Fastly's numbers.\nSource: Company SEC filings,YCharts.com, Cestrian Analysis\nOK, another lot of numbers. Less numbers though, because the company doesn't disclose its remaining performance obligation in its SEC reports. This is likely because there isn't much of it - they make much of the fact that billing (and by implication contracting) is usage-based and in arrears, so we wouldn't expect a great deal of revenue visibility here.\nTurning to the reported revenue - the deceleration is material, as you can see, and coupled with the lack of visibility, this is what we think is hurting the stock right now. Today's market is positively growth-addled and if your growth is coming down, well, your stock is going to get a beating. That said, it looks to us like folks' expectations just got all ahead of themselves. Look at the TTM revenue line - remember, this is a slow-burn indicator, gives you a smoothed-out look at how things are going. TTM revenue growth peaked at 47% in Q3 2020, and in Q1 2021, it stood at 44%, which isn't really very different if you zoom out far enough. It's just that early Covid Q2 2020 +62% vs Q2 2019 growth rate that got everybody overexcited.\nSkipping around a little here, the valuation stands at 16.5x TTM revenue in exchange for 44% TTM revenue growth. That is positive cheap by current standards.\nCloudflare is asking you to pay 76x TTM revenue in exchange for 51% TTM revenue growth.\nNow don't get us wrong. Cloudflare is a better business. And we like how their management team rolls, all humblebrag-aw-shucks-what-me? whilst quietly stating that their aim is to be the dominant development environment and runtime forInternet 3.0(we paraphrase a little, but yes, that is what their grand plan is, and it might work). But it's notthatmuch better a business.\nBack to FSLY numbers. Remember how NET eats capex and leaks money into working capital? Well, same at FSLY.\nFirst, let's compare their capital expenditures using that slow-burn TTM method.\nThe company has TTM capex standing at 12% of TTM revenue, and is chalking up revenue growth of +44% on a TTM basis. Cloudflare, Inc is spending 18% of TTM revenue on its capex, again on a TTM basis; in exchange for +51% TTM revenue growth. So as a snapshot, FSLY is actually more efficient with its capex. The counter to that is, NET is building a big book of long-term business - as evidenced by its chunky RPO number - and that's what the additional capex is for. This is an interesting-if-true point to make. As in, it might be true and if so, it's a good use of their checkbook. But it has yet to translate into sufficient additional revenue growth vs. the competition to truly justify the expenditure on fundamental grounds.\nNext, margins. FSLY's gross margins are terrible, in the mid-50s%. It resembles Twilio (TWLO) in this regard, a big pay-away to telcos before you even get started. It's the biggest determinant of weak TTM EBITDA margins - which stand at negative 11% vs positive 3% at NET. And whilst those EBITDA margins at NET have been moving up, at FSLY, they have been moving down.\nTurning to cash flow - we've talked about capex already, now let's look at that boring-but-important point, change in working capital. (Remember this is simple. To do this well, pretty much all you have to do is collect cash from customers faster than you pay it to suppliers). If working capital management is bad at NET, and it is, then it is terrible at FSLY. TTM unlevered pre-tax free cash flow margins of negative 33%. This thing just eats money. And again, it has just $166m of net cash on hand vs. a TTM pre-tax pre-debt service cash burn of $104m as of the end of Q1. That means the company is very likely to raise money, via equity or debt placement. And off the back of a weak stock price that's likely to cause more pain in the stock.\nOK. You get the picture. NET is growing a little bit faster and spending more capex to do it; but its gross margins are much better so it has more money to burn in the first place. It appears to be building a big book of forward business in a way that FSLY is not, but right now, that is jam tomorrow, not revenue or earnings today. NET needs to raise capital soon in our view, and FSLY needs to raise capital sooner. So, on fundamentals, NET is a better pick, no question. But the valuation, yikes!\nNET and FSLY Stock Prices\nSince the Cloudflare IPO in 2019, NET has way outperformed FSLY and indeed the Nasdaq (shown here by way of the proxy ETF, Invesco QQQ Trust (QQQ).\nAs we state above, that NET has outperformed FSLY is justified to us on fundamentals. It's a better business with higher growth and more visibility of future growth. But right now, as earnings approaches for each of the stocks (FSLY reports on August 4th, NET on August 5th), which is the better bet for long-term investors? In short ...\nIs Cloudflare or Fastly Stock The Better Buy?\nThis isn't such a simple answer in our view. Allow us to ramble somewhat, and bear in mind, all we are talking about here is our own plans for our own money. You must, of course, do your own work and factor in your own risk appetite, time horizon, etc. But here's our approach.\nCloudflare Stock\nAs delighted as we are with the run-up in our NET holdings, and as much as we do in fact think that NET can deliver on some of those Internet 3.0 promises, the price is punchy indeed. So we rate NET at Neutral, meaning we ourselves aren't buying the stock at this point. We have a nice paper gain in long-term accounts and we've cashed a series of gains in short-term accounts along the way. But neither are we selling, because as extended as that stock price is, we think that the stock can move higher, maybe much higher, over the coming years. We think that 5-10 years out, $120/share for NET has every chance of looking like peanuts. We have about the right level of allocation now in those long-term accounts and so we are doing nothing there. If Q2 earnings are anything other than blowout, there is every chance the stock takes a dive and, if it does, we expect to play short-term once again, over and above our long-term holdings. (We keep totally separate accounts for long- and short-term holdings so we never get confused about what game we are playing).\nFastly Stock\nAs much as everybody gottoo excited about FSLY last year, so, we think, has everybody gotten too miserable this year. We have a modest allocation to FSLY in long-term accounts because ultimately we don't think the company will form part of the fabric of Internet 3.0, at least not as an independent. We don't see sufficient force of management personality, sufficiently broad product vision, nor the surround sound of Twitterati talking the thing up. Wedothink thepersistent rumors of FSLY being acquiredhave every chance of playing out and so at any given moment, we see a 20-30% or better premium available should Cisco (CSCO) or another strategic come calling. So, again, long-term holdings, we're doing nothing. We're tempted to add a little right now but with earnings so close, why take the risk? Once again our approach here is to wait for earnings. We are likely to trade it short term on any unjustified stock cratering - and indeed if the fundamentals are improving, as we have a funny feeling they will - look at the below-the-radar improvements in deferred revenue above in the last two quarters for instance - we may well add to our long-term positions at that point. For now, doing nothing before earnings, so, again, Neutral. In each case, a one-word rating doesn't really convey our plans here which is why we lay them out in such wordy detail - now you can shoot them down in flames when doing your own work!","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":899594221,"gmtCreate":1628205460563,"gmtModify":1703502974827,"author":{"id":"3581677245508986","authorId":"3581677245508986","authorIdStr":"3581677245508986","name":"jingsheng","avatar":"https://static.tigerbbs.com/d8033cad6345c7bb7d312f5a8020404a","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3581677245508986"},"htmlText":"cool","listText":"cool","text":"cool","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":1,"repostSize":0,"link":"https://ttm.financial/post/899594221","repostId":1197602353,"repostType":4,"repost":{"id":"1197602353","pubTimestamp":1628173558,"share":"https://ttm.financial/m/news/1197602353?lang=&edition=fundamental","pubTime":"2021-08-05 22:25","market":"us","language":"en","title":"Cloudflare Vs. Fastly Stock: Which Is The Better Buy?","url":"https://stock-news.laohu8.com/highlight/detail?id=1197602353","media":"seekingalpha","summary":"Summary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up rec","content":"Summary\n<ul>\n <li>Cloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.</li>\n <li>Fastly is a less good business with, in our view, less potential. Its stock price has cratered of late, as growth has slowed and cash flow worsened.</li>\n <li>Both stocks are shortly to report their Q2 earnings. We think earnings reaction risk is to the downside on Cloudflare, to the upside on Fastly.</li>\n <li>Ultimately, we believe Cloudflare offers more upside for long-term investors, but we own both names in staff personal accounts and intend to add to both on any post-earnings weakness.</li>\n <li>We would also flag that both companies look to us like they may raise capital soon - if, in the form of new equity, that can hit both stocks.</li>\n</ul>\nPing Times May Be Similar But Time To Live Likely Differs\nSince consumer traffic started in earnest to course through the public Internet in the 1990s, content acceleration became important. The initial leader of this market, Akamai (AKAM), grew up in the dot-com era and remains a very solid business today. AKAM's original business model was simple and remains the foundation for content delivery network plays today; buy servers, rent space in telecom companies' datacenters, rent capacity on telecom networks, bill content owners for accelerated delivery of said content. As you can see, the business model is likely to be less cash generative than the now-commonplace cloud application software player, because, one, your gross margin gets hit with the telco pay-aways, and, two, your capex bill is heavy as you have to keep buying server kit. So scaling such a business - meaning, achieve a rate of growth in cash flow faster than the rate of growth in revenue - isn't so easy.\nThe two hot names in content acceleration today are Cloudflare (NET) and Fastly (FSLY). We've covered both of them on multiple occasions here on Seeking Alpha - you can read our past notes on Cloudflare, Inchereand our prior work on Fastlyhere. In addition, we own both stocks in staff personal accounts. We have a much greater allocation to NET than we do to FSLY (in a ratio of approximately 2:1). We have enjoyed an easy ride up on NET with even some poorly-timed averaging-up buys being forgiven by the Trading Gods, whereas we have been battling FSLY to average down our in-costs in the expectation of future gain and our valor has yet to be rewarded. In staff long-term accounts, we presently show a big paper gain on NET and a modest paper loss on FSLY. Along the way, we have also enjoyed separate short-term account gains in NET by buying dips and selling peaks to realize rapid cash gains. (We cover both stocks and our own trades blow by blow in our real-time, real-money Seeking Alpha Marketplace service,Cestrian Fundamentals).\nWhilst Cloudflare and Fastly core services have plenty of overlap, their business models and management styles are very different and this informs our approach to owning the names and our expectations going forward. Allow us to walk you through our views here.\nHow Is Cloudflare Different From Fastly?\nWell, first let's take a look at the similarities. Both offer content acceleration services to content owners, and both offer you something called edge computing, which is in essence the ability to place not just your content (movies, audio, etc.) on a machine near the user (as in, physically and logically near the user on the network - not in a data center thousands of miles away) but also an entire web application or parts thereof. To our investor eye, Cloudflare appears to have more product ambition; taking advantage of its edge network positioning, the company has launched a number of security services, for instance - the goal being to act as a single Internet on-ramp for its customers, a kind of Zscaler (ZS) embedded in the suite offer. If you want to deep-dive into product by product comparison on these two names - and if you do, take a tin hat, for opinions run high - take a look at a couple of engineers-turned-stock-people who cover both stocks in their work.\nNow, putting aside for the moment our own investor view that NET has a superior span of product and indeed more extensive product ambition - let's turn to the numbers.\n<img src=\"https://static.tigerbbs.com/4b54705844ce46a8f48f7d986cd113f4\" tg-width=\"640\" tg-height=\"587\" width=\"100%\" height=\"auto\"><img src=\"https://static.tigerbbs.com/ea25982971170997ab631a0e0e0af99f\" tg-width=\"640\" tg-height=\"220\" width=\"100%\" height=\"auto\">Source: Company SEC filings, YCharts.com, Cestrian Analysis\nLot of numbers there. Here are the highlights and lowlights as we see them.\nThe good:\n<ul>\n <li>Revenue growth holding steady in the 50% range, gross margin holding steady in the 77% range.</li>\n <li>Remaining performance obligation (RPO) growth of 88% vs. prior year in Q1 2021. RPO is the total order book value, some of which is prepaid, most of which is not. RPO represents just over 90% of TTM recognized revenue so it is material vs. the recognized base, and it is growing faster than the recognized base. So, best guess, NET revenues can accelerate still further.</li>\n <li>Accounting profit in the guise of EBITDA (which we define as operating income, add back depreciation &amp; amortization, add back stock-based compensation) has gone from very negative in 2019 to modestly positive in 2021 - we look at the TTM measure which is slow to respond up or down, it gives you a smoothed-out view of the direction of travel.</li>\n</ul>\nThe bad:\n<ul>\n <li>Actual money-profit in the guise of unlevered pre-tax free cash flow, has gone from horribly negative in 2019 to, er, only very negative in 2021, which in and of itself is good, but, did we mention, cash flow was very negative on a TTM basis to the end of the March 2021 quarter. This is the whole nag with this business model - can they actually become cash flow positive, after capex, after change in working capital? Akamai is, but then it has nothing like the growth ambitions of these names.</li>\n <li>Only $643m of net cash in the bank at the 31 March point. Given the cash burn, we would not be at all surprised to see the company raise money via an equity or debt placement and, if equity, we would expect a material hit to the stock price on a short-term basis at least. (We are watching closely for this and hope to buy any major dip that comes along).</li>\n</ul>\nThe visually challenged:\n<ul>\n <li>Huge capital expenditure (\"capex\") bill. Capex as you know is simply money that you spend on stuff that makes a noise when you drop it. Capex at NET, and for that matter FSLY, is mainly computing hardware. We expect significant capex here. But capex as a % of revenue is yet to show a consistent falling pattern - andonlyif we start to see some yield improvements here, some growth without much capex, can we conclude that scale benefits are beginning to flow. Right now the jury is out, and this is a big deal fundamentally.</li>\n <li>Terrible working capital management. This sounds complicated but isn't. If that \"change in working capital\" line was mainly positive, it would mean that in essence, the company collects money from its customers faster than it pays its suppliers. If mainly negative, it pays suppliers faster than it collects cash from its customers. You can see from the numbers that the latter is true. So here we have a business which, already bleeding money into the capex line, further leaks cash into working capital. This again is a big deal fundamentally. Best case, it says the business lacks the management discipline to tell suppliers to wait whilst it chases up customers. Worst case, it means the business is merely a commodity provider of services which can easily be found elsewhere, and they don't chase their customers lest they churn. Now we don'tthinkthat latter point is true; we think NET has a differentiated and sticky set of services - and if that's right, it means management just needs to get religion on cash management. They don't have it today.</li>\n</ul>\nAs we shall see in a moment, Cloudflare's stock price flatters its fundamentals. It's not as good a business as its stock trajectory implies.\nFSLY Financials\nFastly, an early huge winner in the immediate response to the Covid crisis, now looks all beaten up if you look at its stock price, to which we shall turn in a moment. But if NET is not as good a business as its stock price implies, FSLY is not as bad a business asitsstock price implies. As investors, we must respect price before all else, everything else is just an input. But fundamentals do sometimes matter - very often you can see value building in the fundamentals that isn't reflected in the stock price, or indeed value waning that is yet to be reflected. Which means that sometimes, just sometimes, you can get ahead of the price game by reading the numbers. (If you read our Cloudflare notes linked above, you can see us making just that argument - hidden value - which did then come to fruition in the stock price).\nLet's take a look at Fastly's numbers.\n<img src=\"https://static.tigerbbs.com/c3aa249a8140f7dea48136c586415d87\" tg-width=\"640\" tg-height=\"621\" width=\"100%\" height=\"auto\">Source: Company SEC filings,YCharts.com, Cestrian Analysis\nOK, another lot of numbers. Less numbers though, because the company doesn't disclose its remaining performance obligation in its SEC reports. This is likely because there isn't much of it - they make much of the fact that billing (and by implication contracting) is usage-based and in arrears, so we wouldn't expect a great deal of revenue visibility here.\nTurning to the reported revenue - the deceleration is material, as you can see, and coupled with the lack of visibility, this is what we think is hurting the stock right now. Today's market is positively growth-addled and if your growth is coming down, well, your stock is going to get a beating. That said, it looks to us like folks' expectations just got all ahead of themselves. Look at the TTM revenue line - remember, this is a slow-burn indicator, gives you a smoothed-out look at how things are going. TTM revenue growth peaked at 47% in Q3 2020, and in Q1 2021, it stood at 44%, which isn't really very different if you zoom out far enough. It's just that early Covid Q2 2020 +62% vs Q2 2019 growth rate that got everybody overexcited.\nSkipping around a little here, the valuation stands at 16.5x TTM revenue in exchange for 44% TTM revenue growth. That is positive cheap by current standards.\n<img src=\"https://static.tigerbbs.com/5469d429652493191eb4cdcf2efee55e\" tg-width=\"238\" tg-height=\"247\" width=\"100%\" height=\"auto\">Cloudflare is asking you to pay 76x TTM revenue in exchange for 51% TTM revenue growth.\n<img src=\"https://static.tigerbbs.com/d1e47eab4ff42f7649937ad13cab0413\" tg-width=\"235\" tg-height=\"250\" width=\"100%\" height=\"auto\">Now don't get us wrong. Cloudflare is a better business. And we like how their management team rolls, all humblebrag-aw-shucks-what-me? whilst quietly stating that their aim is to be the dominant development environment and runtime forInternet 3.0(we paraphrase a little, but yes, that is what their grand plan is, and it might work). But it's notthatmuch better a business.\nBack to FSLY numbers. Remember how NET eats capex and leaks money into working capital? Well, same at FSLY.\nFirst, let's compare their capital expenditures using that slow-burn TTM method.\n<img src=\"https://static.tigerbbs.com/e8e760e2b8fb4ed434bfb9dec30b547b\" tg-width=\"640\" tg-height=\"89\" width=\"100%\" height=\"auto\"><img src=\"https://static.tigerbbs.com/04bb88b1b8d8d2722a84dfc263eefaec\" tg-width=\"640\" tg-height=\"91\" width=\"100%\" height=\"auto\">The company has TTM capex standing at 12% of TTM revenue, and is chalking up revenue growth of +44% on a TTM basis. Cloudflare, Inc is spending 18% of TTM revenue on its capex, again on a TTM basis; in exchange for +51% TTM revenue growth. So as a snapshot, FSLY is actually more efficient with its capex. The counter to that is, NET is building a big book of long-term business - as evidenced by its chunky RPO number - and that's what the additional capex is for. This is an interesting-if-true point to make. As in, it might be true and if so, it's a good use of their checkbook. But it has yet to translate into sufficient additional revenue growth vs. the competition to truly justify the expenditure on fundamental grounds.\nNext, margins. FSLY's gross margins are terrible, in the mid-50s%. It resembles Twilio (TWLO) in this regard, a big pay-away to telcos before you even get started. It's the biggest determinant of weak TTM EBITDA margins - which stand at negative 11% vs positive 3% at NET. And whilst those EBITDA margins at NET have been moving up, at FSLY, they have been moving down.\nTurning to cash flow - we've talked about capex already, now let's look at that boring-but-important point, change in working capital. (Remember this is simple. To do this well, pretty much all you have to do is collect cash from customers faster than you pay it to suppliers). If working capital management is bad at NET, and it is, then it is terrible at FSLY. TTM unlevered pre-tax free cash flow margins of negative 33%. This thing just eats money. And again, it has just $166m of net cash on hand vs. a TTM pre-tax pre-debt service cash burn of $104m as of the end of Q1. That means the company is very likely to raise money, via equity or debt placement. And off the back of a weak stock price that's likely to cause more pain in the stock.\nOK. You get the picture. NET is growing a little bit faster and spending more capex to do it; but its gross margins are much better so it has more money to burn in the first place. It appears to be building a big book of forward business in a way that FSLY is not, but right now, that is jam tomorrow, not revenue or earnings today. NET needs to raise capital soon in our view, and FSLY needs to raise capital sooner. So, on fundamentals, NET is a better pick, no question. But the valuation, yikes!\nNET and FSLY Stock Prices\nSince the Cloudflare IPO in 2019, NET has way outperformed FSLY and indeed the Nasdaq (shown here by way of the proxy ETF, Invesco QQQ Trust (QQQ).\n<img src=\"https://static.tigerbbs.com/89d1f9e65c0e2e7398b5ec7b053631ec\" tg-width=\"640\" tg-height=\"378\" width=\"100%\" height=\"auto\">As we state above, that NET has outperformed FSLY is justified to us on fundamentals. It's a better business with higher growth and more visibility of future growth. But right now, as earnings approaches for each of the stocks (FSLY reports on August 4th, NET on August 5th), which is the better bet for long-term investors? In short ...\nIs Cloudflare or Fastly Stock The Better Buy?\nThis isn't such a simple answer in our view. Allow us to ramble somewhat, and bear in mind, all we are talking about here is our own plans for our own money. You must, of course, do your own work and factor in your own risk appetite, time horizon, etc. But here's our approach.\nCloudflare Stock\nAs delighted as we are with the run-up in our NET holdings, and as much as we do in fact think that NET can deliver on some of those Internet 3.0 promises, the price is punchy indeed. So we rate NET at Neutral, meaning we ourselves aren't buying the stock at this point. We have a nice paper gain in long-term accounts and we've cashed a series of gains in short-term accounts along the way. But neither are we selling, because as extended as that stock price is, we think that the stock can move higher, maybe much higher, over the coming years. We think that 5-10 years out, $120/share for NET has every chance of looking like peanuts. We have about the right level of allocation now in those long-term accounts and so we are doing nothing there. If Q2 earnings are anything other than blowout, there is every chance the stock takes a dive and, if it does, we expect to play short-term once again, over and above our long-term holdings. (We keep totally separate accounts for long- and short-term holdings so we never get confused about what game we are playing).\nFastly Stock\nAs much as everybody gottoo excited about FSLY last year, so, we think, has everybody gotten too miserable this year. We have a modest allocation to FSLY in long-term accounts because ultimately we don't think the company will form part of the fabric of Internet 3.0, at least not as an independent. We don't see sufficient force of management personality, sufficiently broad product vision, nor the surround sound of Twitterati talking the thing up. Wedothink thepersistent rumors of FSLY being acquiredhave every chance of playing out and so at any given moment, we see a 20-30% or better premium available should Cisco (CSCO) or another strategic come calling. So, again, long-term holdings, we're doing nothing. We're tempted to add a little right now but with earnings so close, why take the risk? Once again our approach here is to wait for earnings. We are likely to trade it short term on any unjustified stock cratering - and indeed if the fundamentals are improving, as we have a funny feeling they will - look at the below-the-radar improvements in deferred revenue above in the last two quarters for instance - we may well add to our long-term positions at that point. For now, doing nothing before earnings, so, again, Neutral. In each case, a one-word rating doesn't really convey our plans here which is why we lay them out in such wordy detail - now you can shoot them down in flames when doing your own work!","source":"seekingalpha","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 Vs. Fastly Stock: Which Is The Better Buy?</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 Vs. Fastly Stock: Which Is The Better Buy?\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-08-05 22:25 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.\nFastly is a less good business with, in our view, less potential. ...\n\n<a href=\"https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy\">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.","FSLY":"Fastly, Inc."},"source_url":"https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1197602353","content_text":"Summary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.\nFastly is a less good business with, in our view, less potential. Its stock price has cratered of late, as growth has slowed and cash flow worsened.\nBoth stocks are shortly to report their Q2 earnings. We think earnings reaction risk is to the downside on Cloudflare, to the upside on Fastly.\nUltimately, we believe Cloudflare offers more upside for long-term investors, but we own both names in staff personal accounts and intend to add to both on any post-earnings weakness.\nWe would also flag that both companies look to us like they may raise capital soon - if, in the form of new equity, that can hit both stocks.\n\nPing Times May Be Similar But Time To Live Likely Differs\nSince consumer traffic started in earnest to course through the public Internet in the 1990s, content acceleration became important. The initial leader of this market, Akamai (AKAM), grew up in the dot-com era and remains a very solid business today. AKAM's original business model was simple and remains the foundation for content delivery network plays today; buy servers, rent space in telecom companies' datacenters, rent capacity on telecom networks, bill content owners for accelerated delivery of said content. As you can see, the business model is likely to be less cash generative than the now-commonplace cloud application software player, because, one, your gross margin gets hit with the telco pay-aways, and, two, your capex bill is heavy as you have to keep buying server kit. So scaling such a business - meaning, achieve a rate of growth in cash flow faster than the rate of growth in revenue - isn't so easy.\nThe two hot names in content acceleration today are Cloudflare (NET) and Fastly (FSLY). We've covered both of them on multiple occasions here on Seeking Alpha - you can read our past notes on Cloudflare, Inchereand our prior work on Fastlyhere. In addition, we own both stocks in staff personal accounts. We have a much greater allocation to NET than we do to FSLY (in a ratio of approximately 2:1). We have enjoyed an easy ride up on NET with even some poorly-timed averaging-up buys being forgiven by the Trading Gods, whereas we have been battling FSLY to average down our in-costs in the expectation of future gain and our valor has yet to be rewarded. In staff long-term accounts, we presently show a big paper gain on NET and a modest paper loss on FSLY. Along the way, we have also enjoyed separate short-term account gains in NET by buying dips and selling peaks to realize rapid cash gains. (We cover both stocks and our own trades blow by blow in our real-time, real-money Seeking Alpha Marketplace service,Cestrian Fundamentals).\nWhilst Cloudflare and Fastly core services have plenty of overlap, their business models and management styles are very different and this informs our approach to owning the names and our expectations going forward. Allow us to walk you through our views here.\nHow Is Cloudflare Different From Fastly?\nWell, first let's take a look at the similarities. Both offer content acceleration services to content owners, and both offer you something called edge computing, which is in essence the ability to place not just your content (movies, audio, etc.) on a machine near the user (as in, physically and logically near the user on the network - not in a data center thousands of miles away) but also an entire web application or parts thereof. To our investor eye, Cloudflare appears to have more product ambition; taking advantage of its edge network positioning, the company has launched a number of security services, for instance - the goal being to act as a single Internet on-ramp for its customers, a kind of Zscaler (ZS) embedded in the suite offer. If you want to deep-dive into product by product comparison on these two names - and if you do, take a tin hat, for opinions run high - take a look at a couple of engineers-turned-stock-people who cover both stocks in their work.\nNow, putting aside for the moment our own investor view that NET has a superior span of product and indeed more extensive product ambition - let's turn to the numbers.\nSource: Company SEC filings, YCharts.com, Cestrian Analysis\nLot of numbers there. Here are the highlights and lowlights as we see them.\nThe good:\n\nRevenue growth holding steady in the 50% range, gross margin holding steady in the 77% range.\nRemaining performance obligation (RPO) growth of 88% vs. prior year in Q1 2021. RPO is the total order book value, some of which is prepaid, most of which is not. RPO represents just over 90% of TTM recognized revenue so it is material vs. the recognized base, and it is growing faster than the recognized base. So, best guess, NET revenues can accelerate still further.\nAccounting profit in the guise of EBITDA (which we define as operating income, add back depreciation & amortization, add back stock-based compensation) has gone from very negative in 2019 to modestly positive in 2021 - we look at the TTM measure which is slow to respond up or down, it gives you a smoothed-out view of the direction of travel.\n\nThe bad:\n\nActual money-profit in the guise of unlevered pre-tax free cash flow, has gone from horribly negative in 2019 to, er, only very negative in 2021, which in and of itself is good, but, did we mention, cash flow was very negative on a TTM basis to the end of the March 2021 quarter. This is the whole nag with this business model - can they actually become cash flow positive, after capex, after change in working capital? Akamai is, but then it has nothing like the growth ambitions of these names.\nOnly $643m of net cash in the bank at the 31 March point. Given the cash burn, we would not be at all surprised to see the company raise money via an equity or debt placement and, if equity, we would expect a material hit to the stock price on a short-term basis at least. (We are watching closely for this and hope to buy any major dip that comes along).\n\nThe visually challenged:\n\nHuge capital expenditure (\"capex\") bill. Capex as you know is simply money that you spend on stuff that makes a noise when you drop it. Capex at NET, and for that matter FSLY, is mainly computing hardware. We expect significant capex here. But capex as a % of revenue is yet to show a consistent falling pattern - andonlyif we start to see some yield improvements here, some growth without much capex, can we conclude that scale benefits are beginning to flow. Right now the jury is out, and this is a big deal fundamentally.\nTerrible working capital management. This sounds complicated but isn't. If that \"change in working capital\" line was mainly positive, it would mean that in essence, the company collects money from its customers faster than it pays its suppliers. If mainly negative, it pays suppliers faster than it collects cash from its customers. You can see from the numbers that the latter is true. So here we have a business which, already bleeding money into the capex line, further leaks cash into working capital. This again is a big deal fundamentally. Best case, it says the business lacks the management discipline to tell suppliers to wait whilst it chases up customers. Worst case, it means the business is merely a commodity provider of services which can easily be found elsewhere, and they don't chase their customers lest they churn. Now we don'tthinkthat latter point is true; we think NET has a differentiated and sticky set of services - and if that's right, it means management just needs to get religion on cash management. They don't have it today.\n\nAs we shall see in a moment, Cloudflare's stock price flatters its fundamentals. It's not as good a business as its stock trajectory implies.\nFSLY Financials\nFastly, an early huge winner in the immediate response to the Covid crisis, now looks all beaten up if you look at its stock price, to which we shall turn in a moment. But if NET is not as good a business as its stock price implies, FSLY is not as bad a business asitsstock price implies. As investors, we must respect price before all else, everything else is just an input. But fundamentals do sometimes matter - very often you can see value building in the fundamentals that isn't reflected in the stock price, or indeed value waning that is yet to be reflected. Which means that sometimes, just sometimes, you can get ahead of the price game by reading the numbers. (If you read our Cloudflare notes linked above, you can see us making just that argument - hidden value - which did then come to fruition in the stock price).\nLet's take a look at Fastly's numbers.\nSource: Company SEC filings,YCharts.com, Cestrian Analysis\nOK, another lot of numbers. Less numbers though, because the company doesn't disclose its remaining performance obligation in its SEC reports. This is likely because there isn't much of it - they make much of the fact that billing (and by implication contracting) is usage-based and in arrears, so we wouldn't expect a great deal of revenue visibility here.\nTurning to the reported revenue - the deceleration is material, as you can see, and coupled with the lack of visibility, this is what we think is hurting the stock right now. Today's market is positively growth-addled and if your growth is coming down, well, your stock is going to get a beating. That said, it looks to us like folks' expectations just got all ahead of themselves. Look at the TTM revenue line - remember, this is a slow-burn indicator, gives you a smoothed-out look at how things are going. TTM revenue growth peaked at 47% in Q3 2020, and in Q1 2021, it stood at 44%, which isn't really very different if you zoom out far enough. It's just that early Covid Q2 2020 +62% vs Q2 2019 growth rate that got everybody overexcited.\nSkipping around a little here, the valuation stands at 16.5x TTM revenue in exchange for 44% TTM revenue growth. That is positive cheap by current standards.\nCloudflare is asking you to pay 76x TTM revenue in exchange for 51% TTM revenue growth.\nNow don't get us wrong. Cloudflare is a better business. And we like how their management team rolls, all humblebrag-aw-shucks-what-me? whilst quietly stating that their aim is to be the dominant development environment and runtime forInternet 3.0(we paraphrase a little, but yes, that is what their grand plan is, and it might work). But it's notthatmuch better a business.\nBack to FSLY numbers. Remember how NET eats capex and leaks money into working capital? Well, same at FSLY.\nFirst, let's compare their capital expenditures using that slow-burn TTM method.\nThe company has TTM capex standing at 12% of TTM revenue, and is chalking up revenue growth of +44% on a TTM basis. Cloudflare, Inc is spending 18% of TTM revenue on its capex, again on a TTM basis; in exchange for +51% TTM revenue growth. So as a snapshot, FSLY is actually more efficient with its capex. The counter to that is, NET is building a big book of long-term business - as evidenced by its chunky RPO number - and that's what the additional capex is for. This is an interesting-if-true point to make. As in, it might be true and if so, it's a good use of their checkbook. But it has yet to translate into sufficient additional revenue growth vs. the competition to truly justify the expenditure on fundamental grounds.\nNext, margins. FSLY's gross margins are terrible, in the mid-50s%. It resembles Twilio (TWLO) in this regard, a big pay-away to telcos before you even get started. It's the biggest determinant of weak TTM EBITDA margins - which stand at negative 11% vs positive 3% at NET. And whilst those EBITDA margins at NET have been moving up, at FSLY, they have been moving down.\nTurning to cash flow - we've talked about capex already, now let's look at that boring-but-important point, change in working capital. (Remember this is simple. To do this well, pretty much all you have to do is collect cash from customers faster than you pay it to suppliers). If working capital management is bad at NET, and it is, then it is terrible at FSLY. TTM unlevered pre-tax free cash flow margins of negative 33%. This thing just eats money. And again, it has just $166m of net cash on hand vs. a TTM pre-tax pre-debt service cash burn of $104m as of the end of Q1. That means the company is very likely to raise money, via equity or debt placement. And off the back of a weak stock price that's likely to cause more pain in the stock.\nOK. You get the picture. NET is growing a little bit faster and spending more capex to do it; but its gross margins are much better so it has more money to burn in the first place. It appears to be building a big book of forward business in a way that FSLY is not, but right now, that is jam tomorrow, not revenue or earnings today. NET needs to raise capital soon in our view, and FSLY needs to raise capital sooner. So, on fundamentals, NET is a better pick, no question. But the valuation, yikes!\nNET and FSLY Stock Prices\nSince the Cloudflare IPO in 2019, NET has way outperformed FSLY and indeed the Nasdaq (shown here by way of the proxy ETF, Invesco QQQ Trust (QQQ).\nAs we state above, that NET has outperformed FSLY is justified to us on fundamentals. It's a better business with higher growth and more visibility of future growth. But right now, as earnings approaches for each of the stocks (FSLY reports on August 4th, NET on August 5th), which is the better bet for long-term investors? In short ...\nIs Cloudflare or Fastly Stock The Better Buy?\nThis isn't such a simple answer in our view. Allow us to ramble somewhat, and bear in mind, all we are talking about here is our own plans for our own money. You must, of course, do your own work and factor in your own risk appetite, time horizon, etc. But here's our approach.\nCloudflare Stock\nAs delighted as we are with the run-up in our NET holdings, and as much as we do in fact think that NET can deliver on some of those Internet 3.0 promises, the price is punchy indeed. So we rate NET at Neutral, meaning we ourselves aren't buying the stock at this point. We have a nice paper gain in long-term accounts and we've cashed a series of gains in short-term accounts along the way. But neither are we selling, because as extended as that stock price is, we think that the stock can move higher, maybe much higher, over the coming years. We think that 5-10 years out, $120/share for NET has every chance of looking like peanuts. We have about the right level of allocation now in those long-term accounts and so we are doing nothing there. If Q2 earnings are anything other than blowout, there is every chance the stock takes a dive and, if it does, we expect to play short-term once again, over and above our long-term holdings. (We keep totally separate accounts for long- and short-term holdings so we never get confused about what game we are playing).\nFastly Stock\nAs much as everybody gottoo excited about FSLY last year, so, we think, has everybody gotten too miserable this year. We have a modest allocation to FSLY in long-term accounts because ultimately we don't think the company will form part of the fabric of Internet 3.0, at least not as an independent. We don't see sufficient force of management personality, sufficiently broad product vision, nor the surround sound of Twitterati talking the thing up. Wedothink thepersistent rumors of FSLY being acquiredhave every chance of playing out and so at any given moment, we see a 20-30% or better premium available should Cisco (CSCO) or another strategic come calling. So, again, long-term holdings, we're doing nothing. We're tempted to add a little right now but with earnings so close, why take the risk? Once again our approach here is to wait for earnings. We are likely to trade it short term on any unjustified stock cratering - and indeed if the fundamentals are improving, as we have a funny feeling they will - look at the below-the-radar improvements in deferred revenue above in the last two quarters for instance - we may well add to our long-term positions at that point. For now, doing nothing before earnings, so, again, Neutral. In each case, a one-word rating doesn't really convey our plans here which is why we lay them out in such wordy detail - now you can shoot them down in flames when doing your own work!","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":5440284,"gmtCreate":1628205983571,"gmtModify":1663231990438,"authorId":3581061044456313,"author":{"id":3581061044456313,"authorId":3581061044456313,"name":"Mando88","avatar":"https://static.tigerbbs.com/f135e12e9726aa04a56e19e7f1991436","vip":1,"crmLevel":7,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":899594221,"type":1,"supId":0,"prevId":0,"content":"ok","text":"ok","html":"ok"}],"langContent":"EN"},{"id":899594908,"gmtCreate":1628205446204,"gmtModify":1703502974342,"author":{"id":"3581677245508986","authorId":"3581677245508986","authorIdStr":"3581677245508986","name":"jingsheng","avatar":"https://static.tigerbbs.com/d8033cad6345c7bb7d312f5a8020404a","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3581677245508986"},"htmlText":"cool","listText":"cool","text":"cool","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":4,"commentSize":1,"repostSize":0,"link":"https://ttm.financial/post/899594908","repostId":1197602353,"repostType":4,"repost":{"id":"1197602353","pubTimestamp":1628173558,"share":"https://ttm.financial/m/news/1197602353?lang=&edition=fundamental","pubTime":"2021-08-05 22:25","market":"us","language":"en","title":"Cloudflare Vs. Fastly Stock: Which Is The Better Buy?","url":"https://stock-news.laohu8.com/highlight/detail?id=1197602353","media":"seekingalpha","summary":"Summary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up rec","content":"Summary\n<ul>\n <li>Cloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.</li>\n <li>Fastly is a less good business with, in our view, less potential. Its stock price has cratered of late, as growth has slowed and cash flow worsened.</li>\n <li>Both stocks are shortly to report their Q2 earnings. We think earnings reaction risk is to the downside on Cloudflare, to the upside on Fastly.</li>\n <li>Ultimately, we believe Cloudflare offers more upside for long-term investors, but we own both names in staff personal accounts and intend to add to both on any post-earnings weakness.</li>\n <li>We would also flag that both companies look to us like they may raise capital soon - if, in the form of new equity, that can hit both stocks.</li>\n</ul>\nPing Times May Be Similar But Time To Live Likely Differs\nSince consumer traffic started in earnest to course through the public Internet in the 1990s, content acceleration became important. The initial leader of this market, Akamai (AKAM), grew up in the dot-com era and remains a very solid business today. AKAM's original business model was simple and remains the foundation for content delivery network plays today; buy servers, rent space in telecom companies' datacenters, rent capacity on telecom networks, bill content owners for accelerated delivery of said content. As you can see, the business model is likely to be less cash generative than the now-commonplace cloud application software player, because, one, your gross margin gets hit with the telco pay-aways, and, two, your capex bill is heavy as you have to keep buying server kit. So scaling such a business - meaning, achieve a rate of growth in cash flow faster than the rate of growth in revenue - isn't so easy.\nThe two hot names in content acceleration today are Cloudflare (NET) and Fastly (FSLY). We've covered both of them on multiple occasions here on Seeking Alpha - you can read our past notes on Cloudflare, Inchereand our prior work on Fastlyhere. In addition, we own both stocks in staff personal accounts. We have a much greater allocation to NET than we do to FSLY (in a ratio of approximately 2:1). We have enjoyed an easy ride up on NET with even some poorly-timed averaging-up buys being forgiven by the Trading Gods, whereas we have been battling FSLY to average down our in-costs in the expectation of future gain and our valor has yet to be rewarded. In staff long-term accounts, we presently show a big paper gain on NET and a modest paper loss on FSLY. Along the way, we have also enjoyed separate short-term account gains in NET by buying dips and selling peaks to realize rapid cash gains. (We cover both stocks and our own trades blow by blow in our real-time, real-money Seeking Alpha Marketplace service,Cestrian Fundamentals).\nWhilst Cloudflare and Fastly core services have plenty of overlap, their business models and management styles are very different and this informs our approach to owning the names and our expectations going forward. Allow us to walk you through our views here.\nHow Is Cloudflare Different From Fastly?\nWell, first let's take a look at the similarities. Both offer content acceleration services to content owners, and both offer you something called edge computing, which is in essence the ability to place not just your content (movies, audio, etc.) on a machine near the user (as in, physically and logically near the user on the network - not in a data center thousands of miles away) but also an entire web application or parts thereof. To our investor eye, Cloudflare appears to have more product ambition; taking advantage of its edge network positioning, the company has launched a number of security services, for instance - the goal being to act as a single Internet on-ramp for its customers, a kind of Zscaler (ZS) embedded in the suite offer. If you want to deep-dive into product by product comparison on these two names - and if you do, take a tin hat, for opinions run high - take a look at a couple of engineers-turned-stock-people who cover both stocks in their work.\nNow, putting aside for the moment our own investor view that NET has a superior span of product and indeed more extensive product ambition - let's turn to the numbers.\n<img src=\"https://static.tigerbbs.com/4b54705844ce46a8f48f7d986cd113f4\" tg-width=\"640\" tg-height=\"587\" width=\"100%\" height=\"auto\"><img src=\"https://static.tigerbbs.com/ea25982971170997ab631a0e0e0af99f\" tg-width=\"640\" tg-height=\"220\" width=\"100%\" height=\"auto\">Source: Company SEC filings, YCharts.com, Cestrian Analysis\nLot of numbers there. Here are the highlights and lowlights as we see them.\nThe good:\n<ul>\n <li>Revenue growth holding steady in the 50% range, gross margin holding steady in the 77% range.</li>\n <li>Remaining performance obligation (RPO) growth of 88% vs. prior year in Q1 2021. RPO is the total order book value, some of which is prepaid, most of which is not. RPO represents just over 90% of TTM recognized revenue so it is material vs. the recognized base, and it is growing faster than the recognized base. So, best guess, NET revenues can accelerate still further.</li>\n <li>Accounting profit in the guise of EBITDA (which we define as operating income, add back depreciation &amp; amortization, add back stock-based compensation) has gone from very negative in 2019 to modestly positive in 2021 - we look at the TTM measure which is slow to respond up or down, it gives you a smoothed-out view of the direction of travel.</li>\n</ul>\nThe bad:\n<ul>\n <li>Actual money-profit in the guise of unlevered pre-tax free cash flow, has gone from horribly negative in 2019 to, er, only very negative in 2021, which in and of itself is good, but, did we mention, cash flow was very negative on a TTM basis to the end of the March 2021 quarter. This is the whole nag with this business model - can they actually become cash flow positive, after capex, after change in working capital? Akamai is, but then it has nothing like the growth ambitions of these names.</li>\n <li>Only $643m of net cash in the bank at the 31 March point. Given the cash burn, we would not be at all surprised to see the company raise money via an equity or debt placement and, if equity, we would expect a material hit to the stock price on a short-term basis at least. (We are watching closely for this and hope to buy any major dip that comes along).</li>\n</ul>\nThe visually challenged:\n<ul>\n <li>Huge capital expenditure (\"capex\") bill. Capex as you know is simply money that you spend on stuff that makes a noise when you drop it. Capex at NET, and for that matter FSLY, is mainly computing hardware. We expect significant capex here. But capex as a % of revenue is yet to show a consistent falling pattern - andonlyif we start to see some yield improvements here, some growth without much capex, can we conclude that scale benefits are beginning to flow. Right now the jury is out, and this is a big deal fundamentally.</li>\n <li>Terrible working capital management. This sounds complicated but isn't. If that \"change in working capital\" line was mainly positive, it would mean that in essence, the company collects money from its customers faster than it pays its suppliers. If mainly negative, it pays suppliers faster than it collects cash from its customers. You can see from the numbers that the latter is true. So here we have a business which, already bleeding money into the capex line, further leaks cash into working capital. This again is a big deal fundamentally. Best case, it says the business lacks the management discipline to tell suppliers to wait whilst it chases up customers. Worst case, it means the business is merely a commodity provider of services which can easily be found elsewhere, and they don't chase their customers lest they churn. Now we don'tthinkthat latter point is true; we think NET has a differentiated and sticky set of services - and if that's right, it means management just needs to get religion on cash management. They don't have it today.</li>\n</ul>\nAs we shall see in a moment, Cloudflare's stock price flatters its fundamentals. It's not as good a business as its stock trajectory implies.\nFSLY Financials\nFastly, an early huge winner in the immediate response to the Covid crisis, now looks all beaten up if you look at its stock price, to which we shall turn in a moment. But if NET is not as good a business as its stock price implies, FSLY is not as bad a business asitsstock price implies. As investors, we must respect price before all else, everything else is just an input. But fundamentals do sometimes matter - very often you can see value building in the fundamentals that isn't reflected in the stock price, or indeed value waning that is yet to be reflected. Which means that sometimes, just sometimes, you can get ahead of the price game by reading the numbers. (If you read our Cloudflare notes linked above, you can see us making just that argument - hidden value - which did then come to fruition in the stock price).\nLet's take a look at Fastly's numbers.\n<img src=\"https://static.tigerbbs.com/c3aa249a8140f7dea48136c586415d87\" tg-width=\"640\" tg-height=\"621\" width=\"100%\" height=\"auto\">Source: Company SEC filings,YCharts.com, Cestrian Analysis\nOK, another lot of numbers. Less numbers though, because the company doesn't disclose its remaining performance obligation in its SEC reports. This is likely because there isn't much of it - they make much of the fact that billing (and by implication contracting) is usage-based and in arrears, so we wouldn't expect a great deal of revenue visibility here.\nTurning to the reported revenue - the deceleration is material, as you can see, and coupled with the lack of visibility, this is what we think is hurting the stock right now. Today's market is positively growth-addled and if your growth is coming down, well, your stock is going to get a beating. That said, it looks to us like folks' expectations just got all ahead of themselves. Look at the TTM revenue line - remember, this is a slow-burn indicator, gives you a smoothed-out look at how things are going. TTM revenue growth peaked at 47% in Q3 2020, and in Q1 2021, it stood at 44%, which isn't really very different if you zoom out far enough. It's just that early Covid Q2 2020 +62% vs Q2 2019 growth rate that got everybody overexcited.\nSkipping around a little here, the valuation stands at 16.5x TTM revenue in exchange for 44% TTM revenue growth. That is positive cheap by current standards.\n<img src=\"https://static.tigerbbs.com/5469d429652493191eb4cdcf2efee55e\" tg-width=\"238\" tg-height=\"247\" width=\"100%\" height=\"auto\">Cloudflare is asking you to pay 76x TTM revenue in exchange for 51% TTM revenue growth.\n<img src=\"https://static.tigerbbs.com/d1e47eab4ff42f7649937ad13cab0413\" tg-width=\"235\" tg-height=\"250\" width=\"100%\" height=\"auto\">Now don't get us wrong. Cloudflare is a better business. And we like how their management team rolls, all humblebrag-aw-shucks-what-me? whilst quietly stating that their aim is to be the dominant development environment and runtime forInternet 3.0(we paraphrase a little, but yes, that is what their grand plan is, and it might work). But it's notthatmuch better a business.\nBack to FSLY numbers. Remember how NET eats capex and leaks money into working capital? Well, same at FSLY.\nFirst, let's compare their capital expenditures using that slow-burn TTM method.\n<img src=\"https://static.tigerbbs.com/e8e760e2b8fb4ed434bfb9dec30b547b\" tg-width=\"640\" tg-height=\"89\" width=\"100%\" height=\"auto\"><img src=\"https://static.tigerbbs.com/04bb88b1b8d8d2722a84dfc263eefaec\" tg-width=\"640\" tg-height=\"91\" width=\"100%\" height=\"auto\">The company has TTM capex standing at 12% of TTM revenue, and is chalking up revenue growth of +44% on a TTM basis. Cloudflare, Inc is spending 18% of TTM revenue on its capex, again on a TTM basis; in exchange for +51% TTM revenue growth. So as a snapshot, FSLY is actually more efficient with its capex. The counter to that is, NET is building a big book of long-term business - as evidenced by its chunky RPO number - and that's what the additional capex is for. This is an interesting-if-true point to make. As in, it might be true and if so, it's a good use of their checkbook. But it has yet to translate into sufficient additional revenue growth vs. the competition to truly justify the expenditure on fundamental grounds.\nNext, margins. FSLY's gross margins are terrible, in the mid-50s%. It resembles Twilio (TWLO) in this regard, a big pay-away to telcos before you even get started. It's the biggest determinant of weak TTM EBITDA margins - which stand at negative 11% vs positive 3% at NET. And whilst those EBITDA margins at NET have been moving up, at FSLY, they have been moving down.\nTurning to cash flow - we've talked about capex already, now let's look at that boring-but-important point, change in working capital. (Remember this is simple. To do this well, pretty much all you have to do is collect cash from customers faster than you pay it to suppliers). If working capital management is bad at NET, and it is, then it is terrible at FSLY. TTM unlevered pre-tax free cash flow margins of negative 33%. This thing just eats money. And again, it has just $166m of net cash on hand vs. a TTM pre-tax pre-debt service cash burn of $104m as of the end of Q1. That means the company is very likely to raise money, via equity or debt placement. And off the back of a weak stock price that's likely to cause more pain in the stock.\nOK. You get the picture. NET is growing a little bit faster and spending more capex to do it; but its gross margins are much better so it has more money to burn in the first place. It appears to be building a big book of forward business in a way that FSLY is not, but right now, that is jam tomorrow, not revenue or earnings today. NET needs to raise capital soon in our view, and FSLY needs to raise capital sooner. So, on fundamentals, NET is a better pick, no question. But the valuation, yikes!\nNET and FSLY Stock Prices\nSince the Cloudflare IPO in 2019, NET has way outperformed FSLY and indeed the Nasdaq (shown here by way of the proxy ETF, Invesco QQQ Trust (QQQ).\n<img src=\"https://static.tigerbbs.com/89d1f9e65c0e2e7398b5ec7b053631ec\" tg-width=\"640\" tg-height=\"378\" width=\"100%\" height=\"auto\">As we state above, that NET has outperformed FSLY is justified to us on fundamentals. It's a better business with higher growth and more visibility of future growth. But right now, as earnings approaches for each of the stocks (FSLY reports on August 4th, NET on August 5th), which is the better bet for long-term investors? In short ...\nIs Cloudflare or Fastly Stock The Better Buy?\nThis isn't such a simple answer in our view. Allow us to ramble somewhat, and bear in mind, all we are talking about here is our own plans for our own money. You must, of course, do your own work and factor in your own risk appetite, time horizon, etc. But here's our approach.\nCloudflare Stock\nAs delighted as we are with the run-up in our NET holdings, and as much as we do in fact think that NET can deliver on some of those Internet 3.0 promises, the price is punchy indeed. So we rate NET at Neutral, meaning we ourselves aren't buying the stock at this point. We have a nice paper gain in long-term accounts and we've cashed a series of gains in short-term accounts along the way. But neither are we selling, because as extended as that stock price is, we think that the stock can move higher, maybe much higher, over the coming years. We think that 5-10 years out, $120/share for NET has every chance of looking like peanuts. We have about the right level of allocation now in those long-term accounts and so we are doing nothing there. If Q2 earnings are anything other than blowout, there is every chance the stock takes a dive and, if it does, we expect to play short-term once again, over and above our long-term holdings. (We keep totally separate accounts for long- and short-term holdings so we never get confused about what game we are playing).\nFastly Stock\nAs much as everybody gottoo excited about FSLY last year, so, we think, has everybody gotten too miserable this year. We have a modest allocation to FSLY in long-term accounts because ultimately we don't think the company will form part of the fabric of Internet 3.0, at least not as an independent. We don't see sufficient force of management personality, sufficiently broad product vision, nor the surround sound of Twitterati talking the thing up. Wedothink thepersistent rumors of FSLY being acquiredhave every chance of playing out and so at any given moment, we see a 20-30% or better premium available should Cisco (CSCO) or another strategic come calling. So, again, long-term holdings, we're doing nothing. We're tempted to add a little right now but with earnings so close, why take the risk? Once again our approach here is to wait for earnings. We are likely to trade it short term on any unjustified stock cratering - and indeed if the fundamentals are improving, as we have a funny feeling they will - look at the below-the-radar improvements in deferred revenue above in the last two quarters for instance - we may well add to our long-term positions at that point. For now, doing nothing before earnings, so, again, Neutral. In each case, a one-word rating doesn't really convey our plans here which is why we lay them out in such wordy detail - now you can shoot them down in flames when doing your own work!","source":"seekingalpha","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 Vs. Fastly Stock: Which Is The Better Buy?</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 Vs. Fastly Stock: Which Is The Better Buy?\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-08-05 22:25 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.\nFastly is a less good business with, in our view, less potential. ...\n\n<a href=\"https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy\">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.","FSLY":"Fastly, Inc."},"source_url":"https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1197602353","content_text":"Summary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.\nFastly is a less good business with, in our view, less potential. Its stock price has cratered of late, as growth has slowed and cash flow worsened.\nBoth stocks are shortly to report their Q2 earnings. We think earnings reaction risk is to the downside on Cloudflare, to the upside on Fastly.\nUltimately, we believe Cloudflare offers more upside for long-term investors, but we own both names in staff personal accounts and intend to add to both on any post-earnings weakness.\nWe would also flag that both companies look to us like they may raise capital soon - if, in the form of new equity, that can hit both stocks.\n\nPing Times May Be Similar But Time To Live Likely Differs\nSince consumer traffic started in earnest to course through the public Internet in the 1990s, content acceleration became important. The initial leader of this market, Akamai (AKAM), grew up in the dot-com era and remains a very solid business today. AKAM's original business model was simple and remains the foundation for content delivery network plays today; buy servers, rent space in telecom companies' datacenters, rent capacity on telecom networks, bill content owners for accelerated delivery of said content. As you can see, the business model is likely to be less cash generative than the now-commonplace cloud application software player, because, one, your gross margin gets hit with the telco pay-aways, and, two, your capex bill is heavy as you have to keep buying server kit. So scaling such a business - meaning, achieve a rate of growth in cash flow faster than the rate of growth in revenue - isn't so easy.\nThe two hot names in content acceleration today are Cloudflare (NET) and Fastly (FSLY). We've covered both of them on multiple occasions here on Seeking Alpha - you can read our past notes on Cloudflare, Inchereand our prior work on Fastlyhere. In addition, we own both stocks in staff personal accounts. We have a much greater allocation to NET than we do to FSLY (in a ratio of approximately 2:1). We have enjoyed an easy ride up on NET with even some poorly-timed averaging-up buys being forgiven by the Trading Gods, whereas we have been battling FSLY to average down our in-costs in the expectation of future gain and our valor has yet to be rewarded. In staff long-term accounts, we presently show a big paper gain on NET and a modest paper loss on FSLY. Along the way, we have also enjoyed separate short-term account gains in NET by buying dips and selling peaks to realize rapid cash gains. (We cover both stocks and our own trades blow by blow in our real-time, real-money Seeking Alpha Marketplace service,Cestrian Fundamentals).\nWhilst Cloudflare and Fastly core services have plenty of overlap, their business models and management styles are very different and this informs our approach to owning the names and our expectations going forward. Allow us to walk you through our views here.\nHow Is Cloudflare Different From Fastly?\nWell, first let's take a look at the similarities. Both offer content acceleration services to content owners, and both offer you something called edge computing, which is in essence the ability to place not just your content (movies, audio, etc.) on a machine near the user (as in, physically and logically near the user on the network - not in a data center thousands of miles away) but also an entire web application or parts thereof. To our investor eye, Cloudflare appears to have more product ambition; taking advantage of its edge network positioning, the company has launched a number of security services, for instance - the goal being to act as a single Internet on-ramp for its customers, a kind of Zscaler (ZS) embedded in the suite offer. If you want to deep-dive into product by product comparison on these two names - and if you do, take a tin hat, for opinions run high - take a look at a couple of engineers-turned-stock-people who cover both stocks in their work.\nNow, putting aside for the moment our own investor view that NET has a superior span of product and indeed more extensive product ambition - let's turn to the numbers.\nSource: Company SEC filings, YCharts.com, Cestrian Analysis\nLot of numbers there. Here are the highlights and lowlights as we see them.\nThe good:\n\nRevenue growth holding steady in the 50% range, gross margin holding steady in the 77% range.\nRemaining performance obligation (RPO) growth of 88% vs. prior year in Q1 2021. RPO is the total order book value, some of which is prepaid, most of which is not. RPO represents just over 90% of TTM recognized revenue so it is material vs. the recognized base, and it is growing faster than the recognized base. So, best guess, NET revenues can accelerate still further.\nAccounting profit in the guise of EBITDA (which we define as operating income, add back depreciation & amortization, add back stock-based compensation) has gone from very negative in 2019 to modestly positive in 2021 - we look at the TTM measure which is slow to respond up or down, it gives you a smoothed-out view of the direction of travel.\n\nThe bad:\n\nActual money-profit in the guise of unlevered pre-tax free cash flow, has gone from horribly negative in 2019 to, er, only very negative in 2021, which in and of itself is good, but, did we mention, cash flow was very negative on a TTM basis to the end of the March 2021 quarter. This is the whole nag with this business model - can they actually become cash flow positive, after capex, after change in working capital? Akamai is, but then it has nothing like the growth ambitions of these names.\nOnly $643m of net cash in the bank at the 31 March point. Given the cash burn, we would not be at all surprised to see the company raise money via an equity or debt placement and, if equity, we would expect a material hit to the stock price on a short-term basis at least. (We are watching closely for this and hope to buy any major dip that comes along).\n\nThe visually challenged:\n\nHuge capital expenditure (\"capex\") bill. Capex as you know is simply money that you spend on stuff that makes a noise when you drop it. Capex at NET, and for that matter FSLY, is mainly computing hardware. We expect significant capex here. But capex as a % of revenue is yet to show a consistent falling pattern - andonlyif we start to see some yield improvements here, some growth without much capex, can we conclude that scale benefits are beginning to flow. Right now the jury is out, and this is a big deal fundamentally.\nTerrible working capital management. This sounds complicated but isn't. If that \"change in working capital\" line was mainly positive, it would mean that in essence, the company collects money from its customers faster than it pays its suppliers. If mainly negative, it pays suppliers faster than it collects cash from its customers. You can see from the numbers that the latter is true. So here we have a business which, already bleeding money into the capex line, further leaks cash into working capital. This again is a big deal fundamentally. Best case, it says the business lacks the management discipline to tell suppliers to wait whilst it chases up customers. Worst case, it means the business is merely a commodity provider of services which can easily be found elsewhere, and they don't chase their customers lest they churn. Now we don'tthinkthat latter point is true; we think NET has a differentiated and sticky set of services - and if that's right, it means management just needs to get religion on cash management. They don't have it today.\n\nAs we shall see in a moment, Cloudflare's stock price flatters its fundamentals. It's not as good a business as its stock trajectory implies.\nFSLY Financials\nFastly, an early huge winner in the immediate response to the Covid crisis, now looks all beaten up if you look at its stock price, to which we shall turn in a moment. But if NET is not as good a business as its stock price implies, FSLY is not as bad a business asitsstock price implies. As investors, we must respect price before all else, everything else is just an input. But fundamentals do sometimes matter - very often you can see value building in the fundamentals that isn't reflected in the stock price, or indeed value waning that is yet to be reflected. Which means that sometimes, just sometimes, you can get ahead of the price game by reading the numbers. (If you read our Cloudflare notes linked above, you can see us making just that argument - hidden value - which did then come to fruition in the stock price).\nLet's take a look at Fastly's numbers.\nSource: Company SEC filings,YCharts.com, Cestrian Analysis\nOK, another lot of numbers. Less numbers though, because the company doesn't disclose its remaining performance obligation in its SEC reports. This is likely because there isn't much of it - they make much of the fact that billing (and by implication contracting) is usage-based and in arrears, so we wouldn't expect a great deal of revenue visibility here.\nTurning to the reported revenue - the deceleration is material, as you can see, and coupled with the lack of visibility, this is what we think is hurting the stock right now. Today's market is positively growth-addled and if your growth is coming down, well, your stock is going to get a beating. That said, it looks to us like folks' expectations just got all ahead of themselves. Look at the TTM revenue line - remember, this is a slow-burn indicator, gives you a smoothed-out look at how things are going. TTM revenue growth peaked at 47% in Q3 2020, and in Q1 2021, it stood at 44%, which isn't really very different if you zoom out far enough. It's just that early Covid Q2 2020 +62% vs Q2 2019 growth rate that got everybody overexcited.\nSkipping around a little here, the valuation stands at 16.5x TTM revenue in exchange for 44% TTM revenue growth. That is positive cheap by current standards.\nCloudflare is asking you to pay 76x TTM revenue in exchange for 51% TTM revenue growth.\nNow don't get us wrong. Cloudflare is a better business. And we like how their management team rolls, all humblebrag-aw-shucks-what-me? whilst quietly stating that their aim is to be the dominant development environment and runtime forInternet 3.0(we paraphrase a little, but yes, that is what their grand plan is, and it might work). But it's notthatmuch better a business.\nBack to FSLY numbers. Remember how NET eats capex and leaks money into working capital? Well, same at FSLY.\nFirst, let's compare their capital expenditures using that slow-burn TTM method.\nThe company has TTM capex standing at 12% of TTM revenue, and is chalking up revenue growth of +44% on a TTM basis. Cloudflare, Inc is spending 18% of TTM revenue on its capex, again on a TTM basis; in exchange for +51% TTM revenue growth. So as a snapshot, FSLY is actually more efficient with its capex. The counter to that is, NET is building a big book of long-term business - as evidenced by its chunky RPO number - and that's what the additional capex is for. This is an interesting-if-true point to make. As in, it might be true and if so, it's a good use of their checkbook. But it has yet to translate into sufficient additional revenue growth vs. the competition to truly justify the expenditure on fundamental grounds.\nNext, margins. FSLY's gross margins are terrible, in the mid-50s%. It resembles Twilio (TWLO) in this regard, a big pay-away to telcos before you even get started. It's the biggest determinant of weak TTM EBITDA margins - which stand at negative 11% vs positive 3% at NET. And whilst those EBITDA margins at NET have been moving up, at FSLY, they have been moving down.\nTurning to cash flow - we've talked about capex already, now let's look at that boring-but-important point, change in working capital. (Remember this is simple. To do this well, pretty much all you have to do is collect cash from customers faster than you pay it to suppliers). If working capital management is bad at NET, and it is, then it is terrible at FSLY. TTM unlevered pre-tax free cash flow margins of negative 33%. This thing just eats money. And again, it has just $166m of net cash on hand vs. a TTM pre-tax pre-debt service cash burn of $104m as of the end of Q1. That means the company is very likely to raise money, via equity or debt placement. And off the back of a weak stock price that's likely to cause more pain in the stock.\nOK. You get the picture. NET is growing a little bit faster and spending more capex to do it; but its gross margins are much better so it has more money to burn in the first place. It appears to be building a big book of forward business in a way that FSLY is not, but right now, that is jam tomorrow, not revenue or earnings today. NET needs to raise capital soon in our view, and FSLY needs to raise capital sooner. So, on fundamentals, NET is a better pick, no question. But the valuation, yikes!\nNET and FSLY Stock Prices\nSince the Cloudflare IPO in 2019, NET has way outperformed FSLY and indeed the Nasdaq (shown here by way of the proxy ETF, Invesco QQQ Trust (QQQ).\nAs we state above, that NET has outperformed FSLY is justified to us on fundamentals. It's a better business with higher growth and more visibility of future growth. But right now, as earnings approaches for each of the stocks (FSLY reports on August 4th, NET on August 5th), which is the better bet for long-term investors? In short ...\nIs Cloudflare or Fastly Stock The Better Buy?\nThis isn't such a simple answer in our view. Allow us to ramble somewhat, and bear in mind, all we are talking about here is our own plans for our own money. You must, of course, do your own work and factor in your own risk appetite, time horizon, etc. But here's our approach.\nCloudflare Stock\nAs delighted as we are with the run-up in our NET holdings, and as much as we do in fact think that NET can deliver on some of those Internet 3.0 promises, the price is punchy indeed. So we rate NET at Neutral, meaning we ourselves aren't buying the stock at this point. We have a nice paper gain in long-term accounts and we've cashed a series of gains in short-term accounts along the way. But neither are we selling, because as extended as that stock price is, we think that the stock can move higher, maybe much higher, over the coming years. We think that 5-10 years out, $120/share for NET has every chance of looking like peanuts. We have about the right level of allocation now in those long-term accounts and so we are doing nothing there. If Q2 earnings are anything other than blowout, there is every chance the stock takes a dive and, if it does, we expect to play short-term once again, over and above our long-term holdings. (We keep totally separate accounts for long- and short-term holdings so we never get confused about what game we are playing).\nFastly Stock\nAs much as everybody gottoo excited about FSLY last year, so, we think, has everybody gotten too miserable this year. We have a modest allocation to FSLY in long-term accounts because ultimately we don't think the company will form part of the fabric of Internet 3.0, at least not as an independent. We don't see sufficient force of management personality, sufficiently broad product vision, nor the surround sound of Twitterati talking the thing up. Wedothink thepersistent rumors of FSLY being acquiredhave every chance of playing out and so at any given moment, we see a 20-30% or better premium available should Cisco (CSCO) or another strategic come calling. So, again, long-term holdings, we're doing nothing. We're tempted to add a little right now but with earnings so close, why take the risk? Once again our approach here is to wait for earnings. We are likely to trade it short term on any unjustified stock cratering - and indeed if the fundamentals are improving, as we have a funny feeling they will - look at the below-the-radar improvements in deferred revenue above in the last two quarters for instance - we may well add to our long-term positions at that point. For now, doing nothing before earnings, so, again, Neutral. In each case, a one-word rating doesn't really convey our plans here which is why we lay them out in such wordy detail - now you can shoot them down in flames when doing your own work!","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":5440139,"gmtCreate":1628205476279,"gmtModify":1663231988347,"authorId":3581677245508986,"author":{"id":3581677245508986,"authorId":3581677245508986,"name":"jingsheng","avatar":"https://static.tigerbbs.com/d8033cad6345c7bb7d312f5a8020404a","vip":1,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":899594908,"type":1,"supId":0,"prevId":0,"content":"cool","text":"cool","html":"cool"}],"langContent":"EN"},{"id":899506584,"gmtCreate":1628204881248,"gmtModify":1703502958641,"author":{"id":"3577937302028167","authorId":"3577937302028167","authorIdStr":"3577937302028167","name":"newwen","avatar":"https://community-static.tradeup.com/news/d76e150284d102a1d312d08f6f90af41","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3577937302028167"},"htmlText":"Up","listText":"Up","text":"Up","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":5,"commentSize":2,"repostSize":0,"link":"https://ttm.financial/post/899506584","repostId":1197602353,"repostType":4,"repost":{"id":"1197602353","pubTimestamp":1628173558,"share":"https://ttm.financial/m/news/1197602353?lang=&edition=fundamental","pubTime":"2021-08-05 22:25","market":"us","language":"en","title":"Cloudflare Vs. Fastly Stock: Which Is The Better Buy?","url":"https://stock-news.laohu8.com/highlight/detail?id=1197602353","media":"seekingalpha","summary":"Summary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up rec","content":"Summary\n<ul>\n <li>Cloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.</li>\n <li>Fastly is a less good business with, in our view, less potential. Its stock price has cratered of late, as growth has slowed and cash flow worsened.</li>\n <li>Both stocks are shortly to report their Q2 earnings. We think earnings reaction risk is to the downside on Cloudflare, to the upside on Fastly.</li>\n <li>Ultimately, we believe Cloudflare offers more upside for long-term investors, but we own both names in staff personal accounts and intend to add to both on any post-earnings weakness.</li>\n <li>We would also flag that both companies look to us like they may raise capital soon - if, in the form of new equity, that can hit both stocks.</li>\n</ul>\nPing Times May Be Similar But Time To Live Likely Differs\nSince consumer traffic started in earnest to course through the public Internet in the 1990s, content acceleration became important. The initial leader of this market, Akamai (AKAM), grew up in the dot-com era and remains a very solid business today. AKAM's original business model was simple and remains the foundation for content delivery network plays today; buy servers, rent space in telecom companies' datacenters, rent capacity on telecom networks, bill content owners for accelerated delivery of said content. As you can see, the business model is likely to be less cash generative than the now-commonplace cloud application software player, because, one, your gross margin gets hit with the telco pay-aways, and, two, your capex bill is heavy as you have to keep buying server kit. So scaling such a business - meaning, achieve a rate of growth in cash flow faster than the rate of growth in revenue - isn't so easy.\nThe two hot names in content acceleration today are Cloudflare (NET) and Fastly (FSLY). We've covered both of them on multiple occasions here on Seeking Alpha - you can read our past notes on Cloudflare, Inchereand our prior work on Fastlyhere. In addition, we own both stocks in staff personal accounts. We have a much greater allocation to NET than we do to FSLY (in a ratio of approximately 2:1). We have enjoyed an easy ride up on NET with even some poorly-timed averaging-up buys being forgiven by the Trading Gods, whereas we have been battling FSLY to average down our in-costs in the expectation of future gain and our valor has yet to be rewarded. In staff long-term accounts, we presently show a big paper gain on NET and a modest paper loss on FSLY. Along the way, we have also enjoyed separate short-term account gains in NET by buying dips and selling peaks to realize rapid cash gains. (We cover both stocks and our own trades blow by blow in our real-time, real-money Seeking Alpha Marketplace service,Cestrian Fundamentals).\nWhilst Cloudflare and Fastly core services have plenty of overlap, their business models and management styles are very different and this informs our approach to owning the names and our expectations going forward. Allow us to walk you through our views here.\nHow Is Cloudflare Different From Fastly?\nWell, first let's take a look at the similarities. Both offer content acceleration services to content owners, and both offer you something called edge computing, which is in essence the ability to place not just your content (movies, audio, etc.) on a machine near the user (as in, physically and logically near the user on the network - not in a data center thousands of miles away) but also an entire web application or parts thereof. To our investor eye, Cloudflare appears to have more product ambition; taking advantage of its edge network positioning, the company has launched a number of security services, for instance - the goal being to act as a single Internet on-ramp for its customers, a kind of Zscaler (ZS) embedded in the suite offer. If you want to deep-dive into product by product comparison on these two names - and if you do, take a tin hat, for opinions run high - take a look at a couple of engineers-turned-stock-people who cover both stocks in their work.\nNow, putting aside for the moment our own investor view that NET has a superior span of product and indeed more extensive product ambition - let's turn to the numbers.\n<img src=\"https://static.tigerbbs.com/4b54705844ce46a8f48f7d986cd113f4\" tg-width=\"640\" tg-height=\"587\" width=\"100%\" height=\"auto\"><img src=\"https://static.tigerbbs.com/ea25982971170997ab631a0e0e0af99f\" tg-width=\"640\" tg-height=\"220\" width=\"100%\" height=\"auto\">Source: Company SEC filings, YCharts.com, Cestrian Analysis\nLot of numbers there. Here are the highlights and lowlights as we see them.\nThe good:\n<ul>\n <li>Revenue growth holding steady in the 50% range, gross margin holding steady in the 77% range.</li>\n <li>Remaining performance obligation (RPO) growth of 88% vs. prior year in Q1 2021. RPO is the total order book value, some of which is prepaid, most of which is not. RPO represents just over 90% of TTM recognized revenue so it is material vs. the recognized base, and it is growing faster than the recognized base. So, best guess, NET revenues can accelerate still further.</li>\n <li>Accounting profit in the guise of EBITDA (which we define as operating income, add back depreciation &amp; amortization, add back stock-based compensation) has gone from very negative in 2019 to modestly positive in 2021 - we look at the TTM measure which is slow to respond up or down, it gives you a smoothed-out view of the direction of travel.</li>\n</ul>\nThe bad:\n<ul>\n <li>Actual money-profit in the guise of unlevered pre-tax free cash flow, has gone from horribly negative in 2019 to, er, only very negative in 2021, which in and of itself is good, but, did we mention, cash flow was very negative on a TTM basis to the end of the March 2021 quarter. This is the whole nag with this business model - can they actually become cash flow positive, after capex, after change in working capital? Akamai is, but then it has nothing like the growth ambitions of these names.</li>\n <li>Only $643m of net cash in the bank at the 31 March point. Given the cash burn, we would not be at all surprised to see the company raise money via an equity or debt placement and, if equity, we would expect a material hit to the stock price on a short-term basis at least. (We are watching closely for this and hope to buy any major dip that comes along).</li>\n</ul>\nThe visually challenged:\n<ul>\n <li>Huge capital expenditure (\"capex\") bill. Capex as you know is simply money that you spend on stuff that makes a noise when you drop it. Capex at NET, and for that matter FSLY, is mainly computing hardware. We expect significant capex here. But capex as a % of revenue is yet to show a consistent falling pattern - andonlyif we start to see some yield improvements here, some growth without much capex, can we conclude that scale benefits are beginning to flow. Right now the jury is out, and this is a big deal fundamentally.</li>\n <li>Terrible working capital management. This sounds complicated but isn't. If that \"change in working capital\" line was mainly positive, it would mean that in essence, the company collects money from its customers faster than it pays its suppliers. If mainly negative, it pays suppliers faster than it collects cash from its customers. You can see from the numbers that the latter is true. So here we have a business which, already bleeding money into the capex line, further leaks cash into working capital. This again is a big deal fundamentally. Best case, it says the business lacks the management discipline to tell suppliers to wait whilst it chases up customers. Worst case, it means the business is merely a commodity provider of services which can easily be found elsewhere, and they don't chase their customers lest they churn. Now we don'tthinkthat latter point is true; we think NET has a differentiated and sticky set of services - and if that's right, it means management just needs to get religion on cash management. They don't have it today.</li>\n</ul>\nAs we shall see in a moment, Cloudflare's stock price flatters its fundamentals. It's not as good a business as its stock trajectory implies.\nFSLY Financials\nFastly, an early huge winner in the immediate response to the Covid crisis, now looks all beaten up if you look at its stock price, to which we shall turn in a moment. But if NET is not as good a business as its stock price implies, FSLY is not as bad a business asitsstock price implies. As investors, we must respect price before all else, everything else is just an input. But fundamentals do sometimes matter - very often you can see value building in the fundamentals that isn't reflected in the stock price, or indeed value waning that is yet to be reflected. Which means that sometimes, just sometimes, you can get ahead of the price game by reading the numbers. (If you read our Cloudflare notes linked above, you can see us making just that argument - hidden value - which did then come to fruition in the stock price).\nLet's take a look at Fastly's numbers.\n<img src=\"https://static.tigerbbs.com/c3aa249a8140f7dea48136c586415d87\" tg-width=\"640\" tg-height=\"621\" width=\"100%\" height=\"auto\">Source: Company SEC filings,YCharts.com, Cestrian Analysis\nOK, another lot of numbers. Less numbers though, because the company doesn't disclose its remaining performance obligation in its SEC reports. This is likely because there isn't much of it - they make much of the fact that billing (and by implication contracting) is usage-based and in arrears, so we wouldn't expect a great deal of revenue visibility here.\nTurning to the reported revenue - the deceleration is material, as you can see, and coupled with the lack of visibility, this is what we think is hurting the stock right now. Today's market is positively growth-addled and if your growth is coming down, well, your stock is going to get a beating. That said, it looks to us like folks' expectations just got all ahead of themselves. Look at the TTM revenue line - remember, this is a slow-burn indicator, gives you a smoothed-out look at how things are going. TTM revenue growth peaked at 47% in Q3 2020, and in Q1 2021, it stood at 44%, which isn't really very different if you zoom out far enough. It's just that early Covid Q2 2020 +62% vs Q2 2019 growth rate that got everybody overexcited.\nSkipping around a little here, the valuation stands at 16.5x TTM revenue in exchange for 44% TTM revenue growth. That is positive cheap by current standards.\n<img src=\"https://static.tigerbbs.com/5469d429652493191eb4cdcf2efee55e\" tg-width=\"238\" tg-height=\"247\" width=\"100%\" height=\"auto\">Cloudflare is asking you to pay 76x TTM revenue in exchange for 51% TTM revenue growth.\n<img src=\"https://static.tigerbbs.com/d1e47eab4ff42f7649937ad13cab0413\" tg-width=\"235\" tg-height=\"250\" width=\"100%\" height=\"auto\">Now don't get us wrong. Cloudflare is a better business. And we like how their management team rolls, all humblebrag-aw-shucks-what-me? whilst quietly stating that their aim is to be the dominant development environment and runtime forInternet 3.0(we paraphrase a little, but yes, that is what their grand plan is, and it might work). But it's notthatmuch better a business.\nBack to FSLY numbers. Remember how NET eats capex and leaks money into working capital? Well, same at FSLY.\nFirst, let's compare their capital expenditures using that slow-burn TTM method.\n<img src=\"https://static.tigerbbs.com/e8e760e2b8fb4ed434bfb9dec30b547b\" tg-width=\"640\" tg-height=\"89\" width=\"100%\" height=\"auto\"><img src=\"https://static.tigerbbs.com/04bb88b1b8d8d2722a84dfc263eefaec\" tg-width=\"640\" tg-height=\"91\" width=\"100%\" height=\"auto\">The company has TTM capex standing at 12% of TTM revenue, and is chalking up revenue growth of +44% on a TTM basis. Cloudflare, Inc is spending 18% of TTM revenue on its capex, again on a TTM basis; in exchange for +51% TTM revenue growth. So as a snapshot, FSLY is actually more efficient with its capex. The counter to that is, NET is building a big book of long-term business - as evidenced by its chunky RPO number - and that's what the additional capex is for. This is an interesting-if-true point to make. As in, it might be true and if so, it's a good use of their checkbook. But it has yet to translate into sufficient additional revenue growth vs. the competition to truly justify the expenditure on fundamental grounds.\nNext, margins. FSLY's gross margins are terrible, in the mid-50s%. It resembles Twilio (TWLO) in this regard, a big pay-away to telcos before you even get started. It's the biggest determinant of weak TTM EBITDA margins - which stand at negative 11% vs positive 3% at NET. And whilst those EBITDA margins at NET have been moving up, at FSLY, they have been moving down.\nTurning to cash flow - we've talked about capex already, now let's look at that boring-but-important point, change in working capital. (Remember this is simple. To do this well, pretty much all you have to do is collect cash from customers faster than you pay it to suppliers). If working capital management is bad at NET, and it is, then it is terrible at FSLY. TTM unlevered pre-tax free cash flow margins of negative 33%. This thing just eats money. And again, it has just $166m of net cash on hand vs. a TTM pre-tax pre-debt service cash burn of $104m as of the end of Q1. That means the company is very likely to raise money, via equity or debt placement. And off the back of a weak stock price that's likely to cause more pain in the stock.\nOK. You get the picture. NET is growing a little bit faster and spending more capex to do it; but its gross margins are much better so it has more money to burn in the first place. It appears to be building a big book of forward business in a way that FSLY is not, but right now, that is jam tomorrow, not revenue or earnings today. NET needs to raise capital soon in our view, and FSLY needs to raise capital sooner. So, on fundamentals, NET is a better pick, no question. But the valuation, yikes!\nNET and FSLY Stock Prices\nSince the Cloudflare IPO in 2019, NET has way outperformed FSLY and indeed the Nasdaq (shown here by way of the proxy ETF, Invesco QQQ Trust (QQQ).\n<img src=\"https://static.tigerbbs.com/89d1f9e65c0e2e7398b5ec7b053631ec\" tg-width=\"640\" tg-height=\"378\" width=\"100%\" height=\"auto\">As we state above, that NET has outperformed FSLY is justified to us on fundamentals. It's a better business with higher growth and more visibility of future growth. But right now, as earnings approaches for each of the stocks (FSLY reports on August 4th, NET on August 5th), which is the better bet for long-term investors? In short ...\nIs Cloudflare or Fastly Stock The Better Buy?\nThis isn't such a simple answer in our view. Allow us to ramble somewhat, and bear in mind, all we are talking about here is our own plans for our own money. You must, of course, do your own work and factor in your own risk appetite, time horizon, etc. But here's our approach.\nCloudflare Stock\nAs delighted as we are with the run-up in our NET holdings, and as much as we do in fact think that NET can deliver on some of those Internet 3.0 promises, the price is punchy indeed. So we rate NET at Neutral, meaning we ourselves aren't buying the stock at this point. We have a nice paper gain in long-term accounts and we've cashed a series of gains in short-term accounts along the way. But neither are we selling, because as extended as that stock price is, we think that the stock can move higher, maybe much higher, over the coming years. We think that 5-10 years out, $120/share for NET has every chance of looking like peanuts. We have about the right level of allocation now in those long-term accounts and so we are doing nothing there. If Q2 earnings are anything other than blowout, there is every chance the stock takes a dive and, if it does, we expect to play short-term once again, over and above our long-term holdings. (We keep totally separate accounts for long- and short-term holdings so we never get confused about what game we are playing).\nFastly Stock\nAs much as everybody gottoo excited about FSLY last year, so, we think, has everybody gotten too miserable this year. We have a modest allocation to FSLY in long-term accounts because ultimately we don't think the company will form part of the fabric of Internet 3.0, at least not as an independent. We don't see sufficient force of management personality, sufficiently broad product vision, nor the surround sound of Twitterati talking the thing up. Wedothink thepersistent rumors of FSLY being acquiredhave every chance of playing out and so at any given moment, we see a 20-30% or better premium available should Cisco (CSCO) or another strategic come calling. So, again, long-term holdings, we're doing nothing. We're tempted to add a little right now but with earnings so close, why take the risk? Once again our approach here is to wait for earnings. We are likely to trade it short term on any unjustified stock cratering - and indeed if the fundamentals are improving, as we have a funny feeling they will - look at the below-the-radar improvements in deferred revenue above in the last two quarters for instance - we may well add to our long-term positions at that point. For now, doing nothing before earnings, so, again, Neutral. In each case, a one-word rating doesn't really convey our plans here which is why we lay them out in such wordy detail - now you can shoot them down in flames when doing your own work!","source":"seekingalpha","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 Vs. Fastly Stock: Which Is The Better Buy?</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 Vs. Fastly Stock: Which Is The Better Buy?\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-08-05 22:25 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.\nFastly is a less good business with, in our view, less potential. ...\n\n<a href=\"https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy\">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.","FSLY":"Fastly, Inc."},"source_url":"https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1197602353","content_text":"Summary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.\nFastly is a less good business with, in our view, less potential. Its stock price has cratered of late, as growth has slowed and cash flow worsened.\nBoth stocks are shortly to report their Q2 earnings. We think earnings reaction risk is to the downside on Cloudflare, to the upside on Fastly.\nUltimately, we believe Cloudflare offers more upside for long-term investors, but we own both names in staff personal accounts and intend to add to both on any post-earnings weakness.\nWe would also flag that both companies look to us like they may raise capital soon - if, in the form of new equity, that can hit both stocks.\n\nPing Times May Be Similar But Time To Live Likely Differs\nSince consumer traffic started in earnest to course through the public Internet in the 1990s, content acceleration became important. The initial leader of this market, Akamai (AKAM), grew up in the dot-com era and remains a very solid business today. AKAM's original business model was simple and remains the foundation for content delivery network plays today; buy servers, rent space in telecom companies' datacenters, rent capacity on telecom networks, bill content owners for accelerated delivery of said content. As you can see, the business model is likely to be less cash generative than the now-commonplace cloud application software player, because, one, your gross margin gets hit with the telco pay-aways, and, two, your capex bill is heavy as you have to keep buying server kit. So scaling such a business - meaning, achieve a rate of growth in cash flow faster than the rate of growth in revenue - isn't so easy.\nThe two hot names in content acceleration today are Cloudflare (NET) and Fastly (FSLY). We've covered both of them on multiple occasions here on Seeking Alpha - you can read our past notes on Cloudflare, Inchereand our prior work on Fastlyhere. In addition, we own both stocks in staff personal accounts. We have a much greater allocation to NET than we do to FSLY (in a ratio of approximately 2:1). We have enjoyed an easy ride up on NET with even some poorly-timed averaging-up buys being forgiven by the Trading Gods, whereas we have been battling FSLY to average down our in-costs in the expectation of future gain and our valor has yet to be rewarded. In staff long-term accounts, we presently show a big paper gain on NET and a modest paper loss on FSLY. Along the way, we have also enjoyed separate short-term account gains in NET by buying dips and selling peaks to realize rapid cash gains. (We cover both stocks and our own trades blow by blow in our real-time, real-money Seeking Alpha Marketplace service,Cestrian Fundamentals).\nWhilst Cloudflare and Fastly core services have plenty of overlap, their business models and management styles are very different and this informs our approach to owning the names and our expectations going forward. Allow us to walk you through our views here.\nHow Is Cloudflare Different From Fastly?\nWell, first let's take a look at the similarities. Both offer content acceleration services to content owners, and both offer you something called edge computing, which is in essence the ability to place not just your content (movies, audio, etc.) on a machine near the user (as in, physically and logically near the user on the network - not in a data center thousands of miles away) but also an entire web application or parts thereof. To our investor eye, Cloudflare appears to have more product ambition; taking advantage of its edge network positioning, the company has launched a number of security services, for instance - the goal being to act as a single Internet on-ramp for its customers, a kind of Zscaler (ZS) embedded in the suite offer. If you want to deep-dive into product by product comparison on these two names - and if you do, take a tin hat, for opinions run high - take a look at a couple of engineers-turned-stock-people who cover both stocks in their work.\nNow, putting aside for the moment our own investor view that NET has a superior span of product and indeed more extensive product ambition - let's turn to the numbers.\nSource: Company SEC filings, YCharts.com, Cestrian Analysis\nLot of numbers there. Here are the highlights and lowlights as we see them.\nThe good:\n\nRevenue growth holding steady in the 50% range, gross margin holding steady in the 77% range.\nRemaining performance obligation (RPO) growth of 88% vs. prior year in Q1 2021. RPO is the total order book value, some of which is prepaid, most of which is not. RPO represents just over 90% of TTM recognized revenue so it is material vs. the recognized base, and it is growing faster than the recognized base. So, best guess, NET revenues can accelerate still further.\nAccounting profit in the guise of EBITDA (which we define as operating income, add back depreciation & amortization, add back stock-based compensation) has gone from very negative in 2019 to modestly positive in 2021 - we look at the TTM measure which is slow to respond up or down, it gives you a smoothed-out view of the direction of travel.\n\nThe bad:\n\nActual money-profit in the guise of unlevered pre-tax free cash flow, has gone from horribly negative in 2019 to, er, only very negative in 2021, which in and of itself is good, but, did we mention, cash flow was very negative on a TTM basis to the end of the March 2021 quarter. This is the whole nag with this business model - can they actually become cash flow positive, after capex, after change in working capital? Akamai is, but then it has nothing like the growth ambitions of these names.\nOnly $643m of net cash in the bank at the 31 March point. Given the cash burn, we would not be at all surprised to see the company raise money via an equity or debt placement and, if equity, we would expect a material hit to the stock price on a short-term basis at least. (We are watching closely for this and hope to buy any major dip that comes along).\n\nThe visually challenged:\n\nHuge capital expenditure (\"capex\") bill. Capex as you know is simply money that you spend on stuff that makes a noise when you drop it. Capex at NET, and for that matter FSLY, is mainly computing hardware. We expect significant capex here. But capex as a % of revenue is yet to show a consistent falling pattern - andonlyif we start to see some yield improvements here, some growth without much capex, can we conclude that scale benefits are beginning to flow. Right now the jury is out, and this is a big deal fundamentally.\nTerrible working capital management. This sounds complicated but isn't. If that \"change in working capital\" line was mainly positive, it would mean that in essence, the company collects money from its customers faster than it pays its suppliers. If mainly negative, it pays suppliers faster than it collects cash from its customers. You can see from the numbers that the latter is true. So here we have a business which, already bleeding money into the capex line, further leaks cash into working capital. This again is a big deal fundamentally. Best case, it says the business lacks the management discipline to tell suppliers to wait whilst it chases up customers. Worst case, it means the business is merely a commodity provider of services which can easily be found elsewhere, and they don't chase their customers lest they churn. Now we don'tthinkthat latter point is true; we think NET has a differentiated and sticky set of services - and if that's right, it means management just needs to get religion on cash management. They don't have it today.\n\nAs we shall see in a moment, Cloudflare's stock price flatters its fundamentals. It's not as good a business as its stock trajectory implies.\nFSLY Financials\nFastly, an early huge winner in the immediate response to the Covid crisis, now looks all beaten up if you look at its stock price, to which we shall turn in a moment. But if NET is not as good a business as its stock price implies, FSLY is not as bad a business asitsstock price implies. As investors, we must respect price before all else, everything else is just an input. But fundamentals do sometimes matter - very often you can see value building in the fundamentals that isn't reflected in the stock price, or indeed value waning that is yet to be reflected. Which means that sometimes, just sometimes, you can get ahead of the price game by reading the numbers. (If you read our Cloudflare notes linked above, you can see us making just that argument - hidden value - which did then come to fruition in the stock price).\nLet's take a look at Fastly's numbers.\nSource: Company SEC filings,YCharts.com, Cestrian Analysis\nOK, another lot of numbers. Less numbers though, because the company doesn't disclose its remaining performance obligation in its SEC reports. This is likely because there isn't much of it - they make much of the fact that billing (and by implication contracting) is usage-based and in arrears, so we wouldn't expect a great deal of revenue visibility here.\nTurning to the reported revenue - the deceleration is material, as you can see, and coupled with the lack of visibility, this is what we think is hurting the stock right now. Today's market is positively growth-addled and if your growth is coming down, well, your stock is going to get a beating. That said, it looks to us like folks' expectations just got all ahead of themselves. Look at the TTM revenue line - remember, this is a slow-burn indicator, gives you a smoothed-out look at how things are going. TTM revenue growth peaked at 47% in Q3 2020, and in Q1 2021, it stood at 44%, which isn't really very different if you zoom out far enough. It's just that early Covid Q2 2020 +62% vs Q2 2019 growth rate that got everybody overexcited.\nSkipping around a little here, the valuation stands at 16.5x TTM revenue in exchange for 44% TTM revenue growth. That is positive cheap by current standards.\nCloudflare is asking you to pay 76x TTM revenue in exchange for 51% TTM revenue growth.\nNow don't get us wrong. Cloudflare is a better business. And we like how their management team rolls, all humblebrag-aw-shucks-what-me? whilst quietly stating that their aim is to be the dominant development environment and runtime forInternet 3.0(we paraphrase a little, but yes, that is what their grand plan is, and it might work). But it's notthatmuch better a business.\nBack to FSLY numbers. Remember how NET eats capex and leaks money into working capital? Well, same at FSLY.\nFirst, let's compare their capital expenditures using that slow-burn TTM method.\nThe company has TTM capex standing at 12% of TTM revenue, and is chalking up revenue growth of +44% on a TTM basis. Cloudflare, Inc is spending 18% of TTM revenue on its capex, again on a TTM basis; in exchange for +51% TTM revenue growth. So as a snapshot, FSLY is actually more efficient with its capex. The counter to that is, NET is building a big book of long-term business - as evidenced by its chunky RPO number - and that's what the additional capex is for. This is an interesting-if-true point to make. As in, it might be true and if so, it's a good use of their checkbook. But it has yet to translate into sufficient additional revenue growth vs. the competition to truly justify the expenditure on fundamental grounds.\nNext, margins. FSLY's gross margins are terrible, in the mid-50s%. It resembles Twilio (TWLO) in this regard, a big pay-away to telcos before you even get started. It's the biggest determinant of weak TTM EBITDA margins - which stand at negative 11% vs positive 3% at NET. And whilst those EBITDA margins at NET have been moving up, at FSLY, they have been moving down.\nTurning to cash flow - we've talked about capex already, now let's look at that boring-but-important point, change in working capital. (Remember this is simple. To do this well, pretty much all you have to do is collect cash from customers faster than you pay it to suppliers). If working capital management is bad at NET, and it is, then it is terrible at FSLY. TTM unlevered pre-tax free cash flow margins of negative 33%. This thing just eats money. And again, it has just $166m of net cash on hand vs. a TTM pre-tax pre-debt service cash burn of $104m as of the end of Q1. That means the company is very likely to raise money, via equity or debt placement. And off the back of a weak stock price that's likely to cause more pain in the stock.\nOK. You get the picture. NET is growing a little bit faster and spending more capex to do it; but its gross margins are much better so it has more money to burn in the first place. It appears to be building a big book of forward business in a way that FSLY is not, but right now, that is jam tomorrow, not revenue or earnings today. NET needs to raise capital soon in our view, and FSLY needs to raise capital sooner. So, on fundamentals, NET is a better pick, no question. But the valuation, yikes!\nNET and FSLY Stock Prices\nSince the Cloudflare IPO in 2019, NET has way outperformed FSLY and indeed the Nasdaq (shown here by way of the proxy ETF, Invesco QQQ Trust (QQQ).\nAs we state above, that NET has outperformed FSLY is justified to us on fundamentals. It's a better business with higher growth and more visibility of future growth. But right now, as earnings approaches for each of the stocks (FSLY reports on August 4th, NET on August 5th), which is the better bet for long-term investors? In short ...\nIs Cloudflare or Fastly Stock The Better Buy?\nThis isn't such a simple answer in our view. Allow us to ramble somewhat, and bear in mind, all we are talking about here is our own plans for our own money. You must, of course, do your own work and factor in your own risk appetite, time horizon, etc. But here's our approach.\nCloudflare Stock\nAs delighted as we are with the run-up in our NET holdings, and as much as we do in fact think that NET can deliver on some of those Internet 3.0 promises, the price is punchy indeed. So we rate NET at Neutral, meaning we ourselves aren't buying the stock at this point. We have a nice paper gain in long-term accounts and we've cashed a series of gains in short-term accounts along the way. But neither are we selling, because as extended as that stock price is, we think that the stock can move higher, maybe much higher, over the coming years. We think that 5-10 years out, $120/share for NET has every chance of looking like peanuts. We have about the right level of allocation now in those long-term accounts and so we are doing nothing there. If Q2 earnings are anything other than blowout, there is every chance the stock takes a dive and, if it does, we expect to play short-term once again, over and above our long-term holdings. (We keep totally separate accounts for long- and short-term holdings so we never get confused about what game we are playing).\nFastly Stock\nAs much as everybody gottoo excited about FSLY last year, so, we think, has everybody gotten too miserable this year. We have a modest allocation to FSLY in long-term accounts because ultimately we don't think the company will form part of the fabric of Internet 3.0, at least not as an independent. We don't see sufficient force of management personality, sufficiently broad product vision, nor the surround sound of Twitterati talking the thing up. Wedothink thepersistent rumors of FSLY being acquiredhave every chance of playing out and so at any given moment, we see a 20-30% or better premium available should Cisco (CSCO) or another strategic come calling. So, again, long-term holdings, we're doing nothing. We're tempted to add a little right now but with earnings so close, why take the risk? Once again our approach here is to wait for earnings. We are likely to trade it short term on any unjustified stock cratering - and indeed if the fundamentals are improving, as we have a funny feeling they will - look at the below-the-radar improvements in deferred revenue above in the last two quarters for instance - we may well add to our long-term positions at that point. For now, doing nothing before earnings, so, again, Neutral. In each case, a one-word rating doesn't really convey our plans here which is why we lay them out in such wordy detail - now you can shoot them down in flames when doing your own work!","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":5441193,"gmtCreate":1628209748936,"gmtModify":1663231994042,"authorId":3583724107037402,"author":{"id":3583724107037402,"authorId":3583724107037402,"name":"EZU","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":1,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":899506584,"type":1,"supId":0,"prevId":0,"content":"C","text":"C","html":"C"},{"id":5440333,"gmtCreate":1628206222625,"gmtModify":1663231991127,"authorId":3575593817551674,"author":{"id":3575593817551674,"authorId":3575593817551674,"name":"Lucky03","avatar":"https://static.tigerbbs.com/759e5ab6a4a94b481569511ac2bfe116","vip":1,"crmLevel":1,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":899506584,"type":1,"supId":0,"prevId":0,"content":"yes","text":"yes","html":"yes"}],"langContent":"EN"},{"id":899509130,"gmtCreate":1628204621920,"gmtModify":1703502952769,"author":{"id":"3585138959004447","authorId":"3585138959004447","authorIdStr":"3585138959004447","name":"egbloper","avatar":"https://static.tigerbbs.com/2efd47524b47d72e21f64990962a0bd4","vip":1,"crmLevel":5,"crmLevelSwitch":0,"idStr":"3585138959004447"},"htmlText":"Cloudflare has a more diversified business w edge cloud, not just CDN","listText":"Cloudflare has a more diversified business w edge cloud, not just CDN","text":"Cloudflare has a more diversified business w edge cloud, not just CDN","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/899509130","repostId":1197602353,"repostType":4,"repost":{"id":"1197602353","pubTimestamp":1628173558,"share":"https://ttm.financial/m/news/1197602353?lang=&edition=fundamental","pubTime":"2021-08-05 22:25","market":"us","language":"en","title":"Cloudflare Vs. Fastly Stock: Which Is The Better Buy?","url":"https://stock-news.laohu8.com/highlight/detail?id=1197602353","media":"seekingalpha","summary":"Summary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up rec","content":"Summary\n<ul>\n <li>Cloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.</li>\n <li>Fastly is a less good business with, in our view, less potential. Its stock price has cratered of late, as growth has slowed and cash flow worsened.</li>\n <li>Both stocks are shortly to report their Q2 earnings. We think earnings reaction risk is to the downside on Cloudflare, to the upside on Fastly.</li>\n <li>Ultimately, we believe Cloudflare offers more upside for long-term investors, but we own both names in staff personal accounts and intend to add to both on any post-earnings weakness.</li>\n <li>We would also flag that both companies look to us like they may raise capital soon - if, in the form of new equity, that can hit both stocks.</li>\n</ul>\nPing Times May Be Similar But Time To Live Likely Differs\nSince consumer traffic started in earnest to course through the public Internet in the 1990s, content acceleration became important. The initial leader of this market, Akamai (AKAM), grew up in the dot-com era and remains a very solid business today. AKAM's original business model was simple and remains the foundation for content delivery network plays today; buy servers, rent space in telecom companies' datacenters, rent capacity on telecom networks, bill content owners for accelerated delivery of said content. As you can see, the business model is likely to be less cash generative than the now-commonplace cloud application software player, because, one, your gross margin gets hit with the telco pay-aways, and, two, your capex bill is heavy as you have to keep buying server kit. So scaling such a business - meaning, achieve a rate of growth in cash flow faster than the rate of growth in revenue - isn't so easy.\nThe two hot names in content acceleration today are Cloudflare (NET) and Fastly (FSLY). We've covered both of them on multiple occasions here on Seeking Alpha - you can read our past notes on Cloudflare, Inchereand our prior work on Fastlyhere. In addition, we own both stocks in staff personal accounts. We have a much greater allocation to NET than we do to FSLY (in a ratio of approximately 2:1). We have enjoyed an easy ride up on NET with even some poorly-timed averaging-up buys being forgiven by the Trading Gods, whereas we have been battling FSLY to average down our in-costs in the expectation of future gain and our valor has yet to be rewarded. In staff long-term accounts, we presently show a big paper gain on NET and a modest paper loss on FSLY. Along the way, we have also enjoyed separate short-term account gains in NET by buying dips and selling peaks to realize rapid cash gains. (We cover both stocks and our own trades blow by blow in our real-time, real-money Seeking Alpha Marketplace service,Cestrian Fundamentals).\nWhilst Cloudflare and Fastly core services have plenty of overlap, their business models and management styles are very different and this informs our approach to owning the names and our expectations going forward. Allow us to walk you through our views here.\nHow Is Cloudflare Different From Fastly?\nWell, first let's take a look at the similarities. Both offer content acceleration services to content owners, and both offer you something called edge computing, which is in essence the ability to place not just your content (movies, audio, etc.) on a machine near the user (as in, physically and logically near the user on the network - not in a data center thousands of miles away) but also an entire web application or parts thereof. To our investor eye, Cloudflare appears to have more product ambition; taking advantage of its edge network positioning, the company has launched a number of security services, for instance - the goal being to act as a single Internet on-ramp for its customers, a kind of Zscaler (ZS) embedded in the suite offer. If you want to deep-dive into product by product comparison on these two names - and if you do, take a tin hat, for opinions run high - take a look at a couple of engineers-turned-stock-people who cover both stocks in their work.\nNow, putting aside for the moment our own investor view that NET has a superior span of product and indeed more extensive product ambition - let's turn to the numbers.\n<img src=\"https://static.tigerbbs.com/4b54705844ce46a8f48f7d986cd113f4\" tg-width=\"640\" tg-height=\"587\" width=\"100%\" height=\"auto\"><img src=\"https://static.tigerbbs.com/ea25982971170997ab631a0e0e0af99f\" tg-width=\"640\" tg-height=\"220\" width=\"100%\" height=\"auto\">Source: Company SEC filings, YCharts.com, Cestrian Analysis\nLot of numbers there. Here are the highlights and lowlights as we see them.\nThe good:\n<ul>\n <li>Revenue growth holding steady in the 50% range, gross margin holding steady in the 77% range.</li>\n <li>Remaining performance obligation (RPO) growth of 88% vs. prior year in Q1 2021. RPO is the total order book value, some of which is prepaid, most of which is not. RPO represents just over 90% of TTM recognized revenue so it is material vs. the recognized base, and it is growing faster than the recognized base. So, best guess, NET revenues can accelerate still further.</li>\n <li>Accounting profit in the guise of EBITDA (which we define as operating income, add back depreciation &amp; amortization, add back stock-based compensation) has gone from very negative in 2019 to modestly positive in 2021 - we look at the TTM measure which is slow to respond up or down, it gives you a smoothed-out view of the direction of travel.</li>\n</ul>\nThe bad:\n<ul>\n <li>Actual money-profit in the guise of unlevered pre-tax free cash flow, has gone from horribly negative in 2019 to, er, only very negative in 2021, which in and of itself is good, but, did we mention, cash flow was very negative on a TTM basis to the end of the March 2021 quarter. This is the whole nag with this business model - can they actually become cash flow positive, after capex, after change in working capital? Akamai is, but then it has nothing like the growth ambitions of these names.</li>\n <li>Only $643m of net cash in the bank at the 31 March point. Given the cash burn, we would not be at all surprised to see the company raise money via an equity or debt placement and, if equity, we would expect a material hit to the stock price on a short-term basis at least. (We are watching closely for this and hope to buy any major dip that comes along).</li>\n</ul>\nThe visually challenged:\n<ul>\n <li>Huge capital expenditure (\"capex\") bill. Capex as you know is simply money that you spend on stuff that makes a noise when you drop it. Capex at NET, and for that matter FSLY, is mainly computing hardware. We expect significant capex here. But capex as a % of revenue is yet to show a consistent falling pattern - andonlyif we start to see some yield improvements here, some growth without much capex, can we conclude that scale benefits are beginning to flow. Right now the jury is out, and this is a big deal fundamentally.</li>\n <li>Terrible working capital management. This sounds complicated but isn't. If that \"change in working capital\" line was mainly positive, it would mean that in essence, the company collects money from its customers faster than it pays its suppliers. If mainly negative, it pays suppliers faster than it collects cash from its customers. You can see from the numbers that the latter is true. So here we have a business which, already bleeding money into the capex line, further leaks cash into working capital. This again is a big deal fundamentally. Best case, it says the business lacks the management discipline to tell suppliers to wait whilst it chases up customers. Worst case, it means the business is merely a commodity provider of services which can easily be found elsewhere, and they don't chase their customers lest they churn. Now we don'tthinkthat latter point is true; we think NET has a differentiated and sticky set of services - and if that's right, it means management just needs to get religion on cash management. They don't have it today.</li>\n</ul>\nAs we shall see in a moment, Cloudflare's stock price flatters its fundamentals. It's not as good a business as its stock trajectory implies.\nFSLY Financials\nFastly, an early huge winner in the immediate response to the Covid crisis, now looks all beaten up if you look at its stock price, to which we shall turn in a moment. But if NET is not as good a business as its stock price implies, FSLY is not as bad a business asitsstock price implies. As investors, we must respect price before all else, everything else is just an input. But fundamentals do sometimes matter - very often you can see value building in the fundamentals that isn't reflected in the stock price, or indeed value waning that is yet to be reflected. Which means that sometimes, just sometimes, you can get ahead of the price game by reading the numbers. (If you read our Cloudflare notes linked above, you can see us making just that argument - hidden value - which did then come to fruition in the stock price).\nLet's take a look at Fastly's numbers.\n<img src=\"https://static.tigerbbs.com/c3aa249a8140f7dea48136c586415d87\" tg-width=\"640\" tg-height=\"621\" width=\"100%\" height=\"auto\">Source: Company SEC filings,YCharts.com, Cestrian Analysis\nOK, another lot of numbers. Less numbers though, because the company doesn't disclose its remaining performance obligation in its SEC reports. This is likely because there isn't much of it - they make much of the fact that billing (and by implication contracting) is usage-based and in arrears, so we wouldn't expect a great deal of revenue visibility here.\nTurning to the reported revenue - the deceleration is material, as you can see, and coupled with the lack of visibility, this is what we think is hurting the stock right now. Today's market is positively growth-addled and if your growth is coming down, well, your stock is going to get a beating. That said, it looks to us like folks' expectations just got all ahead of themselves. Look at the TTM revenue line - remember, this is a slow-burn indicator, gives you a smoothed-out look at how things are going. TTM revenue growth peaked at 47% in Q3 2020, and in Q1 2021, it stood at 44%, which isn't really very different if you zoom out far enough. It's just that early Covid Q2 2020 +62% vs Q2 2019 growth rate that got everybody overexcited.\nSkipping around a little here, the valuation stands at 16.5x TTM revenue in exchange for 44% TTM revenue growth. That is positive cheap by current standards.\n<img src=\"https://static.tigerbbs.com/5469d429652493191eb4cdcf2efee55e\" tg-width=\"238\" tg-height=\"247\" width=\"100%\" height=\"auto\">Cloudflare is asking you to pay 76x TTM revenue in exchange for 51% TTM revenue growth.\n<img src=\"https://static.tigerbbs.com/d1e47eab4ff42f7649937ad13cab0413\" tg-width=\"235\" tg-height=\"250\" width=\"100%\" height=\"auto\">Now don't get us wrong. Cloudflare is a better business. And we like how their management team rolls, all humblebrag-aw-shucks-what-me? whilst quietly stating that their aim is to be the dominant development environment and runtime forInternet 3.0(we paraphrase a little, but yes, that is what their grand plan is, and it might work). But it's notthatmuch better a business.\nBack to FSLY numbers. Remember how NET eats capex and leaks money into working capital? Well, same at FSLY.\nFirst, let's compare their capital expenditures using that slow-burn TTM method.\n<img src=\"https://static.tigerbbs.com/e8e760e2b8fb4ed434bfb9dec30b547b\" tg-width=\"640\" tg-height=\"89\" width=\"100%\" height=\"auto\"><img src=\"https://static.tigerbbs.com/04bb88b1b8d8d2722a84dfc263eefaec\" tg-width=\"640\" tg-height=\"91\" width=\"100%\" height=\"auto\">The company has TTM capex standing at 12% of TTM revenue, and is chalking up revenue growth of +44% on a TTM basis. Cloudflare, Inc is spending 18% of TTM revenue on its capex, again on a TTM basis; in exchange for +51% TTM revenue growth. So as a snapshot, FSLY is actually more efficient with its capex. The counter to that is, NET is building a big book of long-term business - as evidenced by its chunky RPO number - and that's what the additional capex is for. This is an interesting-if-true point to make. As in, it might be true and if so, it's a good use of their checkbook. But it has yet to translate into sufficient additional revenue growth vs. the competition to truly justify the expenditure on fundamental grounds.\nNext, margins. FSLY's gross margins are terrible, in the mid-50s%. It resembles Twilio (TWLO) in this regard, a big pay-away to telcos before you even get started. It's the biggest determinant of weak TTM EBITDA margins - which stand at negative 11% vs positive 3% at NET. And whilst those EBITDA margins at NET have been moving up, at FSLY, they have been moving down.\nTurning to cash flow - we've talked about capex already, now let's look at that boring-but-important point, change in working capital. (Remember this is simple. To do this well, pretty much all you have to do is collect cash from customers faster than you pay it to suppliers). If working capital management is bad at NET, and it is, then it is terrible at FSLY. TTM unlevered pre-tax free cash flow margins of negative 33%. This thing just eats money. And again, it has just $166m of net cash on hand vs. a TTM pre-tax pre-debt service cash burn of $104m as of the end of Q1. That means the company is very likely to raise money, via equity or debt placement. And off the back of a weak stock price that's likely to cause more pain in the stock.\nOK. You get the picture. NET is growing a little bit faster and spending more capex to do it; but its gross margins are much better so it has more money to burn in the first place. It appears to be building a big book of forward business in a way that FSLY is not, but right now, that is jam tomorrow, not revenue or earnings today. NET needs to raise capital soon in our view, and FSLY needs to raise capital sooner. So, on fundamentals, NET is a better pick, no question. But the valuation, yikes!\nNET and FSLY Stock Prices\nSince the Cloudflare IPO in 2019, NET has way outperformed FSLY and indeed the Nasdaq (shown here by way of the proxy ETF, Invesco QQQ Trust (QQQ).\n<img src=\"https://static.tigerbbs.com/89d1f9e65c0e2e7398b5ec7b053631ec\" tg-width=\"640\" tg-height=\"378\" width=\"100%\" height=\"auto\">As we state above, that NET has outperformed FSLY is justified to us on fundamentals. It's a better business with higher growth and more visibility of future growth. But right now, as earnings approaches for each of the stocks (FSLY reports on August 4th, NET on August 5th), which is the better bet for long-term investors? In short ...\nIs Cloudflare or Fastly Stock The Better Buy?\nThis isn't such a simple answer in our view. Allow us to ramble somewhat, and bear in mind, all we are talking about here is our own plans for our own money. You must, of course, do your own work and factor in your own risk appetite, time horizon, etc. But here's our approach.\nCloudflare Stock\nAs delighted as we are with the run-up in our NET holdings, and as much as we do in fact think that NET can deliver on some of those Internet 3.0 promises, the price is punchy indeed. So we rate NET at Neutral, meaning we ourselves aren't buying the stock at this point. We have a nice paper gain in long-term accounts and we've cashed a series of gains in short-term accounts along the way. But neither are we selling, because as extended as that stock price is, we think that the stock can move higher, maybe much higher, over the coming years. We think that 5-10 years out, $120/share for NET has every chance of looking like peanuts. We have about the right level of allocation now in those long-term accounts and so we are doing nothing there. If Q2 earnings are anything other than blowout, there is every chance the stock takes a dive and, if it does, we expect to play short-term once again, over and above our long-term holdings. (We keep totally separate accounts for long- and short-term holdings so we never get confused about what game we are playing).\nFastly Stock\nAs much as everybody gottoo excited about FSLY last year, so, we think, has everybody gotten too miserable this year. We have a modest allocation to FSLY in long-term accounts because ultimately we don't think the company will form part of the fabric of Internet 3.0, at least not as an independent. We don't see sufficient force of management personality, sufficiently broad product vision, nor the surround sound of Twitterati talking the thing up. Wedothink thepersistent rumors of FSLY being acquiredhave every chance of playing out and so at any given moment, we see a 20-30% or better premium available should Cisco (CSCO) or another strategic come calling. So, again, long-term holdings, we're doing nothing. We're tempted to add a little right now but with earnings so close, why take the risk? Once again our approach here is to wait for earnings. We are likely to trade it short term on any unjustified stock cratering - and indeed if the fundamentals are improving, as we have a funny feeling they will - look at the below-the-radar improvements in deferred revenue above in the last two quarters for instance - we may well add to our long-term positions at that point. For now, doing nothing before earnings, so, again, Neutral. In each case, a one-word rating doesn't really convey our plans here which is why we lay them out in such wordy detail - now you can shoot them down in flames when doing your own work!","source":"seekingalpha","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 Vs. Fastly Stock: Which Is The Better Buy?</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 Vs. Fastly Stock: Which Is The Better Buy?\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-08-05 22:25 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.\nFastly is a less good business with, in our view, less potential. ...\n\n<a href=\"https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy\">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.","FSLY":"Fastly, Inc."},"source_url":"https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1197602353","content_text":"Summary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.\nFastly is a less good business with, in our view, less potential. Its stock price has cratered of late, as growth has slowed and cash flow worsened.\nBoth stocks are shortly to report their Q2 earnings. We think earnings reaction risk is to the downside on Cloudflare, to the upside on Fastly.\nUltimately, we believe Cloudflare offers more upside for long-term investors, but we own both names in staff personal accounts and intend to add to both on any post-earnings weakness.\nWe would also flag that both companies look to us like they may raise capital soon - if, in the form of new equity, that can hit both stocks.\n\nPing Times May Be Similar But Time To Live Likely Differs\nSince consumer traffic started in earnest to course through the public Internet in the 1990s, content acceleration became important. The initial leader of this market, Akamai (AKAM), grew up in the dot-com era and remains a very solid business today. AKAM's original business model was simple and remains the foundation for content delivery network plays today; buy servers, rent space in telecom companies' datacenters, rent capacity on telecom networks, bill content owners for accelerated delivery of said content. As you can see, the business model is likely to be less cash generative than the now-commonplace cloud application software player, because, one, your gross margin gets hit with the telco pay-aways, and, two, your capex bill is heavy as you have to keep buying server kit. So scaling such a business - meaning, achieve a rate of growth in cash flow faster than the rate of growth in revenue - isn't so easy.\nThe two hot names in content acceleration today are Cloudflare (NET) and Fastly (FSLY). We've covered both of them on multiple occasions here on Seeking Alpha - you can read our past notes on Cloudflare, Inchereand our prior work on Fastlyhere. In addition, we own both stocks in staff personal accounts. We have a much greater allocation to NET than we do to FSLY (in a ratio of approximately 2:1). We have enjoyed an easy ride up on NET with even some poorly-timed averaging-up buys being forgiven by the Trading Gods, whereas we have been battling FSLY to average down our in-costs in the expectation of future gain and our valor has yet to be rewarded. In staff long-term accounts, we presently show a big paper gain on NET and a modest paper loss on FSLY. Along the way, we have also enjoyed separate short-term account gains in NET by buying dips and selling peaks to realize rapid cash gains. (We cover both stocks and our own trades blow by blow in our real-time, real-money Seeking Alpha Marketplace service,Cestrian Fundamentals).\nWhilst Cloudflare and Fastly core services have plenty of overlap, their business models and management styles are very different and this informs our approach to owning the names and our expectations going forward. Allow us to walk you through our views here.\nHow Is Cloudflare Different From Fastly?\nWell, first let's take a look at the similarities. Both offer content acceleration services to content owners, and both offer you something called edge computing, which is in essence the ability to place not just your content (movies, audio, etc.) on a machine near the user (as in, physically and logically near the user on the network - not in a data center thousands of miles away) but also an entire web application or parts thereof. To our investor eye, Cloudflare appears to have more product ambition; taking advantage of its edge network positioning, the company has launched a number of security services, for instance - the goal being to act as a single Internet on-ramp for its customers, a kind of Zscaler (ZS) embedded in the suite offer. If you want to deep-dive into product by product comparison on these two names - and if you do, take a tin hat, for opinions run high - take a look at a couple of engineers-turned-stock-people who cover both stocks in their work.\nNow, putting aside for the moment our own investor view that NET has a superior span of product and indeed more extensive product ambition - let's turn to the numbers.\nSource: Company SEC filings, YCharts.com, Cestrian Analysis\nLot of numbers there. Here are the highlights and lowlights as we see them.\nThe good:\n\nRevenue growth holding steady in the 50% range, gross margin holding steady in the 77% range.\nRemaining performance obligation (RPO) growth of 88% vs. prior year in Q1 2021. RPO is the total order book value, some of which is prepaid, most of which is not. RPO represents just over 90% of TTM recognized revenue so it is material vs. the recognized base, and it is growing faster than the recognized base. So, best guess, NET revenues can accelerate still further.\nAccounting profit in the guise of EBITDA (which we define as operating income, add back depreciation & amortization, add back stock-based compensation) has gone from very negative in 2019 to modestly positive in 2021 - we look at the TTM measure which is slow to respond up or down, it gives you a smoothed-out view of the direction of travel.\n\nThe bad:\n\nActual money-profit in the guise of unlevered pre-tax free cash flow, has gone from horribly negative in 2019 to, er, only very negative in 2021, which in and of itself is good, but, did we mention, cash flow was very negative on a TTM basis to the end of the March 2021 quarter. This is the whole nag with this business model - can they actually become cash flow positive, after capex, after change in working capital? Akamai is, but then it has nothing like the growth ambitions of these names.\nOnly $643m of net cash in the bank at the 31 March point. Given the cash burn, we would not be at all surprised to see the company raise money via an equity or debt placement and, if equity, we would expect a material hit to the stock price on a short-term basis at least. (We are watching closely for this and hope to buy any major dip that comes along).\n\nThe visually challenged:\n\nHuge capital expenditure (\"capex\") bill. Capex as you know is simply money that you spend on stuff that makes a noise when you drop it. Capex at NET, and for that matter FSLY, is mainly computing hardware. We expect significant capex here. But capex as a % of revenue is yet to show a consistent falling pattern - andonlyif we start to see some yield improvements here, some growth without much capex, can we conclude that scale benefits are beginning to flow. Right now the jury is out, and this is a big deal fundamentally.\nTerrible working capital management. This sounds complicated but isn't. If that \"change in working capital\" line was mainly positive, it would mean that in essence, the company collects money from its customers faster than it pays its suppliers. If mainly negative, it pays suppliers faster than it collects cash from its customers. You can see from the numbers that the latter is true. So here we have a business which, already bleeding money into the capex line, further leaks cash into working capital. This again is a big deal fundamentally. Best case, it says the business lacks the management discipline to tell suppliers to wait whilst it chases up customers. Worst case, it means the business is merely a commodity provider of services which can easily be found elsewhere, and they don't chase their customers lest they churn. Now we don'tthinkthat latter point is true; we think NET has a differentiated and sticky set of services - and if that's right, it means management just needs to get religion on cash management. They don't have it today.\n\nAs we shall see in a moment, Cloudflare's stock price flatters its fundamentals. It's not as good a business as its stock trajectory implies.\nFSLY Financials\nFastly, an early huge winner in the immediate response to the Covid crisis, now looks all beaten up if you look at its stock price, to which we shall turn in a moment. But if NET is not as good a business as its stock price implies, FSLY is not as bad a business asitsstock price implies. As investors, we must respect price before all else, everything else is just an input. But fundamentals do sometimes matter - very often you can see value building in the fundamentals that isn't reflected in the stock price, or indeed value waning that is yet to be reflected. Which means that sometimes, just sometimes, you can get ahead of the price game by reading the numbers. (If you read our Cloudflare notes linked above, you can see us making just that argument - hidden value - which did then come to fruition in the stock price).\nLet's take a look at Fastly's numbers.\nSource: Company SEC filings,YCharts.com, Cestrian Analysis\nOK, another lot of numbers. Less numbers though, because the company doesn't disclose its remaining performance obligation in its SEC reports. This is likely because there isn't much of it - they make much of the fact that billing (and by implication contracting) is usage-based and in arrears, so we wouldn't expect a great deal of revenue visibility here.\nTurning to the reported revenue - the deceleration is material, as you can see, and coupled with the lack of visibility, this is what we think is hurting the stock right now. Today's market is positively growth-addled and if your growth is coming down, well, your stock is going to get a beating. That said, it looks to us like folks' expectations just got all ahead of themselves. Look at the TTM revenue line - remember, this is a slow-burn indicator, gives you a smoothed-out look at how things are going. TTM revenue growth peaked at 47% in Q3 2020, and in Q1 2021, it stood at 44%, which isn't really very different if you zoom out far enough. It's just that early Covid Q2 2020 +62% vs Q2 2019 growth rate that got everybody overexcited.\nSkipping around a little here, the valuation stands at 16.5x TTM revenue in exchange for 44% TTM revenue growth. That is positive cheap by current standards.\nCloudflare is asking you to pay 76x TTM revenue in exchange for 51% TTM revenue growth.\nNow don't get us wrong. Cloudflare is a better business. And we like how their management team rolls, all humblebrag-aw-shucks-what-me? whilst quietly stating that their aim is to be the dominant development environment and runtime forInternet 3.0(we paraphrase a little, but yes, that is what their grand plan is, and it might work). But it's notthatmuch better a business.\nBack to FSLY numbers. Remember how NET eats capex and leaks money into working capital? Well, same at FSLY.\nFirst, let's compare their capital expenditures using that slow-burn TTM method.\nThe company has TTM capex standing at 12% of TTM revenue, and is chalking up revenue growth of +44% on a TTM basis. Cloudflare, Inc is spending 18% of TTM revenue on its capex, again on a TTM basis; in exchange for +51% TTM revenue growth. So as a snapshot, FSLY is actually more efficient with its capex. The counter to that is, NET is building a big book of long-term business - as evidenced by its chunky RPO number - and that's what the additional capex is for. This is an interesting-if-true point to make. As in, it might be true and if so, it's a good use of their checkbook. But it has yet to translate into sufficient additional revenue growth vs. the competition to truly justify the expenditure on fundamental grounds.\nNext, margins. FSLY's gross margins are terrible, in the mid-50s%. It resembles Twilio (TWLO) in this regard, a big pay-away to telcos before you even get started. It's the biggest determinant of weak TTM EBITDA margins - which stand at negative 11% vs positive 3% at NET. And whilst those EBITDA margins at NET have been moving up, at FSLY, they have been moving down.\nTurning to cash flow - we've talked about capex already, now let's look at that boring-but-important point, change in working capital. (Remember this is simple. To do this well, pretty much all you have to do is collect cash from customers faster than you pay it to suppliers). If working capital management is bad at NET, and it is, then it is terrible at FSLY. TTM unlevered pre-tax free cash flow margins of negative 33%. This thing just eats money. And again, it has just $166m of net cash on hand vs. a TTM pre-tax pre-debt service cash burn of $104m as of the end of Q1. That means the company is very likely to raise money, via equity or debt placement. And off the back of a weak stock price that's likely to cause more pain in the stock.\nOK. You get the picture. NET is growing a little bit faster and spending more capex to do it; but its gross margins are much better so it has more money to burn in the first place. It appears to be building a big book of forward business in a way that FSLY is not, but right now, that is jam tomorrow, not revenue or earnings today. NET needs to raise capital soon in our view, and FSLY needs to raise capital sooner. So, on fundamentals, NET is a better pick, no question. But the valuation, yikes!\nNET and FSLY Stock Prices\nSince the Cloudflare IPO in 2019, NET has way outperformed FSLY and indeed the Nasdaq (shown here by way of the proxy ETF, Invesco QQQ Trust (QQQ).\nAs we state above, that NET has outperformed FSLY is justified to us on fundamentals. It's a better business with higher growth and more visibility of future growth. But right now, as earnings approaches for each of the stocks (FSLY reports on August 4th, NET on August 5th), which is the better bet for long-term investors? In short ...\nIs Cloudflare or Fastly Stock The Better Buy?\nThis isn't such a simple answer in our view. Allow us to ramble somewhat, and bear in mind, all we are talking about here is our own plans for our own money. You must, of course, do your own work and factor in your own risk appetite, time horizon, etc. But here's our approach.\nCloudflare Stock\nAs delighted as we are with the run-up in our NET holdings, and as much as we do in fact think that NET can deliver on some of those Internet 3.0 promises, the price is punchy indeed. So we rate NET at Neutral, meaning we ourselves aren't buying the stock at this point. We have a nice paper gain in long-term accounts and we've cashed a series of gains in short-term accounts along the way. But neither are we selling, because as extended as that stock price is, we think that the stock can move higher, maybe much higher, over the coming years. We think that 5-10 years out, $120/share for NET has every chance of looking like peanuts. We have about the right level of allocation now in those long-term accounts and so we are doing nothing there. If Q2 earnings are anything other than blowout, there is every chance the stock takes a dive and, if it does, we expect to play short-term once again, over and above our long-term holdings. (We keep totally separate accounts for long- and short-term holdings so we never get confused about what game we are playing).\nFastly Stock\nAs much as everybody gottoo excited about FSLY last year, so, we think, has everybody gotten too miserable this year. We have a modest allocation to FSLY in long-term accounts because ultimately we don't think the company will form part of the fabric of Internet 3.0, at least not as an independent. We don't see sufficient force of management personality, sufficiently broad product vision, nor the surround sound of Twitterati talking the thing up. Wedothink thepersistent rumors of FSLY being acquiredhave every chance of playing out and so at any given moment, we see a 20-30% or better premium available should Cisco (CSCO) or another strategic come calling. So, again, long-term holdings, we're doing nothing. We're tempted to add a little right now but with earnings so close, why take the risk? Once again our approach here is to wait for earnings. We are likely to trade it short term on any unjustified stock cratering - and indeed if the fundamentals are improving, as we have a funny feeling they will - look at the below-the-radar improvements in deferred revenue above in the last two quarters for instance - we may well add to our long-term positions at that point. For now, doing nothing before earnings, so, again, Neutral. In each case, a one-word rating doesn't really convey our plans here which is why we lay them out in such wordy detail - now you can shoot them down in flames when doing your own work!","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":899255312,"gmtCreate":1628203357736,"gmtModify":1703502919288,"author":{"id":"3574326723774097","authorId":"3574326723774097","authorIdStr":"3574326723774097","name":"Gackky","avatar":"https://static.tigerbbs.com/5898b44bf5a31bf2b9d4e37227ed8177","vip":1,"crmLevel":3,"crmLevelSwitch":0,"idStr":"3574326723774097"},"htmlText":"the one that makes the most money for me","listText":"the one that makes the most money for me","text":"the one that makes the most money for me","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":6,"commentSize":2,"repostSize":0,"link":"https://ttm.financial/post/899255312","repostId":1197602353,"repostType":4,"repost":{"id":"1197602353","pubTimestamp":1628173558,"share":"https://ttm.financial/m/news/1197602353?lang=&edition=fundamental","pubTime":"2021-08-05 22:25","market":"us","language":"en","title":"Cloudflare Vs. Fastly Stock: Which Is The Better Buy?","url":"https://stock-news.laohu8.com/highlight/detail?id=1197602353","media":"seekingalpha","summary":"Summary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up rec","content":"Summary\n<ul>\n <li>Cloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.</li>\n <li>Fastly is a less good business with, in our view, less potential. Its stock price has cratered of late, as growth has slowed and cash flow worsened.</li>\n <li>Both stocks are shortly to report their Q2 earnings. We think earnings reaction risk is to the downside on Cloudflare, to the upside on Fastly.</li>\n <li>Ultimately, we believe Cloudflare offers more upside for long-term investors, but we own both names in staff personal accounts and intend to add to both on any post-earnings weakness.</li>\n <li>We would also flag that both companies look to us like they may raise capital soon - if, in the form of new equity, that can hit both stocks.</li>\n</ul>\nPing Times May Be Similar But Time To Live Likely Differs\nSince consumer traffic started in earnest to course through the public Internet in the 1990s, content acceleration became important. The initial leader of this market, Akamai (AKAM), grew up in the dot-com era and remains a very solid business today. AKAM's original business model was simple and remains the foundation for content delivery network plays today; buy servers, rent space in telecom companies' datacenters, rent capacity on telecom networks, bill content owners for accelerated delivery of said content. As you can see, the business model is likely to be less cash generative than the now-commonplace cloud application software player, because, one, your gross margin gets hit with the telco pay-aways, and, two, your capex bill is heavy as you have to keep buying server kit. So scaling such a business - meaning, achieve a rate of growth in cash flow faster than the rate of growth in revenue - isn't so easy.\nThe two hot names in content acceleration today are Cloudflare (NET) and Fastly (FSLY). We've covered both of them on multiple occasions here on Seeking Alpha - you can read our past notes on Cloudflare, Inchereand our prior work on Fastlyhere. In addition, we own both stocks in staff personal accounts. We have a much greater allocation to NET than we do to FSLY (in a ratio of approximately 2:1). We have enjoyed an easy ride up on NET with even some poorly-timed averaging-up buys being forgiven by the Trading Gods, whereas we have been battling FSLY to average down our in-costs in the expectation of future gain and our valor has yet to be rewarded. In staff long-term accounts, we presently show a big paper gain on NET and a modest paper loss on FSLY. Along the way, we have also enjoyed separate short-term account gains in NET by buying dips and selling peaks to realize rapid cash gains. (We cover both stocks and our own trades blow by blow in our real-time, real-money Seeking Alpha Marketplace service,Cestrian Fundamentals).\nWhilst Cloudflare and Fastly core services have plenty of overlap, their business models and management styles are very different and this informs our approach to owning the names and our expectations going forward. Allow us to walk you through our views here.\nHow Is Cloudflare Different From Fastly?\nWell, first let's take a look at the similarities. Both offer content acceleration services to content owners, and both offer you something called edge computing, which is in essence the ability to place not just your content (movies, audio, etc.) on a machine near the user (as in, physically and logically near the user on the network - not in a data center thousands of miles away) but also an entire web application or parts thereof. To our investor eye, Cloudflare appears to have more product ambition; taking advantage of its edge network positioning, the company has launched a number of security services, for instance - the goal being to act as a single Internet on-ramp for its customers, a kind of Zscaler (ZS) embedded in the suite offer. If you want to deep-dive into product by product comparison on these two names - and if you do, take a tin hat, for opinions run high - take a look at a couple of engineers-turned-stock-people who cover both stocks in their work.\nNow, putting aside for the moment our own investor view that NET has a superior span of product and indeed more extensive product ambition - let's turn to the numbers.\n<img src=\"https://static.tigerbbs.com/4b54705844ce46a8f48f7d986cd113f4\" tg-width=\"640\" tg-height=\"587\" width=\"100%\" height=\"auto\"><img src=\"https://static.tigerbbs.com/ea25982971170997ab631a0e0e0af99f\" tg-width=\"640\" tg-height=\"220\" width=\"100%\" height=\"auto\">Source: Company SEC filings, YCharts.com, Cestrian Analysis\nLot of numbers there. Here are the highlights and lowlights as we see them.\nThe good:\n<ul>\n <li>Revenue growth holding steady in the 50% range, gross margin holding steady in the 77% range.</li>\n <li>Remaining performance obligation (RPO) growth of 88% vs. prior year in Q1 2021. RPO is the total order book value, some of which is prepaid, most of which is not. RPO represents just over 90% of TTM recognized revenue so it is material vs. the recognized base, and it is growing faster than the recognized base. So, best guess, NET revenues can accelerate still further.</li>\n <li>Accounting profit in the guise of EBITDA (which we define as operating income, add back depreciation &amp; amortization, add back stock-based compensation) has gone from very negative in 2019 to modestly positive in 2021 - we look at the TTM measure which is slow to respond up or down, it gives you a smoothed-out view of the direction of travel.</li>\n</ul>\nThe bad:\n<ul>\n <li>Actual money-profit in the guise of unlevered pre-tax free cash flow, has gone from horribly negative in 2019 to, er, only very negative in 2021, which in and of itself is good, but, did we mention, cash flow was very negative on a TTM basis to the end of the March 2021 quarter. This is the whole nag with this business model - can they actually become cash flow positive, after capex, after change in working capital? Akamai is, but then it has nothing like the growth ambitions of these names.</li>\n <li>Only $643m of net cash in the bank at the 31 March point. Given the cash burn, we would not be at all surprised to see the company raise money via an equity or debt placement and, if equity, we would expect a material hit to the stock price on a short-term basis at least. (We are watching closely for this and hope to buy any major dip that comes along).</li>\n</ul>\nThe visually challenged:\n<ul>\n <li>Huge capital expenditure (\"capex\") bill. Capex as you know is simply money that you spend on stuff that makes a noise when you drop it. Capex at NET, and for that matter FSLY, is mainly computing hardware. We expect significant capex here. But capex as a % of revenue is yet to show a consistent falling pattern - andonlyif we start to see some yield improvements here, some growth without much capex, can we conclude that scale benefits are beginning to flow. Right now the jury is out, and this is a big deal fundamentally.</li>\n <li>Terrible working capital management. This sounds complicated but isn't. If that \"change in working capital\" line was mainly positive, it would mean that in essence, the company collects money from its customers faster than it pays its suppliers. If mainly negative, it pays suppliers faster than it collects cash from its customers. You can see from the numbers that the latter is true. So here we have a business which, already bleeding money into the capex line, further leaks cash into working capital. This again is a big deal fundamentally. Best case, it says the business lacks the management discipline to tell suppliers to wait whilst it chases up customers. Worst case, it means the business is merely a commodity provider of services which can easily be found elsewhere, and they don't chase their customers lest they churn. Now we don'tthinkthat latter point is true; we think NET has a differentiated and sticky set of services - and if that's right, it means management just needs to get religion on cash management. They don't have it today.</li>\n</ul>\nAs we shall see in a moment, Cloudflare's stock price flatters its fundamentals. It's not as good a business as its stock trajectory implies.\nFSLY Financials\nFastly, an early huge winner in the immediate response to the Covid crisis, now looks all beaten up if you look at its stock price, to which we shall turn in a moment. But if NET is not as good a business as its stock price implies, FSLY is not as bad a business asitsstock price implies. As investors, we must respect price before all else, everything else is just an input. But fundamentals do sometimes matter - very often you can see value building in the fundamentals that isn't reflected in the stock price, or indeed value waning that is yet to be reflected. Which means that sometimes, just sometimes, you can get ahead of the price game by reading the numbers. (If you read our Cloudflare notes linked above, you can see us making just that argument - hidden value - which did then come to fruition in the stock price).\nLet's take a look at Fastly's numbers.\n<img src=\"https://static.tigerbbs.com/c3aa249a8140f7dea48136c586415d87\" tg-width=\"640\" tg-height=\"621\" width=\"100%\" height=\"auto\">Source: Company SEC filings,YCharts.com, Cestrian Analysis\nOK, another lot of numbers. Less numbers though, because the company doesn't disclose its remaining performance obligation in its SEC reports. This is likely because there isn't much of it - they make much of the fact that billing (and by implication contracting) is usage-based and in arrears, so we wouldn't expect a great deal of revenue visibility here.\nTurning to the reported revenue - the deceleration is material, as you can see, and coupled with the lack of visibility, this is what we think is hurting the stock right now. Today's market is positively growth-addled and if your growth is coming down, well, your stock is going to get a beating. That said, it looks to us like folks' expectations just got all ahead of themselves. Look at the TTM revenue line - remember, this is a slow-burn indicator, gives you a smoothed-out look at how things are going. TTM revenue growth peaked at 47% in Q3 2020, and in Q1 2021, it stood at 44%, which isn't really very different if you zoom out far enough. It's just that early Covid Q2 2020 +62% vs Q2 2019 growth rate that got everybody overexcited.\nSkipping around a little here, the valuation stands at 16.5x TTM revenue in exchange for 44% TTM revenue growth. That is positive cheap by current standards.\n<img src=\"https://static.tigerbbs.com/5469d429652493191eb4cdcf2efee55e\" tg-width=\"238\" tg-height=\"247\" width=\"100%\" height=\"auto\">Cloudflare is asking you to pay 76x TTM revenue in exchange for 51% TTM revenue growth.\n<img src=\"https://static.tigerbbs.com/d1e47eab4ff42f7649937ad13cab0413\" tg-width=\"235\" tg-height=\"250\" width=\"100%\" height=\"auto\">Now don't get us wrong. Cloudflare is a better business. And we like how their management team rolls, all humblebrag-aw-shucks-what-me? whilst quietly stating that their aim is to be the dominant development environment and runtime forInternet 3.0(we paraphrase a little, but yes, that is what their grand plan is, and it might work). But it's notthatmuch better a business.\nBack to FSLY numbers. Remember how NET eats capex and leaks money into working capital? Well, same at FSLY.\nFirst, let's compare their capital expenditures using that slow-burn TTM method.\n<img src=\"https://static.tigerbbs.com/e8e760e2b8fb4ed434bfb9dec30b547b\" tg-width=\"640\" tg-height=\"89\" width=\"100%\" height=\"auto\"><img src=\"https://static.tigerbbs.com/04bb88b1b8d8d2722a84dfc263eefaec\" tg-width=\"640\" tg-height=\"91\" width=\"100%\" height=\"auto\">The company has TTM capex standing at 12% of TTM revenue, and is chalking up revenue growth of +44% on a TTM basis. Cloudflare, Inc is spending 18% of TTM revenue on its capex, again on a TTM basis; in exchange for +51% TTM revenue growth. So as a snapshot, FSLY is actually more efficient with its capex. The counter to that is, NET is building a big book of long-term business - as evidenced by its chunky RPO number - and that's what the additional capex is for. This is an interesting-if-true point to make. As in, it might be true and if so, it's a good use of their checkbook. But it has yet to translate into sufficient additional revenue growth vs. the competition to truly justify the expenditure on fundamental grounds.\nNext, margins. FSLY's gross margins are terrible, in the mid-50s%. It resembles Twilio (TWLO) in this regard, a big pay-away to telcos before you even get started. It's the biggest determinant of weak TTM EBITDA margins - which stand at negative 11% vs positive 3% at NET. And whilst those EBITDA margins at NET have been moving up, at FSLY, they have been moving down.\nTurning to cash flow - we've talked about capex already, now let's look at that boring-but-important point, change in working capital. (Remember this is simple. To do this well, pretty much all you have to do is collect cash from customers faster than you pay it to suppliers). If working capital management is bad at NET, and it is, then it is terrible at FSLY. TTM unlevered pre-tax free cash flow margins of negative 33%. This thing just eats money. And again, it has just $166m of net cash on hand vs. a TTM pre-tax pre-debt service cash burn of $104m as of the end of Q1. That means the company is very likely to raise money, via equity or debt placement. And off the back of a weak stock price that's likely to cause more pain in the stock.\nOK. You get the picture. NET is growing a little bit faster and spending more capex to do it; but its gross margins are much better so it has more money to burn in the first place. It appears to be building a big book of forward business in a way that FSLY is not, but right now, that is jam tomorrow, not revenue or earnings today. NET needs to raise capital soon in our view, and FSLY needs to raise capital sooner. So, on fundamentals, NET is a better pick, no question. But the valuation, yikes!\nNET and FSLY Stock Prices\nSince the Cloudflare IPO in 2019, NET has way outperformed FSLY and indeed the Nasdaq (shown here by way of the proxy ETF, Invesco QQQ Trust (QQQ).\n<img src=\"https://static.tigerbbs.com/89d1f9e65c0e2e7398b5ec7b053631ec\" tg-width=\"640\" tg-height=\"378\" width=\"100%\" height=\"auto\">As we state above, that NET has outperformed FSLY is justified to us on fundamentals. It's a better business with higher growth and more visibility of future growth. But right now, as earnings approaches for each of the stocks (FSLY reports on August 4th, NET on August 5th), which is the better bet for long-term investors? In short ...\nIs Cloudflare or Fastly Stock The Better Buy?\nThis isn't such a simple answer in our view. Allow us to ramble somewhat, and bear in mind, all we are talking about here is our own plans for our own money. You must, of course, do your own work and factor in your own risk appetite, time horizon, etc. But here's our approach.\nCloudflare Stock\nAs delighted as we are with the run-up in our NET holdings, and as much as we do in fact think that NET can deliver on some of those Internet 3.0 promises, the price is punchy indeed. So we rate NET at Neutral, meaning we ourselves aren't buying the stock at this point. We have a nice paper gain in long-term accounts and we've cashed a series of gains in short-term accounts along the way. But neither are we selling, because as extended as that stock price is, we think that the stock can move higher, maybe much higher, over the coming years. We think that 5-10 years out, $120/share for NET has every chance of looking like peanuts. We have about the right level of allocation now in those long-term accounts and so we are doing nothing there. If Q2 earnings are anything other than blowout, there is every chance the stock takes a dive and, if it does, we expect to play short-term once again, over and above our long-term holdings. (We keep totally separate accounts for long- and short-term holdings so we never get confused about what game we are playing).\nFastly Stock\nAs much as everybody gottoo excited about FSLY last year, so, we think, has everybody gotten too miserable this year. We have a modest allocation to FSLY in long-term accounts because ultimately we don't think the company will form part of the fabric of Internet 3.0, at least not as an independent. We don't see sufficient force of management personality, sufficiently broad product vision, nor the surround sound of Twitterati talking the thing up. Wedothink thepersistent rumors of FSLY being acquiredhave every chance of playing out and so at any given moment, we see a 20-30% or better premium available should Cisco (CSCO) or another strategic come calling. So, again, long-term holdings, we're doing nothing. We're tempted to add a little right now but with earnings so close, why take the risk? Once again our approach here is to wait for earnings. We are likely to trade it short term on any unjustified stock cratering - and indeed if the fundamentals are improving, as we have a funny feeling they will - look at the below-the-radar improvements in deferred revenue above in the last two quarters for instance - we may well add to our long-term positions at that point. For now, doing nothing before earnings, so, again, Neutral. In each case, a one-word rating doesn't really convey our plans here which is why we lay them out in such wordy detail - now you can shoot them down in flames when doing your own work!","source":"seekingalpha","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 Vs. Fastly Stock: Which Is The Better Buy?</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 Vs. Fastly Stock: Which Is The Better Buy?\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-08-05 22:25 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.\nFastly is a less good business with, in our view, less potential. ...\n\n<a href=\"https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy\">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.","FSLY":"Fastly, Inc."},"source_url":"https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1197602353","content_text":"Summary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.\nFastly is a less good business with, in our view, less potential. Its stock price has cratered of late, as growth has slowed and cash flow worsened.\nBoth stocks are shortly to report their Q2 earnings. We think earnings reaction risk is to the downside on Cloudflare, to the upside on Fastly.\nUltimately, we believe Cloudflare offers more upside for long-term investors, but we own both names in staff personal accounts and intend to add to both on any post-earnings weakness.\nWe would also flag that both companies look to us like they may raise capital soon - if, in the form of new equity, that can hit both stocks.\n\nPing Times May Be Similar But Time To Live Likely Differs\nSince consumer traffic started in earnest to course through the public Internet in the 1990s, content acceleration became important. The initial leader of this market, Akamai (AKAM), grew up in the dot-com era and remains a very solid business today. AKAM's original business model was simple and remains the foundation for content delivery network plays today; buy servers, rent space in telecom companies' datacenters, rent capacity on telecom networks, bill content owners for accelerated delivery of said content. As you can see, the business model is likely to be less cash generative than the now-commonplace cloud application software player, because, one, your gross margin gets hit with the telco pay-aways, and, two, your capex bill is heavy as you have to keep buying server kit. So scaling such a business - meaning, achieve a rate of growth in cash flow faster than the rate of growth in revenue - isn't so easy.\nThe two hot names in content acceleration today are Cloudflare (NET) and Fastly (FSLY). We've covered both of them on multiple occasions here on Seeking Alpha - you can read our past notes on Cloudflare, Inchereand our prior work on Fastlyhere. In addition, we own both stocks in staff personal accounts. We have a much greater allocation to NET than we do to FSLY (in a ratio of approximately 2:1). We have enjoyed an easy ride up on NET with even some poorly-timed averaging-up buys being forgiven by the Trading Gods, whereas we have been battling FSLY to average down our in-costs in the expectation of future gain and our valor has yet to be rewarded. In staff long-term accounts, we presently show a big paper gain on NET and a modest paper loss on FSLY. Along the way, we have also enjoyed separate short-term account gains in NET by buying dips and selling peaks to realize rapid cash gains. (We cover both stocks and our own trades blow by blow in our real-time, real-money Seeking Alpha Marketplace service,Cestrian Fundamentals).\nWhilst Cloudflare and Fastly core services have plenty of overlap, their business models and management styles are very different and this informs our approach to owning the names and our expectations going forward. Allow us to walk you through our views here.\nHow Is Cloudflare Different From Fastly?\nWell, first let's take a look at the similarities. Both offer content acceleration services to content owners, and both offer you something called edge computing, which is in essence the ability to place not just your content (movies, audio, etc.) on a machine near the user (as in, physically and logically near the user on the network - not in a data center thousands of miles away) but also an entire web application or parts thereof. To our investor eye, Cloudflare appears to have more product ambition; taking advantage of its edge network positioning, the company has launched a number of security services, for instance - the goal being to act as a single Internet on-ramp for its customers, a kind of Zscaler (ZS) embedded in the suite offer. If you want to deep-dive into product by product comparison on these two names - and if you do, take a tin hat, for opinions run high - take a look at a couple of engineers-turned-stock-people who cover both stocks in their work.\nNow, putting aside for the moment our own investor view that NET has a superior span of product and indeed more extensive product ambition - let's turn to the numbers.\nSource: Company SEC filings, YCharts.com, Cestrian Analysis\nLot of numbers there. Here are the highlights and lowlights as we see them.\nThe good:\n\nRevenue growth holding steady in the 50% range, gross margin holding steady in the 77% range.\nRemaining performance obligation (RPO) growth of 88% vs. prior year in Q1 2021. RPO is the total order book value, some of which is prepaid, most of which is not. RPO represents just over 90% of TTM recognized revenue so it is material vs. the recognized base, and it is growing faster than the recognized base. So, best guess, NET revenues can accelerate still further.\nAccounting profit in the guise of EBITDA (which we define as operating income, add back depreciation & amortization, add back stock-based compensation) has gone from very negative in 2019 to modestly positive in 2021 - we look at the TTM measure which is slow to respond up or down, it gives you a smoothed-out view of the direction of travel.\n\nThe bad:\n\nActual money-profit in the guise of unlevered pre-tax free cash flow, has gone from horribly negative in 2019 to, er, only very negative in 2021, which in and of itself is good, but, did we mention, cash flow was very negative on a TTM basis to the end of the March 2021 quarter. This is the whole nag with this business model - can they actually become cash flow positive, after capex, after change in working capital? Akamai is, but then it has nothing like the growth ambitions of these names.\nOnly $643m of net cash in the bank at the 31 March point. Given the cash burn, we would not be at all surprised to see the company raise money via an equity or debt placement and, if equity, we would expect a material hit to the stock price on a short-term basis at least. (We are watching closely for this and hope to buy any major dip that comes along).\n\nThe visually challenged:\n\nHuge capital expenditure (\"capex\") bill. Capex as you know is simply money that you spend on stuff that makes a noise when you drop it. Capex at NET, and for that matter FSLY, is mainly computing hardware. We expect significant capex here. But capex as a % of revenue is yet to show a consistent falling pattern - andonlyif we start to see some yield improvements here, some growth without much capex, can we conclude that scale benefits are beginning to flow. Right now the jury is out, and this is a big deal fundamentally.\nTerrible working capital management. This sounds complicated but isn't. If that \"change in working capital\" line was mainly positive, it would mean that in essence, the company collects money from its customers faster than it pays its suppliers. If mainly negative, it pays suppliers faster than it collects cash from its customers. You can see from the numbers that the latter is true. So here we have a business which, already bleeding money into the capex line, further leaks cash into working capital. This again is a big deal fundamentally. Best case, it says the business lacks the management discipline to tell suppliers to wait whilst it chases up customers. Worst case, it means the business is merely a commodity provider of services which can easily be found elsewhere, and they don't chase their customers lest they churn. Now we don'tthinkthat latter point is true; we think NET has a differentiated and sticky set of services - and if that's right, it means management just needs to get religion on cash management. They don't have it today.\n\nAs we shall see in a moment, Cloudflare's stock price flatters its fundamentals. It's not as good a business as its stock trajectory implies.\nFSLY Financials\nFastly, an early huge winner in the immediate response to the Covid crisis, now looks all beaten up if you look at its stock price, to which we shall turn in a moment. But if NET is not as good a business as its stock price implies, FSLY is not as bad a business asitsstock price implies. As investors, we must respect price before all else, everything else is just an input. But fundamentals do sometimes matter - very often you can see value building in the fundamentals that isn't reflected in the stock price, or indeed value waning that is yet to be reflected. Which means that sometimes, just sometimes, you can get ahead of the price game by reading the numbers. (If you read our Cloudflare notes linked above, you can see us making just that argument - hidden value - which did then come to fruition in the stock price).\nLet's take a look at Fastly's numbers.\nSource: Company SEC filings,YCharts.com, Cestrian Analysis\nOK, another lot of numbers. Less numbers though, because the company doesn't disclose its remaining performance obligation in its SEC reports. This is likely because there isn't much of it - they make much of the fact that billing (and by implication contracting) is usage-based and in arrears, so we wouldn't expect a great deal of revenue visibility here.\nTurning to the reported revenue - the deceleration is material, as you can see, and coupled with the lack of visibility, this is what we think is hurting the stock right now. Today's market is positively growth-addled and if your growth is coming down, well, your stock is going to get a beating. That said, it looks to us like folks' expectations just got all ahead of themselves. Look at the TTM revenue line - remember, this is a slow-burn indicator, gives you a smoothed-out look at how things are going. TTM revenue growth peaked at 47% in Q3 2020, and in Q1 2021, it stood at 44%, which isn't really very different if you zoom out far enough. It's just that early Covid Q2 2020 +62% vs Q2 2019 growth rate that got everybody overexcited.\nSkipping around a little here, the valuation stands at 16.5x TTM revenue in exchange for 44% TTM revenue growth. That is positive cheap by current standards.\nCloudflare is asking you to pay 76x TTM revenue in exchange for 51% TTM revenue growth.\nNow don't get us wrong. Cloudflare is a better business. And we like how their management team rolls, all humblebrag-aw-shucks-what-me? whilst quietly stating that their aim is to be the dominant development environment and runtime forInternet 3.0(we paraphrase a little, but yes, that is what their grand plan is, and it might work). But it's notthatmuch better a business.\nBack to FSLY numbers. Remember how NET eats capex and leaks money into working capital? Well, same at FSLY.\nFirst, let's compare their capital expenditures using that slow-burn TTM method.\nThe company has TTM capex standing at 12% of TTM revenue, and is chalking up revenue growth of +44% on a TTM basis. Cloudflare, Inc is spending 18% of TTM revenue on its capex, again on a TTM basis; in exchange for +51% TTM revenue growth. So as a snapshot, FSLY is actually more efficient with its capex. The counter to that is, NET is building a big book of long-term business - as evidenced by its chunky RPO number - and that's what the additional capex is for. This is an interesting-if-true point to make. As in, it might be true and if so, it's a good use of their checkbook. But it has yet to translate into sufficient additional revenue growth vs. the competition to truly justify the expenditure on fundamental grounds.\nNext, margins. FSLY's gross margins are terrible, in the mid-50s%. It resembles Twilio (TWLO) in this regard, a big pay-away to telcos before you even get started. It's the biggest determinant of weak TTM EBITDA margins - which stand at negative 11% vs positive 3% at NET. And whilst those EBITDA margins at NET have been moving up, at FSLY, they have been moving down.\nTurning to cash flow - we've talked about capex already, now let's look at that boring-but-important point, change in working capital. (Remember this is simple. To do this well, pretty much all you have to do is collect cash from customers faster than you pay it to suppliers). If working capital management is bad at NET, and it is, then it is terrible at FSLY. TTM unlevered pre-tax free cash flow margins of negative 33%. This thing just eats money. And again, it has just $166m of net cash on hand vs. a TTM pre-tax pre-debt service cash burn of $104m as of the end of Q1. That means the company is very likely to raise money, via equity or debt placement. And off the back of a weak stock price that's likely to cause more pain in the stock.\nOK. You get the picture. NET is growing a little bit faster and spending more capex to do it; but its gross margins are much better so it has more money to burn in the first place. It appears to be building a big book of forward business in a way that FSLY is not, but right now, that is jam tomorrow, not revenue or earnings today. NET needs to raise capital soon in our view, and FSLY needs to raise capital sooner. So, on fundamentals, NET is a better pick, no question. But the valuation, yikes!\nNET and FSLY Stock Prices\nSince the Cloudflare IPO in 2019, NET has way outperformed FSLY and indeed the Nasdaq (shown here by way of the proxy ETF, Invesco QQQ Trust (QQQ).\nAs we state above, that NET has outperformed FSLY is justified to us on fundamentals. It's a better business with higher growth and more visibility of future growth. But right now, as earnings approaches for each of the stocks (FSLY reports on August 4th, NET on August 5th), which is the better bet for long-term investors? In short ...\nIs Cloudflare or Fastly Stock The Better Buy?\nThis isn't such a simple answer in our view. Allow us to ramble somewhat, and bear in mind, all we are talking about here is our own plans for our own money. You must, of course, do your own work and factor in your own risk appetite, time horizon, etc. But here's our approach.\nCloudflare Stock\nAs delighted as we are with the run-up in our NET holdings, and as much as we do in fact think that NET can deliver on some of those Internet 3.0 promises, the price is punchy indeed. So we rate NET at Neutral, meaning we ourselves aren't buying the stock at this point. We have a nice paper gain in long-term accounts and we've cashed a series of gains in short-term accounts along the way. But neither are we selling, because as extended as that stock price is, we think that the stock can move higher, maybe much higher, over the coming years. We think that 5-10 years out, $120/share for NET has every chance of looking like peanuts. We have about the right level of allocation now in those long-term accounts and so we are doing nothing there. If Q2 earnings are anything other than blowout, there is every chance the stock takes a dive and, if it does, we expect to play short-term once again, over and above our long-term holdings. (We keep totally separate accounts for long- and short-term holdings so we never get confused about what game we are playing).\nFastly Stock\nAs much as everybody gottoo excited about FSLY last year, so, we think, has everybody gotten too miserable this year. We have a modest allocation to FSLY in long-term accounts because ultimately we don't think the company will form part of the fabric of Internet 3.0, at least not as an independent. We don't see sufficient force of management personality, sufficiently broad product vision, nor the surround sound of Twitterati talking the thing up. Wedothink thepersistent rumors of FSLY being acquiredhave every chance of playing out and so at any given moment, we see a 20-30% or better premium available should Cisco (CSCO) or another strategic come calling. So, again, long-term holdings, we're doing nothing. We're tempted to add a little right now but with earnings so close, why take the risk? Once again our approach here is to wait for earnings. We are likely to trade it short term on any unjustified stock cratering - and indeed if the fundamentals are improving, as we have a funny feeling they will - look at the below-the-radar improvements in deferred revenue above in the last two quarters for instance - we may well add to our long-term positions at that point. For now, doing nothing before earnings, so, again, Neutral. In each case, a one-word rating doesn't really convey our plans here which is why we lay them out in such wordy detail - now you can shoot them down in flames when doing your own work!","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":5439948,"gmtCreate":1628204550767,"gmtModify":1663231988232,"authorId":3577008659344634,"author":{"id":3577008659344634,"authorId":3577008659344634,"name":"Jordanbey","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":899255312,"type":1,"supId":0,"prevId":0,"content":"Nice","text":"Nice","html":"Nice"},{"id":5439773,"gmtCreate":1628203478826,"gmtModify":1663231988039,"authorId":3573731928321338,"author":{"id":3573731928321338,"authorId":3573731928321338,"name":"claratan","avatar":"https://static.tigerbbs.com/9c6bbdac9048ff2e4b740f272576e2be","vip":1,"crmLevel":3,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":899255312,"type":1,"supId":0,"prevId":0,"content":"nice","text":"nice","html":"nice"}],"langContent":"EN"},{"id":899221253,"gmtCreate":1628202330172,"gmtModify":1703502901102,"author":{"id":"3580357525252052","authorId":"3580357525252052","authorIdStr":"3580357525252052","name":"oOoHades","avatar":"https://static.tigerbbs.com/d7c71a9367d1c7307b367e622fc6b54c","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3580357525252052"},"htmlText":"Please like and comment thanks","listText":"Please like and comment thanks","text":"Please like and comment thanks","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":7,"commentSize":2,"repostSize":0,"link":"https://ttm.financial/post/899221253","repostId":1197602353,"repostType":4,"repost":{"id":"1197602353","pubTimestamp":1628173558,"share":"https://ttm.financial/m/news/1197602353?lang=&edition=fundamental","pubTime":"2021-08-05 22:25","market":"us","language":"en","title":"Cloudflare Vs. Fastly Stock: Which Is The Better Buy?","url":"https://stock-news.laohu8.com/highlight/detail?id=1197602353","media":"seekingalpha","summary":"Summary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up rec","content":"Summary\n<ul>\n <li>Cloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.</li>\n <li>Fastly is a less good business with, in our view, less potential. Its stock price has cratered of late, as growth has slowed and cash flow worsened.</li>\n <li>Both stocks are shortly to report their Q2 earnings. We think earnings reaction risk is to the downside on Cloudflare, to the upside on Fastly.</li>\n <li>Ultimately, we believe Cloudflare offers more upside for long-term investors, but we own both names in staff personal accounts and intend to add to both on any post-earnings weakness.</li>\n <li>We would also flag that both companies look to us like they may raise capital soon - if, in the form of new equity, that can hit both stocks.</li>\n</ul>\nPing Times May Be Similar But Time To Live Likely Differs\nSince consumer traffic started in earnest to course through the public Internet in the 1990s, content acceleration became important. The initial leader of this market, Akamai (AKAM), grew up in the dot-com era and remains a very solid business today. AKAM's original business model was simple and remains the foundation for content delivery network plays today; buy servers, rent space in telecom companies' datacenters, rent capacity on telecom networks, bill content owners for accelerated delivery of said content. As you can see, the business model is likely to be less cash generative than the now-commonplace cloud application software player, because, one, your gross margin gets hit with the telco pay-aways, and, two, your capex bill is heavy as you have to keep buying server kit. So scaling such a business - meaning, achieve a rate of growth in cash flow faster than the rate of growth in revenue - isn't so easy.\nThe two hot names in content acceleration today are Cloudflare (NET) and Fastly (FSLY). We've covered both of them on multiple occasions here on Seeking Alpha - you can read our past notes on Cloudflare, Inchereand our prior work on Fastlyhere. In addition, we own both stocks in staff personal accounts. We have a much greater allocation to NET than we do to FSLY (in a ratio of approximately 2:1). We have enjoyed an easy ride up on NET with even some poorly-timed averaging-up buys being forgiven by the Trading Gods, whereas we have been battling FSLY to average down our in-costs in the expectation of future gain and our valor has yet to be rewarded. In staff long-term accounts, we presently show a big paper gain on NET and a modest paper loss on FSLY. Along the way, we have also enjoyed separate short-term account gains in NET by buying dips and selling peaks to realize rapid cash gains. (We cover both stocks and our own trades blow by blow in our real-time, real-money Seeking Alpha Marketplace service,Cestrian Fundamentals).\nWhilst Cloudflare and Fastly core services have plenty of overlap, their business models and management styles are very different and this informs our approach to owning the names and our expectations going forward. Allow us to walk you through our views here.\nHow Is Cloudflare Different From Fastly?\nWell, first let's take a look at the similarities. Both offer content acceleration services to content owners, and both offer you something called edge computing, which is in essence the ability to place not just your content (movies, audio, etc.) on a machine near the user (as in, physically and logically near the user on the network - not in a data center thousands of miles away) but also an entire web application or parts thereof. To our investor eye, Cloudflare appears to have more product ambition; taking advantage of its edge network positioning, the company has launched a number of security services, for instance - the goal being to act as a single Internet on-ramp for its customers, a kind of Zscaler (ZS) embedded in the suite offer. If you want to deep-dive into product by product comparison on these two names - and if you do, take a tin hat, for opinions run high - take a look at a couple of engineers-turned-stock-people who cover both stocks in their work.\nNow, putting aside for the moment our own investor view that NET has a superior span of product and indeed more extensive product ambition - let's turn to the numbers.\n<img src=\"https://static.tigerbbs.com/4b54705844ce46a8f48f7d986cd113f4\" tg-width=\"640\" tg-height=\"587\" width=\"100%\" height=\"auto\"><img src=\"https://static.tigerbbs.com/ea25982971170997ab631a0e0e0af99f\" tg-width=\"640\" tg-height=\"220\" width=\"100%\" height=\"auto\">Source: Company SEC filings, YCharts.com, Cestrian Analysis\nLot of numbers there. Here are the highlights and lowlights as we see them.\nThe good:\n<ul>\n <li>Revenue growth holding steady in the 50% range, gross margin holding steady in the 77% range.</li>\n <li>Remaining performance obligation (RPO) growth of 88% vs. prior year in Q1 2021. RPO is the total order book value, some of which is prepaid, most of which is not. RPO represents just over 90% of TTM recognized revenue so it is material vs. the recognized base, and it is growing faster than the recognized base. So, best guess, NET revenues can accelerate still further.</li>\n <li>Accounting profit in the guise of EBITDA (which we define as operating income, add back depreciation &amp; amortization, add back stock-based compensation) has gone from very negative in 2019 to modestly positive in 2021 - we look at the TTM measure which is slow to respond up or down, it gives you a smoothed-out view of the direction of travel.</li>\n</ul>\nThe bad:\n<ul>\n <li>Actual money-profit in the guise of unlevered pre-tax free cash flow, has gone from horribly negative in 2019 to, er, only very negative in 2021, which in and of itself is good, but, did we mention, cash flow was very negative on a TTM basis to the end of the March 2021 quarter. This is the whole nag with this business model - can they actually become cash flow positive, after capex, after change in working capital? Akamai is, but then it has nothing like the growth ambitions of these names.</li>\n <li>Only $643m of net cash in the bank at the 31 March point. Given the cash burn, we would not be at all surprised to see the company raise money via an equity or debt placement and, if equity, we would expect a material hit to the stock price on a short-term basis at least. (We are watching closely for this and hope to buy any major dip that comes along).</li>\n</ul>\nThe visually challenged:\n<ul>\n <li>Huge capital expenditure (\"capex\") bill. Capex as you know is simply money that you spend on stuff that makes a noise when you drop it. Capex at NET, and for that matter FSLY, is mainly computing hardware. We expect significant capex here. But capex as a % of revenue is yet to show a consistent falling pattern - andonlyif we start to see some yield improvements here, some growth without much capex, can we conclude that scale benefits are beginning to flow. Right now the jury is out, and this is a big deal fundamentally.</li>\n <li>Terrible working capital management. This sounds complicated but isn't. If that \"change in working capital\" line was mainly positive, it would mean that in essence, the company collects money from its customers faster than it pays its suppliers. If mainly negative, it pays suppliers faster than it collects cash from its customers. You can see from the numbers that the latter is true. So here we have a business which, already bleeding money into the capex line, further leaks cash into working capital. This again is a big deal fundamentally. Best case, it says the business lacks the management discipline to tell suppliers to wait whilst it chases up customers. Worst case, it means the business is merely a commodity provider of services which can easily be found elsewhere, and they don't chase their customers lest they churn. Now we don'tthinkthat latter point is true; we think NET has a differentiated and sticky set of services - and if that's right, it means management just needs to get religion on cash management. They don't have it today.</li>\n</ul>\nAs we shall see in a moment, Cloudflare's stock price flatters its fundamentals. It's not as good a business as its stock trajectory implies.\nFSLY Financials\nFastly, an early huge winner in the immediate response to the Covid crisis, now looks all beaten up if you look at its stock price, to which we shall turn in a moment. But if NET is not as good a business as its stock price implies, FSLY is not as bad a business asitsstock price implies. As investors, we must respect price before all else, everything else is just an input. But fundamentals do sometimes matter - very often you can see value building in the fundamentals that isn't reflected in the stock price, or indeed value waning that is yet to be reflected. Which means that sometimes, just sometimes, you can get ahead of the price game by reading the numbers. (If you read our Cloudflare notes linked above, you can see us making just that argument - hidden value - which did then come to fruition in the stock price).\nLet's take a look at Fastly's numbers.\n<img src=\"https://static.tigerbbs.com/c3aa249a8140f7dea48136c586415d87\" tg-width=\"640\" tg-height=\"621\" width=\"100%\" height=\"auto\">Source: Company SEC filings,YCharts.com, Cestrian Analysis\nOK, another lot of numbers. Less numbers though, because the company doesn't disclose its remaining performance obligation in its SEC reports. This is likely because there isn't much of it - they make much of the fact that billing (and by implication contracting) is usage-based and in arrears, so we wouldn't expect a great deal of revenue visibility here.\nTurning to the reported revenue - the deceleration is material, as you can see, and coupled with the lack of visibility, this is what we think is hurting the stock right now. Today's market is positively growth-addled and if your growth is coming down, well, your stock is going to get a beating. That said, it looks to us like folks' expectations just got all ahead of themselves. Look at the TTM revenue line - remember, this is a slow-burn indicator, gives you a smoothed-out look at how things are going. TTM revenue growth peaked at 47% in Q3 2020, and in Q1 2021, it stood at 44%, which isn't really very different if you zoom out far enough. It's just that early Covid Q2 2020 +62% vs Q2 2019 growth rate that got everybody overexcited.\nSkipping around a little here, the valuation stands at 16.5x TTM revenue in exchange for 44% TTM revenue growth. That is positive cheap by current standards.\n<img src=\"https://static.tigerbbs.com/5469d429652493191eb4cdcf2efee55e\" tg-width=\"238\" tg-height=\"247\" width=\"100%\" height=\"auto\">Cloudflare is asking you to pay 76x TTM revenue in exchange for 51% TTM revenue growth.\n<img src=\"https://static.tigerbbs.com/d1e47eab4ff42f7649937ad13cab0413\" tg-width=\"235\" tg-height=\"250\" width=\"100%\" height=\"auto\">Now don't get us wrong. Cloudflare is a better business. And we like how their management team rolls, all humblebrag-aw-shucks-what-me? whilst quietly stating that their aim is to be the dominant development environment and runtime forInternet 3.0(we paraphrase a little, but yes, that is what their grand plan is, and it might work). But it's notthatmuch better a business.\nBack to FSLY numbers. Remember how NET eats capex and leaks money into working capital? Well, same at FSLY.\nFirst, let's compare their capital expenditures using that slow-burn TTM method.\n<img src=\"https://static.tigerbbs.com/e8e760e2b8fb4ed434bfb9dec30b547b\" tg-width=\"640\" tg-height=\"89\" width=\"100%\" height=\"auto\"><img src=\"https://static.tigerbbs.com/04bb88b1b8d8d2722a84dfc263eefaec\" tg-width=\"640\" tg-height=\"91\" width=\"100%\" height=\"auto\">The company has TTM capex standing at 12% of TTM revenue, and is chalking up revenue growth of +44% on a TTM basis. Cloudflare, Inc is spending 18% of TTM revenue on its capex, again on a TTM basis; in exchange for +51% TTM revenue growth. So as a snapshot, FSLY is actually more efficient with its capex. The counter to that is, NET is building a big book of long-term business - as evidenced by its chunky RPO number - and that's what the additional capex is for. This is an interesting-if-true point to make. As in, it might be true and if so, it's a good use of their checkbook. But it has yet to translate into sufficient additional revenue growth vs. the competition to truly justify the expenditure on fundamental grounds.\nNext, margins. FSLY's gross margins are terrible, in the mid-50s%. It resembles Twilio (TWLO) in this regard, a big pay-away to telcos before you even get started. It's the biggest determinant of weak TTM EBITDA margins - which stand at negative 11% vs positive 3% at NET. And whilst those EBITDA margins at NET have been moving up, at FSLY, they have been moving down.\nTurning to cash flow - we've talked about capex already, now let's look at that boring-but-important point, change in working capital. (Remember this is simple. To do this well, pretty much all you have to do is collect cash from customers faster than you pay it to suppliers). If working capital management is bad at NET, and it is, then it is terrible at FSLY. TTM unlevered pre-tax free cash flow margins of negative 33%. This thing just eats money. And again, it has just $166m of net cash on hand vs. a TTM pre-tax pre-debt service cash burn of $104m as of the end of Q1. That means the company is very likely to raise money, via equity or debt placement. And off the back of a weak stock price that's likely to cause more pain in the stock.\nOK. You get the picture. NET is growing a little bit faster and spending more capex to do it; but its gross margins are much better so it has more money to burn in the first place. It appears to be building a big book of forward business in a way that FSLY is not, but right now, that is jam tomorrow, not revenue or earnings today. NET needs to raise capital soon in our view, and FSLY needs to raise capital sooner. So, on fundamentals, NET is a better pick, no question. But the valuation, yikes!\nNET and FSLY Stock Prices\nSince the Cloudflare IPO in 2019, NET has way outperformed FSLY and indeed the Nasdaq (shown here by way of the proxy ETF, Invesco QQQ Trust (QQQ).\n<img src=\"https://static.tigerbbs.com/89d1f9e65c0e2e7398b5ec7b053631ec\" tg-width=\"640\" tg-height=\"378\" width=\"100%\" height=\"auto\">As we state above, that NET has outperformed FSLY is justified to us on fundamentals. It's a better business with higher growth and more visibility of future growth. But right now, as earnings approaches for each of the stocks (FSLY reports on August 4th, NET on August 5th), which is the better bet for long-term investors? In short ...\nIs Cloudflare or Fastly Stock The Better Buy?\nThis isn't such a simple answer in our view. Allow us to ramble somewhat, and bear in mind, all we are talking about here is our own plans for our own money. You must, of course, do your own work and factor in your own risk appetite, time horizon, etc. But here's our approach.\nCloudflare Stock\nAs delighted as we are with the run-up in our NET holdings, and as much as we do in fact think that NET can deliver on some of those Internet 3.0 promises, the price is punchy indeed. So we rate NET at Neutral, meaning we ourselves aren't buying the stock at this point. We have a nice paper gain in long-term accounts and we've cashed a series of gains in short-term accounts along the way. But neither are we selling, because as extended as that stock price is, we think that the stock can move higher, maybe much higher, over the coming years. We think that 5-10 years out, $120/share for NET has every chance of looking like peanuts. We have about the right level of allocation now in those long-term accounts and so we are doing nothing there. If Q2 earnings are anything other than blowout, there is every chance the stock takes a dive and, if it does, we expect to play short-term once again, over and above our long-term holdings. (We keep totally separate accounts for long- and short-term holdings so we never get confused about what game we are playing).\nFastly Stock\nAs much as everybody gottoo excited about FSLY last year, so, we think, has everybody gotten too miserable this year. We have a modest allocation to FSLY in long-term accounts because ultimately we don't think the company will form part of the fabric of Internet 3.0, at least not as an independent. We don't see sufficient force of management personality, sufficiently broad product vision, nor the surround sound of Twitterati talking the thing up. Wedothink thepersistent rumors of FSLY being acquiredhave every chance of playing out and so at any given moment, we see a 20-30% or better premium available should Cisco (CSCO) or another strategic come calling. So, again, long-term holdings, we're doing nothing. We're tempted to add a little right now but with earnings so close, why take the risk? Once again our approach here is to wait for earnings. We are likely to trade it short term on any unjustified stock cratering - and indeed if the fundamentals are improving, as we have a funny feeling they will - look at the below-the-radar improvements in deferred revenue above in the last two quarters for instance - we may well add to our long-term positions at that point. For now, doing nothing before earnings, so, again, Neutral. In each case, a one-word rating doesn't really convey our plans here which is why we lay them out in such wordy detail - now you can shoot them down in flames when doing your own work!","source":"seekingalpha","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 Vs. Fastly Stock: Which Is The Better Buy?</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 Vs. Fastly Stock: Which Is The Better Buy?\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-08-05 22:25 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.\nFastly is a less good business with, in our view, less potential. ...\n\n<a href=\"https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy\">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.","FSLY":"Fastly, Inc."},"source_url":"https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1197602353","content_text":"Summary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.\nFastly is a less good business with, in our view, less potential. Its stock price has cratered of late, as growth has slowed and cash flow worsened.\nBoth stocks are shortly to report their Q2 earnings. We think earnings reaction risk is to the downside on Cloudflare, to the upside on Fastly.\nUltimately, we believe Cloudflare offers more upside for long-term investors, but we own both names in staff personal accounts and intend to add to both on any post-earnings weakness.\nWe would also flag that both companies look to us like they may raise capital soon - if, in the form of new equity, that can hit both stocks.\n\nPing Times May Be Similar But Time To Live Likely Differs\nSince consumer traffic started in earnest to course through the public Internet in the 1990s, content acceleration became important. The initial leader of this market, Akamai (AKAM), grew up in the dot-com era and remains a very solid business today. AKAM's original business model was simple and remains the foundation for content delivery network plays today; buy servers, rent space in telecom companies' datacenters, rent capacity on telecom networks, bill content owners for accelerated delivery of said content. As you can see, the business model is likely to be less cash generative than the now-commonplace cloud application software player, because, one, your gross margin gets hit with the telco pay-aways, and, two, your capex bill is heavy as you have to keep buying server kit. So scaling such a business - meaning, achieve a rate of growth in cash flow faster than the rate of growth in revenue - isn't so easy.\nThe two hot names in content acceleration today are Cloudflare (NET) and Fastly (FSLY). We've covered both of them on multiple occasions here on Seeking Alpha - you can read our past notes on Cloudflare, Inchereand our prior work on Fastlyhere. In addition, we own both stocks in staff personal accounts. We have a much greater allocation to NET than we do to FSLY (in a ratio of approximately 2:1). We have enjoyed an easy ride up on NET with even some poorly-timed averaging-up buys being forgiven by the Trading Gods, whereas we have been battling FSLY to average down our in-costs in the expectation of future gain and our valor has yet to be rewarded. In staff long-term accounts, we presently show a big paper gain on NET and a modest paper loss on FSLY. Along the way, we have also enjoyed separate short-term account gains in NET by buying dips and selling peaks to realize rapid cash gains. (We cover both stocks and our own trades blow by blow in our real-time, real-money Seeking Alpha Marketplace service,Cestrian Fundamentals).\nWhilst Cloudflare and Fastly core services have plenty of overlap, their business models and management styles are very different and this informs our approach to owning the names and our expectations going forward. Allow us to walk you through our views here.\nHow Is Cloudflare Different From Fastly?\nWell, first let's take a look at the similarities. Both offer content acceleration services to content owners, and both offer you something called edge computing, which is in essence the ability to place not just your content (movies, audio, etc.) on a machine near the user (as in, physically and logically near the user on the network - not in a data center thousands of miles away) but also an entire web application or parts thereof. To our investor eye, Cloudflare appears to have more product ambition; taking advantage of its edge network positioning, the company has launched a number of security services, for instance - the goal being to act as a single Internet on-ramp for its customers, a kind of Zscaler (ZS) embedded in the suite offer. If you want to deep-dive into product by product comparison on these two names - and if you do, take a tin hat, for opinions run high - take a look at a couple of engineers-turned-stock-people who cover both stocks in their work.\nNow, putting aside for the moment our own investor view that NET has a superior span of product and indeed more extensive product ambition - let's turn to the numbers.\nSource: Company SEC filings, YCharts.com, Cestrian Analysis\nLot of numbers there. Here are the highlights and lowlights as we see them.\nThe good:\n\nRevenue growth holding steady in the 50% range, gross margin holding steady in the 77% range.\nRemaining performance obligation (RPO) growth of 88% vs. prior year in Q1 2021. RPO is the total order book value, some of which is prepaid, most of which is not. RPO represents just over 90% of TTM recognized revenue so it is material vs. the recognized base, and it is growing faster than the recognized base. So, best guess, NET revenues can accelerate still further.\nAccounting profit in the guise of EBITDA (which we define as operating income, add back depreciation & amortization, add back stock-based compensation) has gone from very negative in 2019 to modestly positive in 2021 - we look at the TTM measure which is slow to respond up or down, it gives you a smoothed-out view of the direction of travel.\n\nThe bad:\n\nActual money-profit in the guise of unlevered pre-tax free cash flow, has gone from horribly negative in 2019 to, er, only very negative in 2021, which in and of itself is good, but, did we mention, cash flow was very negative on a TTM basis to the end of the March 2021 quarter. This is the whole nag with this business model - can they actually become cash flow positive, after capex, after change in working capital? Akamai is, but then it has nothing like the growth ambitions of these names.\nOnly $643m of net cash in the bank at the 31 March point. Given the cash burn, we would not be at all surprised to see the company raise money via an equity or debt placement and, if equity, we would expect a material hit to the stock price on a short-term basis at least. (We are watching closely for this and hope to buy any major dip that comes along).\n\nThe visually challenged:\n\nHuge capital expenditure (\"capex\") bill. Capex as you know is simply money that you spend on stuff that makes a noise when you drop it. Capex at NET, and for that matter FSLY, is mainly computing hardware. We expect significant capex here. But capex as a % of revenue is yet to show a consistent falling pattern - andonlyif we start to see some yield improvements here, some growth without much capex, can we conclude that scale benefits are beginning to flow. Right now the jury is out, and this is a big deal fundamentally.\nTerrible working capital management. This sounds complicated but isn't. If that \"change in working capital\" line was mainly positive, it would mean that in essence, the company collects money from its customers faster than it pays its suppliers. If mainly negative, it pays suppliers faster than it collects cash from its customers. You can see from the numbers that the latter is true. So here we have a business which, already bleeding money into the capex line, further leaks cash into working capital. This again is a big deal fundamentally. Best case, it says the business lacks the management discipline to tell suppliers to wait whilst it chases up customers. Worst case, it means the business is merely a commodity provider of services which can easily be found elsewhere, and they don't chase their customers lest they churn. Now we don'tthinkthat latter point is true; we think NET has a differentiated and sticky set of services - and if that's right, it means management just needs to get religion on cash management. They don't have it today.\n\nAs we shall see in a moment, Cloudflare's stock price flatters its fundamentals. It's not as good a business as its stock trajectory implies.\nFSLY Financials\nFastly, an early huge winner in the immediate response to the Covid crisis, now looks all beaten up if you look at its stock price, to which we shall turn in a moment. But if NET is not as good a business as its stock price implies, FSLY is not as bad a business asitsstock price implies. As investors, we must respect price before all else, everything else is just an input. But fundamentals do sometimes matter - very often you can see value building in the fundamentals that isn't reflected in the stock price, or indeed value waning that is yet to be reflected. Which means that sometimes, just sometimes, you can get ahead of the price game by reading the numbers. (If you read our Cloudflare notes linked above, you can see us making just that argument - hidden value - which did then come to fruition in the stock price).\nLet's take a look at Fastly's numbers.\nSource: Company SEC filings,YCharts.com, Cestrian Analysis\nOK, another lot of numbers. Less numbers though, because the company doesn't disclose its remaining performance obligation in its SEC reports. This is likely because there isn't much of it - they make much of the fact that billing (and by implication contracting) is usage-based and in arrears, so we wouldn't expect a great deal of revenue visibility here.\nTurning to the reported revenue - the deceleration is material, as you can see, and coupled with the lack of visibility, this is what we think is hurting the stock right now. Today's market is positively growth-addled and if your growth is coming down, well, your stock is going to get a beating. That said, it looks to us like folks' expectations just got all ahead of themselves. Look at the TTM revenue line - remember, this is a slow-burn indicator, gives you a smoothed-out look at how things are going. TTM revenue growth peaked at 47% in Q3 2020, and in Q1 2021, it stood at 44%, which isn't really very different if you zoom out far enough. It's just that early Covid Q2 2020 +62% vs Q2 2019 growth rate that got everybody overexcited.\nSkipping around a little here, the valuation stands at 16.5x TTM revenue in exchange for 44% TTM revenue growth. That is positive cheap by current standards.\nCloudflare is asking you to pay 76x TTM revenue in exchange for 51% TTM revenue growth.\nNow don't get us wrong. Cloudflare is a better business. And we like how their management team rolls, all humblebrag-aw-shucks-what-me? whilst quietly stating that their aim is to be the dominant development environment and runtime forInternet 3.0(we paraphrase a little, but yes, that is what their grand plan is, and it might work). But it's notthatmuch better a business.\nBack to FSLY numbers. Remember how NET eats capex and leaks money into working capital? Well, same at FSLY.\nFirst, let's compare their capital expenditures using that slow-burn TTM method.\nThe company has TTM capex standing at 12% of TTM revenue, and is chalking up revenue growth of +44% on a TTM basis. Cloudflare, Inc is spending 18% of TTM revenue on its capex, again on a TTM basis; in exchange for +51% TTM revenue growth. So as a snapshot, FSLY is actually more efficient with its capex. The counter to that is, NET is building a big book of long-term business - as evidenced by its chunky RPO number - and that's what the additional capex is for. This is an interesting-if-true point to make. As in, it might be true and if so, it's a good use of their checkbook. But it has yet to translate into sufficient additional revenue growth vs. the competition to truly justify the expenditure on fundamental grounds.\nNext, margins. FSLY's gross margins are terrible, in the mid-50s%. It resembles Twilio (TWLO) in this regard, a big pay-away to telcos before you even get started. It's the biggest determinant of weak TTM EBITDA margins - which stand at negative 11% vs positive 3% at NET. And whilst those EBITDA margins at NET have been moving up, at FSLY, they have been moving down.\nTurning to cash flow - we've talked about capex already, now let's look at that boring-but-important point, change in working capital. (Remember this is simple. To do this well, pretty much all you have to do is collect cash from customers faster than you pay it to suppliers). If working capital management is bad at NET, and it is, then it is terrible at FSLY. TTM unlevered pre-tax free cash flow margins of negative 33%. This thing just eats money. And again, it has just $166m of net cash on hand vs. a TTM pre-tax pre-debt service cash burn of $104m as of the end of Q1. That means the company is very likely to raise money, via equity or debt placement. And off the back of a weak stock price that's likely to cause more pain in the stock.\nOK. You get the picture. NET is growing a little bit faster and spending more capex to do it; but its gross margins are much better so it has more money to burn in the first place. It appears to be building a big book of forward business in a way that FSLY is not, but right now, that is jam tomorrow, not revenue or earnings today. NET needs to raise capital soon in our view, and FSLY needs to raise capital sooner. So, on fundamentals, NET is a better pick, no question. But the valuation, yikes!\nNET and FSLY Stock Prices\nSince the Cloudflare IPO in 2019, NET has way outperformed FSLY and indeed the Nasdaq (shown here by way of the proxy ETF, Invesco QQQ Trust (QQQ).\nAs we state above, that NET has outperformed FSLY is justified to us on fundamentals. It's a better business with higher growth and more visibility of future growth. But right now, as earnings approaches for each of the stocks (FSLY reports on August 4th, NET on August 5th), which is the better bet for long-term investors? In short ...\nIs Cloudflare or Fastly Stock The Better Buy?\nThis isn't such a simple answer in our view. Allow us to ramble somewhat, and bear in mind, all we are talking about here is our own plans for our own money. You must, of course, do your own work and factor in your own risk appetite, time horizon, etc. But here's our approach.\nCloudflare Stock\nAs delighted as we are with the run-up in our NET holdings, and as much as we do in fact think that NET can deliver on some of those Internet 3.0 promises, the price is punchy indeed. So we rate NET at Neutral, meaning we ourselves aren't buying the stock at this point. We have a nice paper gain in long-term accounts and we've cashed a series of gains in short-term accounts along the way. But neither are we selling, because as extended as that stock price is, we think that the stock can move higher, maybe much higher, over the coming years. We think that 5-10 years out, $120/share for NET has every chance of looking like peanuts. We have about the right level of allocation now in those long-term accounts and so we are doing nothing there. If Q2 earnings are anything other than blowout, there is every chance the stock takes a dive and, if it does, we expect to play short-term once again, over and above our long-term holdings. (We keep totally separate accounts for long- and short-term holdings so we never get confused about what game we are playing).\nFastly Stock\nAs much as everybody gottoo excited about FSLY last year, so, we think, has everybody gotten too miserable this year. We have a modest allocation to FSLY in long-term accounts because ultimately we don't think the company will form part of the fabric of Internet 3.0, at least not as an independent. We don't see sufficient force of management personality, sufficiently broad product vision, nor the surround sound of Twitterati talking the thing up. Wedothink thepersistent rumors of FSLY being acquiredhave every chance of playing out and so at any given moment, we see a 20-30% or better premium available should Cisco (CSCO) or another strategic come calling. So, again, long-term holdings, we're doing nothing. We're tempted to add a little right now but with earnings so close, why take the risk? Once again our approach here is to wait for earnings. We are likely to trade it short term on any unjustified stock cratering - and indeed if the fundamentals are improving, as we have a funny feeling they will - look at the below-the-radar improvements in deferred revenue above in the last two quarters for instance - we may well add to our long-term positions at that point. For now, doing nothing before earnings, so, again, Neutral. In each case, a one-word rating doesn't really convey our plans here which is why we lay them out in such wordy detail - now you can shoot them down in flames when doing your own work!","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":5441676,"gmtCreate":1628211997663,"gmtModify":1663231995928,"authorId":3580357525252052,"author":{"id":3580357525252052,"authorId":3580357525252052,"name":"oOoHades","avatar":"https://static.tigerbbs.com/d7c71a9367d1c7307b367e622fc6b54c","vip":1,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":899221253,"type":1,"supId":5439634,"prevId":0,"content":"Thankw","text":"Thankw","html":"Thankw"},{"id":5439634,"gmtCreate":1628202667305,"gmtModify":1663231986539,"authorId":3580120666305176,"author":{"id":3580120666305176,"authorId":3580120666305176,"name":"JAMKKT","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"currentWearingBadge":{"badgeId":"1026c425416b44e0aac28c11a0848493-2","templateUuid":"1026c425416b44e0aac28c11a0848493","name":"Senior Tiger","description":"Join the tiger community for 1000 days","bigImgUrl":"https://static.tigerbbs.com/0063fb68ea29c9ae6858c58630e182d5","smallImgUrl":"https://static.tigerbbs.com/96c699a93be4214d4b49aea6a5a5d1a4","grayImgUrl":"https://static.tigerbbs.com/35b0e542a9ff77046ed69ef602bc105d","redirectLinkEnabled":0,"hasAllocated":1,"isWearing":1,"stampPosition":0,"hasStamp":0,"allocationCount":1,"allocatedDate":"2023.12.25","individualDisplayEnabled":0,"individualDisplaySort":0,"categoryType":1001},"crmLevel":5,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":899221253,"type":1,"supId":0,"prevId":0,"content":"Ok","text":"Ok","html":"Ok"}],"langContent":"EN"},{"id":899223994,"gmtCreate":1628202244718,"gmtModify":1703502897178,"author":{"id":"3579342217954724","authorId":"3579342217954724","authorIdStr":"3579342217954724","name":"手可摘棉花","avatar":"https://static.tigerbbs.com/eb5d81ca4420febc27175fcd21eb90b2","vip":1,"crmLevel":4,"crmLevelSwitch":0,"idStr":"3579342217954724"},"htmlText":"Net has potential to grow but will wait for correction. Will enter fastly below $30","listText":"Net has potential to grow but will wait for correction. Will enter fastly below $30","text":"Net has potential to grow but will wait for correction. Will enter fastly below $30","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/899223994","repostId":1197602353,"repostType":4,"repost":{"id":"1197602353","pubTimestamp":1628173558,"share":"https://ttm.financial/m/news/1197602353?lang=&edition=fundamental","pubTime":"2021-08-05 22:25","market":"us","language":"en","title":"Cloudflare Vs. Fastly Stock: Which Is The Better Buy?","url":"https://stock-news.laohu8.com/highlight/detail?id=1197602353","media":"seekingalpha","summary":"Summary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up rec","content":"Summary\n<ul>\n <li>Cloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.</li>\n <li>Fastly is a less good business with, in our view, less potential. Its stock price has cratered of late, as growth has slowed and cash flow worsened.</li>\n <li>Both stocks are shortly to report their Q2 earnings. We think earnings reaction risk is to the downside on Cloudflare, to the upside on Fastly.</li>\n <li>Ultimately, we believe Cloudflare offers more upside for long-term investors, but we own both names in staff personal accounts and intend to add to both on any post-earnings weakness.</li>\n <li>We would also flag that both companies look to us like they may raise capital soon - if, in the form of new equity, that can hit both stocks.</li>\n</ul>\nPing Times May Be Similar But Time To Live Likely Differs\nSince consumer traffic started in earnest to course through the public Internet in the 1990s, content acceleration became important. The initial leader of this market, Akamai (AKAM), grew up in the dot-com era and remains a very solid business today. AKAM's original business model was simple and remains the foundation for content delivery network plays today; buy servers, rent space in telecom companies' datacenters, rent capacity on telecom networks, bill content owners for accelerated delivery of said content. As you can see, the business model is likely to be less cash generative than the now-commonplace cloud application software player, because, one, your gross margin gets hit with the telco pay-aways, and, two, your capex bill is heavy as you have to keep buying server kit. So scaling such a business - meaning, achieve a rate of growth in cash flow faster than the rate of growth in revenue - isn't so easy.\nThe two hot names in content acceleration today are Cloudflare (NET) and Fastly (FSLY). We've covered both of them on multiple occasions here on Seeking Alpha - you can read our past notes on Cloudflare, Inchereand our prior work on Fastlyhere. In addition, we own both stocks in staff personal accounts. We have a much greater allocation to NET than we do to FSLY (in a ratio of approximately 2:1). We have enjoyed an easy ride up on NET with even some poorly-timed averaging-up buys being forgiven by the Trading Gods, whereas we have been battling FSLY to average down our in-costs in the expectation of future gain and our valor has yet to be rewarded. In staff long-term accounts, we presently show a big paper gain on NET and a modest paper loss on FSLY. Along the way, we have also enjoyed separate short-term account gains in NET by buying dips and selling peaks to realize rapid cash gains. (We cover both stocks and our own trades blow by blow in our real-time, real-money Seeking Alpha Marketplace service,Cestrian Fundamentals).\nWhilst Cloudflare and Fastly core services have plenty of overlap, their business models and management styles are very different and this informs our approach to owning the names and our expectations going forward. Allow us to walk you through our views here.\nHow Is Cloudflare Different From Fastly?\nWell, first let's take a look at the similarities. Both offer content acceleration services to content owners, and both offer you something called edge computing, which is in essence the ability to place not just your content (movies, audio, etc.) on a machine near the user (as in, physically and logically near the user on the network - not in a data center thousands of miles away) but also an entire web application or parts thereof. To our investor eye, Cloudflare appears to have more product ambition; taking advantage of its edge network positioning, the company has launched a number of security services, for instance - the goal being to act as a single Internet on-ramp for its customers, a kind of Zscaler (ZS) embedded in the suite offer. If you want to deep-dive into product by product comparison on these two names - and if you do, take a tin hat, for opinions run high - take a look at a couple of engineers-turned-stock-people who cover both stocks in their work.\nNow, putting aside for the moment our own investor view that NET has a superior span of product and indeed more extensive product ambition - let's turn to the numbers.\n<img src=\"https://static.tigerbbs.com/4b54705844ce46a8f48f7d986cd113f4\" tg-width=\"640\" tg-height=\"587\" width=\"100%\" height=\"auto\"><img src=\"https://static.tigerbbs.com/ea25982971170997ab631a0e0e0af99f\" tg-width=\"640\" tg-height=\"220\" width=\"100%\" height=\"auto\">Source: Company SEC filings, YCharts.com, Cestrian Analysis\nLot of numbers there. Here are the highlights and lowlights as we see them.\nThe good:\n<ul>\n <li>Revenue growth holding steady in the 50% range, gross margin holding steady in the 77% range.</li>\n <li>Remaining performance obligation (RPO) growth of 88% vs. prior year in Q1 2021. RPO is the total order book value, some of which is prepaid, most of which is not. RPO represents just over 90% of TTM recognized revenue so it is material vs. the recognized base, and it is growing faster than the recognized base. So, best guess, NET revenues can accelerate still further.</li>\n <li>Accounting profit in the guise of EBITDA (which we define as operating income, add back depreciation &amp; amortization, add back stock-based compensation) has gone from very negative in 2019 to modestly positive in 2021 - we look at the TTM measure which is slow to respond up or down, it gives you a smoothed-out view of the direction of travel.</li>\n</ul>\nThe bad:\n<ul>\n <li>Actual money-profit in the guise of unlevered pre-tax free cash flow, has gone from horribly negative in 2019 to, er, only very negative in 2021, which in and of itself is good, but, did we mention, cash flow was very negative on a TTM basis to the end of the March 2021 quarter. This is the whole nag with this business model - can they actually become cash flow positive, after capex, after change in working capital? Akamai is, but then it has nothing like the growth ambitions of these names.</li>\n <li>Only $643m of net cash in the bank at the 31 March point. Given the cash burn, we would not be at all surprised to see the company raise money via an equity or debt placement and, if equity, we would expect a material hit to the stock price on a short-term basis at least. (We are watching closely for this and hope to buy any major dip that comes along).</li>\n</ul>\nThe visually challenged:\n<ul>\n <li>Huge capital expenditure (\"capex\") bill. Capex as you know is simply money that you spend on stuff that makes a noise when you drop it. Capex at NET, and for that matter FSLY, is mainly computing hardware. We expect significant capex here. But capex as a % of revenue is yet to show a consistent falling pattern - andonlyif we start to see some yield improvements here, some growth without much capex, can we conclude that scale benefits are beginning to flow. Right now the jury is out, and this is a big deal fundamentally.</li>\n <li>Terrible working capital management. This sounds complicated but isn't. If that \"change in working capital\" line was mainly positive, it would mean that in essence, the company collects money from its customers faster than it pays its suppliers. If mainly negative, it pays suppliers faster than it collects cash from its customers. You can see from the numbers that the latter is true. So here we have a business which, already bleeding money into the capex line, further leaks cash into working capital. This again is a big deal fundamentally. Best case, it says the business lacks the management discipline to tell suppliers to wait whilst it chases up customers. Worst case, it means the business is merely a commodity provider of services which can easily be found elsewhere, and they don't chase their customers lest they churn. Now we don'tthinkthat latter point is true; we think NET has a differentiated and sticky set of services - and if that's right, it means management just needs to get religion on cash management. They don't have it today.</li>\n</ul>\nAs we shall see in a moment, Cloudflare's stock price flatters its fundamentals. It's not as good a business as its stock trajectory implies.\nFSLY Financials\nFastly, an early huge winner in the immediate response to the Covid crisis, now looks all beaten up if you look at its stock price, to which we shall turn in a moment. But if NET is not as good a business as its stock price implies, FSLY is not as bad a business asitsstock price implies. As investors, we must respect price before all else, everything else is just an input. But fundamentals do sometimes matter - very often you can see value building in the fundamentals that isn't reflected in the stock price, or indeed value waning that is yet to be reflected. Which means that sometimes, just sometimes, you can get ahead of the price game by reading the numbers. (If you read our Cloudflare notes linked above, you can see us making just that argument - hidden value - which did then come to fruition in the stock price).\nLet's take a look at Fastly's numbers.\n<img src=\"https://static.tigerbbs.com/c3aa249a8140f7dea48136c586415d87\" tg-width=\"640\" tg-height=\"621\" width=\"100%\" height=\"auto\">Source: Company SEC filings,YCharts.com, Cestrian Analysis\nOK, another lot of numbers. Less numbers though, because the company doesn't disclose its remaining performance obligation in its SEC reports. This is likely because there isn't much of it - they make much of the fact that billing (and by implication contracting) is usage-based and in arrears, so we wouldn't expect a great deal of revenue visibility here.\nTurning to the reported revenue - the deceleration is material, as you can see, and coupled with the lack of visibility, this is what we think is hurting the stock right now. Today's market is positively growth-addled and if your growth is coming down, well, your stock is going to get a beating. That said, it looks to us like folks' expectations just got all ahead of themselves. Look at the TTM revenue line - remember, this is a slow-burn indicator, gives you a smoothed-out look at how things are going. TTM revenue growth peaked at 47% in Q3 2020, and in Q1 2021, it stood at 44%, which isn't really very different if you zoom out far enough. It's just that early Covid Q2 2020 +62% vs Q2 2019 growth rate that got everybody overexcited.\nSkipping around a little here, the valuation stands at 16.5x TTM revenue in exchange for 44% TTM revenue growth. That is positive cheap by current standards.\n<img src=\"https://static.tigerbbs.com/5469d429652493191eb4cdcf2efee55e\" tg-width=\"238\" tg-height=\"247\" width=\"100%\" height=\"auto\">Cloudflare is asking you to pay 76x TTM revenue in exchange for 51% TTM revenue growth.\n<img src=\"https://static.tigerbbs.com/d1e47eab4ff42f7649937ad13cab0413\" tg-width=\"235\" tg-height=\"250\" width=\"100%\" height=\"auto\">Now don't get us wrong. Cloudflare is a better business. And we like how their management team rolls, all humblebrag-aw-shucks-what-me? whilst quietly stating that their aim is to be the dominant development environment and runtime forInternet 3.0(we paraphrase a little, but yes, that is what their grand plan is, and it might work). But it's notthatmuch better a business.\nBack to FSLY numbers. Remember how NET eats capex and leaks money into working capital? Well, same at FSLY.\nFirst, let's compare their capital expenditures using that slow-burn TTM method.\n<img src=\"https://static.tigerbbs.com/e8e760e2b8fb4ed434bfb9dec30b547b\" tg-width=\"640\" tg-height=\"89\" width=\"100%\" height=\"auto\"><img src=\"https://static.tigerbbs.com/04bb88b1b8d8d2722a84dfc263eefaec\" tg-width=\"640\" tg-height=\"91\" width=\"100%\" height=\"auto\">The company has TTM capex standing at 12% of TTM revenue, and is chalking up revenue growth of +44% on a TTM basis. Cloudflare, Inc is spending 18% of TTM revenue on its capex, again on a TTM basis; in exchange for +51% TTM revenue growth. So as a snapshot, FSLY is actually more efficient with its capex. The counter to that is, NET is building a big book of long-term business - as evidenced by its chunky RPO number - and that's what the additional capex is for. This is an interesting-if-true point to make. As in, it might be true and if so, it's a good use of their checkbook. But it has yet to translate into sufficient additional revenue growth vs. the competition to truly justify the expenditure on fundamental grounds.\nNext, margins. FSLY's gross margins are terrible, in the mid-50s%. It resembles Twilio (TWLO) in this regard, a big pay-away to telcos before you even get started. It's the biggest determinant of weak TTM EBITDA margins - which stand at negative 11% vs positive 3% at NET. And whilst those EBITDA margins at NET have been moving up, at FSLY, they have been moving down.\nTurning to cash flow - we've talked about capex already, now let's look at that boring-but-important point, change in working capital. (Remember this is simple. To do this well, pretty much all you have to do is collect cash from customers faster than you pay it to suppliers). If working capital management is bad at NET, and it is, then it is terrible at FSLY. TTM unlevered pre-tax free cash flow margins of negative 33%. This thing just eats money. And again, it has just $166m of net cash on hand vs. a TTM pre-tax pre-debt service cash burn of $104m as of the end of Q1. That means the company is very likely to raise money, via equity or debt placement. And off the back of a weak stock price that's likely to cause more pain in the stock.\nOK. You get the picture. NET is growing a little bit faster and spending more capex to do it; but its gross margins are much better so it has more money to burn in the first place. It appears to be building a big book of forward business in a way that FSLY is not, but right now, that is jam tomorrow, not revenue or earnings today. NET needs to raise capital soon in our view, and FSLY needs to raise capital sooner. So, on fundamentals, NET is a better pick, no question. But the valuation, yikes!\nNET and FSLY Stock Prices\nSince the Cloudflare IPO in 2019, NET has way outperformed FSLY and indeed the Nasdaq (shown here by way of the proxy ETF, Invesco QQQ Trust (QQQ).\n<img src=\"https://static.tigerbbs.com/89d1f9e65c0e2e7398b5ec7b053631ec\" tg-width=\"640\" tg-height=\"378\" width=\"100%\" height=\"auto\">As we state above, that NET has outperformed FSLY is justified to us on fundamentals. It's a better business with higher growth and more visibility of future growth. But right now, as earnings approaches for each of the stocks (FSLY reports on August 4th, NET on August 5th), which is the better bet for long-term investors? In short ...\nIs Cloudflare or Fastly Stock The Better Buy?\nThis isn't such a simple answer in our view. Allow us to ramble somewhat, and bear in mind, all we are talking about here is our own plans for our own money. You must, of course, do your own work and factor in your own risk appetite, time horizon, etc. But here's our approach.\nCloudflare Stock\nAs delighted as we are with the run-up in our NET holdings, and as much as we do in fact think that NET can deliver on some of those Internet 3.0 promises, the price is punchy indeed. So we rate NET at Neutral, meaning we ourselves aren't buying the stock at this point. We have a nice paper gain in long-term accounts and we've cashed a series of gains in short-term accounts along the way. But neither are we selling, because as extended as that stock price is, we think that the stock can move higher, maybe much higher, over the coming years. We think that 5-10 years out, $120/share for NET has every chance of looking like peanuts. We have about the right level of allocation now in those long-term accounts and so we are doing nothing there. If Q2 earnings are anything other than blowout, there is every chance the stock takes a dive and, if it does, we expect to play short-term once again, over and above our long-term holdings. (We keep totally separate accounts for long- and short-term holdings so we never get confused about what game we are playing).\nFastly Stock\nAs much as everybody gottoo excited about FSLY last year, so, we think, has everybody gotten too miserable this year. We have a modest allocation to FSLY in long-term accounts because ultimately we don't think the company will form part of the fabric of Internet 3.0, at least not as an independent. We don't see sufficient force of management personality, sufficiently broad product vision, nor the surround sound of Twitterati talking the thing up. Wedothink thepersistent rumors of FSLY being acquiredhave every chance of playing out and so at any given moment, we see a 20-30% or better premium available should Cisco (CSCO) or another strategic come calling. So, again, long-term holdings, we're doing nothing. We're tempted to add a little right now but with earnings so close, why take the risk? Once again our approach here is to wait for earnings. We are likely to trade it short term on any unjustified stock cratering - and indeed if the fundamentals are improving, as we have a funny feeling they will - look at the below-the-radar improvements in deferred revenue above in the last two quarters for instance - we may well add to our long-term positions at that point. For now, doing nothing before earnings, so, again, Neutral. In each case, a one-word rating doesn't really convey our plans here which is why we lay them out in such wordy detail - now you can shoot them down in flames when doing your own work!","source":"seekingalpha","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 Vs. Fastly Stock: Which Is The Better Buy?</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 Vs. Fastly Stock: Which Is The Better Buy?\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-08-05 22:25 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.\nFastly is a less good business with, in our view, less potential. ...\n\n<a href=\"https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy\">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.","FSLY":"Fastly, Inc."},"source_url":"https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1197602353","content_text":"Summary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.\nFastly is a less good business with, in our view, less potential. Its stock price has cratered of late, as growth has slowed and cash flow worsened.\nBoth stocks are shortly to report their Q2 earnings. We think earnings reaction risk is to the downside on Cloudflare, to the upside on Fastly.\nUltimately, we believe Cloudflare offers more upside for long-term investors, but we own both names in staff personal accounts and intend to add to both on any post-earnings weakness.\nWe would also flag that both companies look to us like they may raise capital soon - if, in the form of new equity, that can hit both stocks.\n\nPing Times May Be Similar But Time To Live Likely Differs\nSince consumer traffic started in earnest to course through the public Internet in the 1990s, content acceleration became important. The initial leader of this market, Akamai (AKAM), grew up in the dot-com era and remains a very solid business today. AKAM's original business model was simple and remains the foundation for content delivery network plays today; buy servers, rent space in telecom companies' datacenters, rent capacity on telecom networks, bill content owners for accelerated delivery of said content. As you can see, the business model is likely to be less cash generative than the now-commonplace cloud application software player, because, one, your gross margin gets hit with the telco pay-aways, and, two, your capex bill is heavy as you have to keep buying server kit. So scaling such a business - meaning, achieve a rate of growth in cash flow faster than the rate of growth in revenue - isn't so easy.\nThe two hot names in content acceleration today are Cloudflare (NET) and Fastly (FSLY). We've covered both of them on multiple occasions here on Seeking Alpha - you can read our past notes on Cloudflare, Inchereand our prior work on Fastlyhere. In addition, we own both stocks in staff personal accounts. We have a much greater allocation to NET than we do to FSLY (in a ratio of approximately 2:1). We have enjoyed an easy ride up on NET with even some poorly-timed averaging-up buys being forgiven by the Trading Gods, whereas we have been battling FSLY to average down our in-costs in the expectation of future gain and our valor has yet to be rewarded. In staff long-term accounts, we presently show a big paper gain on NET and a modest paper loss on FSLY. Along the way, we have also enjoyed separate short-term account gains in NET by buying dips and selling peaks to realize rapid cash gains. (We cover both stocks and our own trades blow by blow in our real-time, real-money Seeking Alpha Marketplace service,Cestrian Fundamentals).\nWhilst Cloudflare and Fastly core services have plenty of overlap, their business models and management styles are very different and this informs our approach to owning the names and our expectations going forward. Allow us to walk you through our views here.\nHow Is Cloudflare Different From Fastly?\nWell, first let's take a look at the similarities. Both offer content acceleration services to content owners, and both offer you something called edge computing, which is in essence the ability to place not just your content (movies, audio, etc.) on a machine near the user (as in, physically and logically near the user on the network - not in a data center thousands of miles away) but also an entire web application or parts thereof. To our investor eye, Cloudflare appears to have more product ambition; taking advantage of its edge network positioning, the company has launched a number of security services, for instance - the goal being to act as a single Internet on-ramp for its customers, a kind of Zscaler (ZS) embedded in the suite offer. If you want to deep-dive into product by product comparison on these two names - and if you do, take a tin hat, for opinions run high - take a look at a couple of engineers-turned-stock-people who cover both stocks in their work.\nNow, putting aside for the moment our own investor view that NET has a superior span of product and indeed more extensive product ambition - let's turn to the numbers.\nSource: Company SEC filings, YCharts.com, Cestrian Analysis\nLot of numbers there. Here are the highlights and lowlights as we see them.\nThe good:\n\nRevenue growth holding steady in the 50% range, gross margin holding steady in the 77% range.\nRemaining performance obligation (RPO) growth of 88% vs. prior year in Q1 2021. RPO is the total order book value, some of which is prepaid, most of which is not. RPO represents just over 90% of TTM recognized revenue so it is material vs. the recognized base, and it is growing faster than the recognized base. So, best guess, NET revenues can accelerate still further.\nAccounting profit in the guise of EBITDA (which we define as operating income, add back depreciation & amortization, add back stock-based compensation) has gone from very negative in 2019 to modestly positive in 2021 - we look at the TTM measure which is slow to respond up or down, it gives you a smoothed-out view of the direction of travel.\n\nThe bad:\n\nActual money-profit in the guise of unlevered pre-tax free cash flow, has gone from horribly negative in 2019 to, er, only very negative in 2021, which in and of itself is good, but, did we mention, cash flow was very negative on a TTM basis to the end of the March 2021 quarter. This is the whole nag with this business model - can they actually become cash flow positive, after capex, after change in working capital? Akamai is, but then it has nothing like the growth ambitions of these names.\nOnly $643m of net cash in the bank at the 31 March point. Given the cash burn, we would not be at all surprised to see the company raise money via an equity or debt placement and, if equity, we would expect a material hit to the stock price on a short-term basis at least. (We are watching closely for this and hope to buy any major dip that comes along).\n\nThe visually challenged:\n\nHuge capital expenditure (\"capex\") bill. Capex as you know is simply money that you spend on stuff that makes a noise when you drop it. Capex at NET, and for that matter FSLY, is mainly computing hardware. We expect significant capex here. But capex as a % of revenue is yet to show a consistent falling pattern - andonlyif we start to see some yield improvements here, some growth without much capex, can we conclude that scale benefits are beginning to flow. Right now the jury is out, and this is a big deal fundamentally.\nTerrible working capital management. This sounds complicated but isn't. If that \"change in working capital\" line was mainly positive, it would mean that in essence, the company collects money from its customers faster than it pays its suppliers. If mainly negative, it pays suppliers faster than it collects cash from its customers. You can see from the numbers that the latter is true. So here we have a business which, already bleeding money into the capex line, further leaks cash into working capital. This again is a big deal fundamentally. Best case, it says the business lacks the management discipline to tell suppliers to wait whilst it chases up customers. Worst case, it means the business is merely a commodity provider of services which can easily be found elsewhere, and they don't chase their customers lest they churn. Now we don'tthinkthat latter point is true; we think NET has a differentiated and sticky set of services - and if that's right, it means management just needs to get religion on cash management. They don't have it today.\n\nAs we shall see in a moment, Cloudflare's stock price flatters its fundamentals. It's not as good a business as its stock trajectory implies.\nFSLY Financials\nFastly, an early huge winner in the immediate response to the Covid crisis, now looks all beaten up if you look at its stock price, to which we shall turn in a moment. But if NET is not as good a business as its stock price implies, FSLY is not as bad a business asitsstock price implies. As investors, we must respect price before all else, everything else is just an input. But fundamentals do sometimes matter - very often you can see value building in the fundamentals that isn't reflected in the stock price, or indeed value waning that is yet to be reflected. Which means that sometimes, just sometimes, you can get ahead of the price game by reading the numbers. (If you read our Cloudflare notes linked above, you can see us making just that argument - hidden value - which did then come to fruition in the stock price).\nLet's take a look at Fastly's numbers.\nSource: Company SEC filings,YCharts.com, Cestrian Analysis\nOK, another lot of numbers. Less numbers though, because the company doesn't disclose its remaining performance obligation in its SEC reports. This is likely because there isn't much of it - they make much of the fact that billing (and by implication contracting) is usage-based and in arrears, so we wouldn't expect a great deal of revenue visibility here.\nTurning to the reported revenue - the deceleration is material, as you can see, and coupled with the lack of visibility, this is what we think is hurting the stock right now. Today's market is positively growth-addled and if your growth is coming down, well, your stock is going to get a beating. That said, it looks to us like folks' expectations just got all ahead of themselves. Look at the TTM revenue line - remember, this is a slow-burn indicator, gives you a smoothed-out look at how things are going. TTM revenue growth peaked at 47% in Q3 2020, and in Q1 2021, it stood at 44%, which isn't really very different if you zoom out far enough. It's just that early Covid Q2 2020 +62% vs Q2 2019 growth rate that got everybody overexcited.\nSkipping around a little here, the valuation stands at 16.5x TTM revenue in exchange for 44% TTM revenue growth. That is positive cheap by current standards.\nCloudflare is asking you to pay 76x TTM revenue in exchange for 51% TTM revenue growth.\nNow don't get us wrong. Cloudflare is a better business. And we like how their management team rolls, all humblebrag-aw-shucks-what-me? whilst quietly stating that their aim is to be the dominant development environment and runtime forInternet 3.0(we paraphrase a little, but yes, that is what their grand plan is, and it might work). But it's notthatmuch better a business.\nBack to FSLY numbers. Remember how NET eats capex and leaks money into working capital? Well, same at FSLY.\nFirst, let's compare their capital expenditures using that slow-burn TTM method.\nThe company has TTM capex standing at 12% of TTM revenue, and is chalking up revenue growth of +44% on a TTM basis. Cloudflare, Inc is spending 18% of TTM revenue on its capex, again on a TTM basis; in exchange for +51% TTM revenue growth. So as a snapshot, FSLY is actually more efficient with its capex. The counter to that is, NET is building a big book of long-term business - as evidenced by its chunky RPO number - and that's what the additional capex is for. This is an interesting-if-true point to make. As in, it might be true and if so, it's a good use of their checkbook. But it has yet to translate into sufficient additional revenue growth vs. the competition to truly justify the expenditure on fundamental grounds.\nNext, margins. FSLY's gross margins are terrible, in the mid-50s%. It resembles Twilio (TWLO) in this regard, a big pay-away to telcos before you even get started. It's the biggest determinant of weak TTM EBITDA margins - which stand at negative 11% vs positive 3% at NET. And whilst those EBITDA margins at NET have been moving up, at FSLY, they have been moving down.\nTurning to cash flow - we've talked about capex already, now let's look at that boring-but-important point, change in working capital. (Remember this is simple. To do this well, pretty much all you have to do is collect cash from customers faster than you pay it to suppliers). If working capital management is bad at NET, and it is, then it is terrible at FSLY. TTM unlevered pre-tax free cash flow margins of negative 33%. This thing just eats money. And again, it has just $166m of net cash on hand vs. a TTM pre-tax pre-debt service cash burn of $104m as of the end of Q1. That means the company is very likely to raise money, via equity or debt placement. And off the back of a weak stock price that's likely to cause more pain in the stock.\nOK. You get the picture. NET is growing a little bit faster and spending more capex to do it; but its gross margins are much better so it has more money to burn in the first place. It appears to be building a big book of forward business in a way that FSLY is not, but right now, that is jam tomorrow, not revenue or earnings today. NET needs to raise capital soon in our view, and FSLY needs to raise capital sooner. So, on fundamentals, NET is a better pick, no question. But the valuation, yikes!\nNET and FSLY Stock Prices\nSince the Cloudflare IPO in 2019, NET has way outperformed FSLY and indeed the Nasdaq (shown here by way of the proxy ETF, Invesco QQQ Trust (QQQ).\nAs we state above, that NET has outperformed FSLY is justified to us on fundamentals. It's a better business with higher growth and more visibility of future growth. But right now, as earnings approaches for each of the stocks (FSLY reports on August 4th, NET on August 5th), which is the better bet for long-term investors? In short ...\nIs Cloudflare or Fastly Stock The Better Buy?\nThis isn't such a simple answer in our view. Allow us to ramble somewhat, and bear in mind, all we are talking about here is our own plans for our own money. You must, of course, do your own work and factor in your own risk appetite, time horizon, etc. But here's our approach.\nCloudflare Stock\nAs delighted as we are with the run-up in our NET holdings, and as much as we do in fact think that NET can deliver on some of those Internet 3.0 promises, the price is punchy indeed. So we rate NET at Neutral, meaning we ourselves aren't buying the stock at this point. We have a nice paper gain in long-term accounts and we've cashed a series of gains in short-term accounts along the way. But neither are we selling, because as extended as that stock price is, we think that the stock can move higher, maybe much higher, over the coming years. We think that 5-10 years out, $120/share for NET has every chance of looking like peanuts. We have about the right level of allocation now in those long-term accounts and so we are doing nothing there. If Q2 earnings are anything other than blowout, there is every chance the stock takes a dive and, if it does, we expect to play short-term once again, over and above our long-term holdings. (We keep totally separate accounts for long- and short-term holdings so we never get confused about what game we are playing).\nFastly Stock\nAs much as everybody gottoo excited about FSLY last year, so, we think, has everybody gotten too miserable this year. We have a modest allocation to FSLY in long-term accounts because ultimately we don't think the company will form part of the fabric of Internet 3.0, at least not as an independent. We don't see sufficient force of management personality, sufficiently broad product vision, nor the surround sound of Twitterati talking the thing up. Wedothink thepersistent rumors of FSLY being acquiredhave every chance of playing out and so at any given moment, we see a 20-30% or better premium available should Cisco (CSCO) or another strategic come calling. So, again, long-term holdings, we're doing nothing. We're tempted to add a little right now but with earnings so close, why take the risk? Once again our approach here is to wait for earnings. We are likely to trade it short term on any unjustified stock cratering - and indeed if the fundamentals are improving, as we have a funny feeling they will - look at the below-the-radar improvements in deferred revenue above in the last two quarters for instance - we may well add to our long-term positions at that point. For now, doing nothing before earnings, so, again, Neutral. In each case, a one-word rating doesn't really convey our plans here which is why we lay them out in such wordy detail - now you can shoot them down in flames when doing your own work!","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":899220074,"gmtCreate":1628202063398,"gmtModify":1703502894254,"author":{"id":"3583621807888930","authorId":"3583621807888930","authorIdStr":"3583621807888930","name":"HF133","avatar":"https://static.tigerbbs.com/ce211305e06a021e08ecfcbc0e23bbb5","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3583621807888930"},"htmlText":"Like","listText":"Like","text":"Like","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":6,"commentSize":3,"repostSize":0,"link":"https://ttm.financial/post/899220074","repostId":1197602353,"repostType":4,"repost":{"id":"1197602353","pubTimestamp":1628173558,"share":"https://ttm.financial/m/news/1197602353?lang=&edition=fundamental","pubTime":"2021-08-05 22:25","market":"us","language":"en","title":"Cloudflare Vs. Fastly Stock: Which Is The Better Buy?","url":"https://stock-news.laohu8.com/highlight/detail?id=1197602353","media":"seekingalpha","summary":"Summary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up rec","content":"Summary\n<ul>\n <li>Cloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.</li>\n <li>Fastly is a less good business with, in our view, less potential. Its stock price has cratered of late, as growth has slowed and cash flow worsened.</li>\n <li>Both stocks are shortly to report their Q2 earnings. We think earnings reaction risk is to the downside on Cloudflare, to the upside on Fastly.</li>\n <li>Ultimately, we believe Cloudflare offers more upside for long-term investors, but we own both names in staff personal accounts and intend to add to both on any post-earnings weakness.</li>\n <li>We would also flag that both companies look to us like they may raise capital soon - if, in the form of new equity, that can hit both stocks.</li>\n</ul>\nPing Times May Be Similar But Time To Live Likely Differs\nSince consumer traffic started in earnest to course through the public Internet in the 1990s, content acceleration became important. The initial leader of this market, Akamai (AKAM), grew up in the dot-com era and remains a very solid business today. AKAM's original business model was simple and remains the foundation for content delivery network plays today; buy servers, rent space in telecom companies' datacenters, rent capacity on telecom networks, bill content owners for accelerated delivery of said content. As you can see, the business model is likely to be less cash generative than the now-commonplace cloud application software player, because, one, your gross margin gets hit with the telco pay-aways, and, two, your capex bill is heavy as you have to keep buying server kit. So scaling such a business - meaning, achieve a rate of growth in cash flow faster than the rate of growth in revenue - isn't so easy.\nThe two hot names in content acceleration today are Cloudflare (NET) and Fastly (FSLY). We've covered both of them on multiple occasions here on Seeking Alpha - you can read our past notes on Cloudflare, Inchereand our prior work on Fastlyhere. In addition, we own both stocks in staff personal accounts. We have a much greater allocation to NET than we do to FSLY (in a ratio of approximately 2:1). We have enjoyed an easy ride up on NET with even some poorly-timed averaging-up buys being forgiven by the Trading Gods, whereas we have been battling FSLY to average down our in-costs in the expectation of future gain and our valor has yet to be rewarded. In staff long-term accounts, we presently show a big paper gain on NET and a modest paper loss on FSLY. Along the way, we have also enjoyed separate short-term account gains in NET by buying dips and selling peaks to realize rapid cash gains. (We cover both stocks and our own trades blow by blow in our real-time, real-money Seeking Alpha Marketplace service,Cestrian Fundamentals).\nWhilst Cloudflare and Fastly core services have plenty of overlap, their business models and management styles are very different and this informs our approach to owning the names and our expectations going forward. Allow us to walk you through our views here.\nHow Is Cloudflare Different From Fastly?\nWell, first let's take a look at the similarities. Both offer content acceleration services to content owners, and both offer you something called edge computing, which is in essence the ability to place not just your content (movies, audio, etc.) on a machine near the user (as in, physically and logically near the user on the network - not in a data center thousands of miles away) but also an entire web application or parts thereof. To our investor eye, Cloudflare appears to have more product ambition; taking advantage of its edge network positioning, the company has launched a number of security services, for instance - the goal being to act as a single Internet on-ramp for its customers, a kind of Zscaler (ZS) embedded in the suite offer. If you want to deep-dive into product by product comparison on these two names - and if you do, take a tin hat, for opinions run high - take a look at a couple of engineers-turned-stock-people who cover both stocks in their work.\nNow, putting aside for the moment our own investor view that NET has a superior span of product and indeed more extensive product ambition - let's turn to the numbers.\n<img src=\"https://static.tigerbbs.com/4b54705844ce46a8f48f7d986cd113f4\" tg-width=\"640\" tg-height=\"587\" width=\"100%\" height=\"auto\"><img src=\"https://static.tigerbbs.com/ea25982971170997ab631a0e0e0af99f\" tg-width=\"640\" tg-height=\"220\" width=\"100%\" height=\"auto\">Source: Company SEC filings, YCharts.com, Cestrian Analysis\nLot of numbers there. Here are the highlights and lowlights as we see them.\nThe good:\n<ul>\n <li>Revenue growth holding steady in the 50% range, gross margin holding steady in the 77% range.</li>\n <li>Remaining performance obligation (RPO) growth of 88% vs. prior year in Q1 2021. RPO is the total order book value, some of which is prepaid, most of which is not. RPO represents just over 90% of TTM recognized revenue so it is material vs. the recognized base, and it is growing faster than the recognized base. So, best guess, NET revenues can accelerate still further.</li>\n <li>Accounting profit in the guise of EBITDA (which we define as operating income, add back depreciation &amp; amortization, add back stock-based compensation) has gone from very negative in 2019 to modestly positive in 2021 - we look at the TTM measure which is slow to respond up or down, it gives you a smoothed-out view of the direction of travel.</li>\n</ul>\nThe bad:\n<ul>\n <li>Actual money-profit in the guise of unlevered pre-tax free cash flow, has gone from horribly negative in 2019 to, er, only very negative in 2021, which in and of itself is good, but, did we mention, cash flow was very negative on a TTM basis to the end of the March 2021 quarter. This is the whole nag with this business model - can they actually become cash flow positive, after capex, after change in working capital? Akamai is, but then it has nothing like the growth ambitions of these names.</li>\n <li>Only $643m of net cash in the bank at the 31 March point. Given the cash burn, we would not be at all surprised to see the company raise money via an equity or debt placement and, if equity, we would expect a material hit to the stock price on a short-term basis at least. (We are watching closely for this and hope to buy any major dip that comes along).</li>\n</ul>\nThe visually challenged:\n<ul>\n <li>Huge capital expenditure (\"capex\") bill. Capex as you know is simply money that you spend on stuff that makes a noise when you drop it. Capex at NET, and for that matter FSLY, is mainly computing hardware. We expect significant capex here. But capex as a % of revenue is yet to show a consistent falling pattern - andonlyif we start to see some yield improvements here, some growth without much capex, can we conclude that scale benefits are beginning to flow. Right now the jury is out, and this is a big deal fundamentally.</li>\n <li>Terrible working capital management. This sounds complicated but isn't. If that \"change in working capital\" line was mainly positive, it would mean that in essence, the company collects money from its customers faster than it pays its suppliers. If mainly negative, it pays suppliers faster than it collects cash from its customers. You can see from the numbers that the latter is true. So here we have a business which, already bleeding money into the capex line, further leaks cash into working capital. This again is a big deal fundamentally. Best case, it says the business lacks the management discipline to tell suppliers to wait whilst it chases up customers. Worst case, it means the business is merely a commodity provider of services which can easily be found elsewhere, and they don't chase their customers lest they churn. Now we don'tthinkthat latter point is true; we think NET has a differentiated and sticky set of services - and if that's right, it means management just needs to get religion on cash management. They don't have it today.</li>\n</ul>\nAs we shall see in a moment, Cloudflare's stock price flatters its fundamentals. It's not as good a business as its stock trajectory implies.\nFSLY Financials\nFastly, an early huge winner in the immediate response to the Covid crisis, now looks all beaten up if you look at its stock price, to which we shall turn in a moment. But if NET is not as good a business as its stock price implies, FSLY is not as bad a business asitsstock price implies. As investors, we must respect price before all else, everything else is just an input. But fundamentals do sometimes matter - very often you can see value building in the fundamentals that isn't reflected in the stock price, or indeed value waning that is yet to be reflected. Which means that sometimes, just sometimes, you can get ahead of the price game by reading the numbers. (If you read our Cloudflare notes linked above, you can see us making just that argument - hidden value - which did then come to fruition in the stock price).\nLet's take a look at Fastly's numbers.\n<img src=\"https://static.tigerbbs.com/c3aa249a8140f7dea48136c586415d87\" tg-width=\"640\" tg-height=\"621\" width=\"100%\" height=\"auto\">Source: Company SEC filings,YCharts.com, Cestrian Analysis\nOK, another lot of numbers. Less numbers though, because the company doesn't disclose its remaining performance obligation in its SEC reports. This is likely because there isn't much of it - they make much of the fact that billing (and by implication contracting) is usage-based and in arrears, so we wouldn't expect a great deal of revenue visibility here.\nTurning to the reported revenue - the deceleration is material, as you can see, and coupled with the lack of visibility, this is what we think is hurting the stock right now. Today's market is positively growth-addled and if your growth is coming down, well, your stock is going to get a beating. That said, it looks to us like folks' expectations just got all ahead of themselves. Look at the TTM revenue line - remember, this is a slow-burn indicator, gives you a smoothed-out look at how things are going. TTM revenue growth peaked at 47% in Q3 2020, and in Q1 2021, it stood at 44%, which isn't really very different if you zoom out far enough. It's just that early Covid Q2 2020 +62% vs Q2 2019 growth rate that got everybody overexcited.\nSkipping around a little here, the valuation stands at 16.5x TTM revenue in exchange for 44% TTM revenue growth. That is positive cheap by current standards.\n<img src=\"https://static.tigerbbs.com/5469d429652493191eb4cdcf2efee55e\" tg-width=\"238\" tg-height=\"247\" width=\"100%\" height=\"auto\">Cloudflare is asking you to pay 76x TTM revenue in exchange for 51% TTM revenue growth.\n<img src=\"https://static.tigerbbs.com/d1e47eab4ff42f7649937ad13cab0413\" tg-width=\"235\" tg-height=\"250\" width=\"100%\" height=\"auto\">Now don't get us wrong. Cloudflare is a better business. And we like how their management team rolls, all humblebrag-aw-shucks-what-me? whilst quietly stating that their aim is to be the dominant development environment and runtime forInternet 3.0(we paraphrase a little, but yes, that is what their grand plan is, and it might work). But it's notthatmuch better a business.\nBack to FSLY numbers. Remember how NET eats capex and leaks money into working capital? Well, same at FSLY.\nFirst, let's compare their capital expenditures using that slow-burn TTM method.\n<img src=\"https://static.tigerbbs.com/e8e760e2b8fb4ed434bfb9dec30b547b\" tg-width=\"640\" tg-height=\"89\" width=\"100%\" height=\"auto\"><img src=\"https://static.tigerbbs.com/04bb88b1b8d8d2722a84dfc263eefaec\" tg-width=\"640\" tg-height=\"91\" width=\"100%\" height=\"auto\">The company has TTM capex standing at 12% of TTM revenue, and is chalking up revenue growth of +44% on a TTM basis. Cloudflare, Inc is spending 18% of TTM revenue on its capex, again on a TTM basis; in exchange for +51% TTM revenue growth. So as a snapshot, FSLY is actually more efficient with its capex. The counter to that is, NET is building a big book of long-term business - as evidenced by its chunky RPO number - and that's what the additional capex is for. This is an interesting-if-true point to make. As in, it might be true and if so, it's a good use of their checkbook. But it has yet to translate into sufficient additional revenue growth vs. the competition to truly justify the expenditure on fundamental grounds.\nNext, margins. FSLY's gross margins are terrible, in the mid-50s%. It resembles Twilio (TWLO) in this regard, a big pay-away to telcos before you even get started. It's the biggest determinant of weak TTM EBITDA margins - which stand at negative 11% vs positive 3% at NET. And whilst those EBITDA margins at NET have been moving up, at FSLY, they have been moving down.\nTurning to cash flow - we've talked about capex already, now let's look at that boring-but-important point, change in working capital. (Remember this is simple. To do this well, pretty much all you have to do is collect cash from customers faster than you pay it to suppliers). If working capital management is bad at NET, and it is, then it is terrible at FSLY. TTM unlevered pre-tax free cash flow margins of negative 33%. This thing just eats money. And again, it has just $166m of net cash on hand vs. a TTM pre-tax pre-debt service cash burn of $104m as of the end of Q1. That means the company is very likely to raise money, via equity or debt placement. And off the back of a weak stock price that's likely to cause more pain in the stock.\nOK. You get the picture. NET is growing a little bit faster and spending more capex to do it; but its gross margins are much better so it has more money to burn in the first place. It appears to be building a big book of forward business in a way that FSLY is not, but right now, that is jam tomorrow, not revenue or earnings today. NET needs to raise capital soon in our view, and FSLY needs to raise capital sooner. So, on fundamentals, NET is a better pick, no question. But the valuation, yikes!\nNET and FSLY Stock Prices\nSince the Cloudflare IPO in 2019, NET has way outperformed FSLY and indeed the Nasdaq (shown here by way of the proxy ETF, Invesco QQQ Trust (QQQ).\n<img src=\"https://static.tigerbbs.com/89d1f9e65c0e2e7398b5ec7b053631ec\" tg-width=\"640\" tg-height=\"378\" width=\"100%\" height=\"auto\">As we state above, that NET has outperformed FSLY is justified to us on fundamentals. It's a better business with higher growth and more visibility of future growth. But right now, as earnings approaches for each of the stocks (FSLY reports on August 4th, NET on August 5th), which is the better bet for long-term investors? In short ...\nIs Cloudflare or Fastly Stock The Better Buy?\nThis isn't such a simple answer in our view. Allow us to ramble somewhat, and bear in mind, all we are talking about here is our own plans for our own money. You must, of course, do your own work and factor in your own risk appetite, time horizon, etc. But here's our approach.\nCloudflare Stock\nAs delighted as we are with the run-up in our NET holdings, and as much as we do in fact think that NET can deliver on some of those Internet 3.0 promises, the price is punchy indeed. So we rate NET at Neutral, meaning we ourselves aren't buying the stock at this point. We have a nice paper gain in long-term accounts and we've cashed a series of gains in short-term accounts along the way. But neither are we selling, because as extended as that stock price is, we think that the stock can move higher, maybe much higher, over the coming years. We think that 5-10 years out, $120/share for NET has every chance of looking like peanuts. We have about the right level of allocation now in those long-term accounts and so we are doing nothing there. If Q2 earnings are anything other than blowout, there is every chance the stock takes a dive and, if it does, we expect to play short-term once again, over and above our long-term holdings. (We keep totally separate accounts for long- and short-term holdings so we never get confused about what game we are playing).\nFastly Stock\nAs much as everybody gottoo excited about FSLY last year, so, we think, has everybody gotten too miserable this year. We have a modest allocation to FSLY in long-term accounts because ultimately we don't think the company will form part of the fabric of Internet 3.0, at least not as an independent. We don't see sufficient force of management personality, sufficiently broad product vision, nor the surround sound of Twitterati talking the thing up. Wedothink thepersistent rumors of FSLY being acquiredhave every chance of playing out and so at any given moment, we see a 20-30% or better premium available should Cisco (CSCO) or another strategic come calling. So, again, long-term holdings, we're doing nothing. We're tempted to add a little right now but with earnings so close, why take the risk? Once again our approach here is to wait for earnings. We are likely to trade it short term on any unjustified stock cratering - and indeed if the fundamentals are improving, as we have a funny feeling they will - look at the below-the-radar improvements in deferred revenue above in the last two quarters for instance - we may well add to our long-term positions at that point. For now, doing nothing before earnings, so, again, Neutral. In each case, a one-word rating doesn't really convey our plans here which is why we lay them out in such wordy detail - now you can shoot them down in flames when doing your own work!","source":"seekingalpha","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 Vs. Fastly Stock: Which Is The Better Buy?</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 Vs. Fastly Stock: Which Is The Better Buy?\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-08-05 22:25 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.\nFastly is a less good business with, in our view, less potential. ...\n\n<a href=\"https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy\">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.","FSLY":"Fastly, Inc."},"source_url":"https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1197602353","content_text":"Summary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.\nFastly is a less good business with, in our view, less potential. Its stock price has cratered of late, as growth has slowed and cash flow worsened.\nBoth stocks are shortly to report their Q2 earnings. We think earnings reaction risk is to the downside on Cloudflare, to the upside on Fastly.\nUltimately, we believe Cloudflare offers more upside for long-term investors, but we own both names in staff personal accounts and intend to add to both on any post-earnings weakness.\nWe would also flag that both companies look to us like they may raise capital soon - if, in the form of new equity, that can hit both stocks.\n\nPing Times May Be Similar But Time To Live Likely Differs\nSince consumer traffic started in earnest to course through the public Internet in the 1990s, content acceleration became important. The initial leader of this market, Akamai (AKAM), grew up in the dot-com era and remains a very solid business today. AKAM's original business model was simple and remains the foundation for content delivery network plays today; buy servers, rent space in telecom companies' datacenters, rent capacity on telecom networks, bill content owners for accelerated delivery of said content. As you can see, the business model is likely to be less cash generative than the now-commonplace cloud application software player, because, one, your gross margin gets hit with the telco pay-aways, and, two, your capex bill is heavy as you have to keep buying server kit. So scaling such a business - meaning, achieve a rate of growth in cash flow faster than the rate of growth in revenue - isn't so easy.\nThe two hot names in content acceleration today are Cloudflare (NET) and Fastly (FSLY). We've covered both of them on multiple occasions here on Seeking Alpha - you can read our past notes on Cloudflare, Inchereand our prior work on Fastlyhere. In addition, we own both stocks in staff personal accounts. We have a much greater allocation to NET than we do to FSLY (in a ratio of approximately 2:1). We have enjoyed an easy ride up on NET with even some poorly-timed averaging-up buys being forgiven by the Trading Gods, whereas we have been battling FSLY to average down our in-costs in the expectation of future gain and our valor has yet to be rewarded. In staff long-term accounts, we presently show a big paper gain on NET and a modest paper loss on FSLY. Along the way, we have also enjoyed separate short-term account gains in NET by buying dips and selling peaks to realize rapid cash gains. (We cover both stocks and our own trades blow by blow in our real-time, real-money Seeking Alpha Marketplace service,Cestrian Fundamentals).\nWhilst Cloudflare and Fastly core services have plenty of overlap, their business models and management styles are very different and this informs our approach to owning the names and our expectations going forward. Allow us to walk you through our views here.\nHow Is Cloudflare Different From Fastly?\nWell, first let's take a look at the similarities. Both offer content acceleration services to content owners, and both offer you something called edge computing, which is in essence the ability to place not just your content (movies, audio, etc.) on a machine near the user (as in, physically and logically near the user on the network - not in a data center thousands of miles away) but also an entire web application or parts thereof. To our investor eye, Cloudflare appears to have more product ambition; taking advantage of its edge network positioning, the company has launched a number of security services, for instance - the goal being to act as a single Internet on-ramp for its customers, a kind of Zscaler (ZS) embedded in the suite offer. If you want to deep-dive into product by product comparison on these two names - and if you do, take a tin hat, for opinions run high - take a look at a couple of engineers-turned-stock-people who cover both stocks in their work.\nNow, putting aside for the moment our own investor view that NET has a superior span of product and indeed more extensive product ambition - let's turn to the numbers.\nSource: Company SEC filings, YCharts.com, Cestrian Analysis\nLot of numbers there. Here are the highlights and lowlights as we see them.\nThe good:\n\nRevenue growth holding steady in the 50% range, gross margin holding steady in the 77% range.\nRemaining performance obligation (RPO) growth of 88% vs. prior year in Q1 2021. RPO is the total order book value, some of which is prepaid, most of which is not. RPO represents just over 90% of TTM recognized revenue so it is material vs. the recognized base, and it is growing faster than the recognized base. So, best guess, NET revenues can accelerate still further.\nAccounting profit in the guise of EBITDA (which we define as operating income, add back depreciation & amortization, add back stock-based compensation) has gone from very negative in 2019 to modestly positive in 2021 - we look at the TTM measure which is slow to respond up or down, it gives you a smoothed-out view of the direction of travel.\n\nThe bad:\n\nActual money-profit in the guise of unlevered pre-tax free cash flow, has gone from horribly negative in 2019 to, er, only very negative in 2021, which in and of itself is good, but, did we mention, cash flow was very negative on a TTM basis to the end of the March 2021 quarter. This is the whole nag with this business model - can they actually become cash flow positive, after capex, after change in working capital? Akamai is, but then it has nothing like the growth ambitions of these names.\nOnly $643m of net cash in the bank at the 31 March point. Given the cash burn, we would not be at all surprised to see the company raise money via an equity or debt placement and, if equity, we would expect a material hit to the stock price on a short-term basis at least. (We are watching closely for this and hope to buy any major dip that comes along).\n\nThe visually challenged:\n\nHuge capital expenditure (\"capex\") bill. Capex as you know is simply money that you spend on stuff that makes a noise when you drop it. Capex at NET, and for that matter FSLY, is mainly computing hardware. We expect significant capex here. But capex as a % of revenue is yet to show a consistent falling pattern - andonlyif we start to see some yield improvements here, some growth without much capex, can we conclude that scale benefits are beginning to flow. Right now the jury is out, and this is a big deal fundamentally.\nTerrible working capital management. This sounds complicated but isn't. If that \"change in working capital\" line was mainly positive, it would mean that in essence, the company collects money from its customers faster than it pays its suppliers. If mainly negative, it pays suppliers faster than it collects cash from its customers. You can see from the numbers that the latter is true. So here we have a business which, already bleeding money into the capex line, further leaks cash into working capital. This again is a big deal fundamentally. Best case, it says the business lacks the management discipline to tell suppliers to wait whilst it chases up customers. Worst case, it means the business is merely a commodity provider of services which can easily be found elsewhere, and they don't chase their customers lest they churn. Now we don'tthinkthat latter point is true; we think NET has a differentiated and sticky set of services - and if that's right, it means management just needs to get religion on cash management. They don't have it today.\n\nAs we shall see in a moment, Cloudflare's stock price flatters its fundamentals. It's not as good a business as its stock trajectory implies.\nFSLY Financials\nFastly, an early huge winner in the immediate response to the Covid crisis, now looks all beaten up if you look at its stock price, to which we shall turn in a moment. But if NET is not as good a business as its stock price implies, FSLY is not as bad a business asitsstock price implies. As investors, we must respect price before all else, everything else is just an input. But fundamentals do sometimes matter - very often you can see value building in the fundamentals that isn't reflected in the stock price, or indeed value waning that is yet to be reflected. Which means that sometimes, just sometimes, you can get ahead of the price game by reading the numbers. (If you read our Cloudflare notes linked above, you can see us making just that argument - hidden value - which did then come to fruition in the stock price).\nLet's take a look at Fastly's numbers.\nSource: Company SEC filings,YCharts.com, Cestrian Analysis\nOK, another lot of numbers. Less numbers though, because the company doesn't disclose its remaining performance obligation in its SEC reports. This is likely because there isn't much of it - they make much of the fact that billing (and by implication contracting) is usage-based and in arrears, so we wouldn't expect a great deal of revenue visibility here.\nTurning to the reported revenue - the deceleration is material, as you can see, and coupled with the lack of visibility, this is what we think is hurting the stock right now. Today's market is positively growth-addled and if your growth is coming down, well, your stock is going to get a beating. That said, it looks to us like folks' expectations just got all ahead of themselves. Look at the TTM revenue line - remember, this is a slow-burn indicator, gives you a smoothed-out look at how things are going. TTM revenue growth peaked at 47% in Q3 2020, and in Q1 2021, it stood at 44%, which isn't really very different if you zoom out far enough. It's just that early Covid Q2 2020 +62% vs Q2 2019 growth rate that got everybody overexcited.\nSkipping around a little here, the valuation stands at 16.5x TTM revenue in exchange for 44% TTM revenue growth. That is positive cheap by current standards.\nCloudflare is asking you to pay 76x TTM revenue in exchange for 51% TTM revenue growth.\nNow don't get us wrong. Cloudflare is a better business. And we like how their management team rolls, all humblebrag-aw-shucks-what-me? whilst quietly stating that their aim is to be the dominant development environment and runtime forInternet 3.0(we paraphrase a little, but yes, that is what their grand plan is, and it might work). But it's notthatmuch better a business.\nBack to FSLY numbers. Remember how NET eats capex and leaks money into working capital? Well, same at FSLY.\nFirst, let's compare their capital expenditures using that slow-burn TTM method.\nThe company has TTM capex standing at 12% of TTM revenue, and is chalking up revenue growth of +44% on a TTM basis. Cloudflare, Inc is spending 18% of TTM revenue on its capex, again on a TTM basis; in exchange for +51% TTM revenue growth. So as a snapshot, FSLY is actually more efficient with its capex. The counter to that is, NET is building a big book of long-term business - as evidenced by its chunky RPO number - and that's what the additional capex is for. This is an interesting-if-true point to make. As in, it might be true and if so, it's a good use of their checkbook. But it has yet to translate into sufficient additional revenue growth vs. the competition to truly justify the expenditure on fundamental grounds.\nNext, margins. FSLY's gross margins are terrible, in the mid-50s%. It resembles Twilio (TWLO) in this regard, a big pay-away to telcos before you even get started. It's the biggest determinant of weak TTM EBITDA margins - which stand at negative 11% vs positive 3% at NET. And whilst those EBITDA margins at NET have been moving up, at FSLY, they have been moving down.\nTurning to cash flow - we've talked about capex already, now let's look at that boring-but-important point, change in working capital. (Remember this is simple. To do this well, pretty much all you have to do is collect cash from customers faster than you pay it to suppliers). If working capital management is bad at NET, and it is, then it is terrible at FSLY. TTM unlevered pre-tax free cash flow margins of negative 33%. This thing just eats money. And again, it has just $166m of net cash on hand vs. a TTM pre-tax pre-debt service cash burn of $104m as of the end of Q1. That means the company is very likely to raise money, via equity or debt placement. And off the back of a weak stock price that's likely to cause more pain in the stock.\nOK. You get the picture. NET is growing a little bit faster and spending more capex to do it; but its gross margins are much better so it has more money to burn in the first place. It appears to be building a big book of forward business in a way that FSLY is not, but right now, that is jam tomorrow, not revenue or earnings today. NET needs to raise capital soon in our view, and FSLY needs to raise capital sooner. So, on fundamentals, NET is a better pick, no question. But the valuation, yikes!\nNET and FSLY Stock Prices\nSince the Cloudflare IPO in 2019, NET has way outperformed FSLY and indeed the Nasdaq (shown here by way of the proxy ETF, Invesco QQQ Trust (QQQ).\nAs we state above, that NET has outperformed FSLY is justified to us on fundamentals. It's a better business with higher growth and more visibility of future growth. But right now, as earnings approaches for each of the stocks (FSLY reports on August 4th, NET on August 5th), which is the better bet for long-term investors? In short ...\nIs Cloudflare or Fastly Stock The Better Buy?\nThis isn't such a simple answer in our view. Allow us to ramble somewhat, and bear in mind, all we are talking about here is our own plans for our own money. You must, of course, do your own work and factor in your own risk appetite, time horizon, etc. But here's our approach.\nCloudflare Stock\nAs delighted as we are with the run-up in our NET holdings, and as much as we do in fact think that NET can deliver on some of those Internet 3.0 promises, the price is punchy indeed. So we rate NET at Neutral, meaning we ourselves aren't buying the stock at this point. We have a nice paper gain in long-term accounts and we've cashed a series of gains in short-term accounts along the way. But neither are we selling, because as extended as that stock price is, we think that the stock can move higher, maybe much higher, over the coming years. We think that 5-10 years out, $120/share for NET has every chance of looking like peanuts. We have about the right level of allocation now in those long-term accounts and so we are doing nothing there. If Q2 earnings are anything other than blowout, there is every chance the stock takes a dive and, if it does, we expect to play short-term once again, over and above our long-term holdings. (We keep totally separate accounts for long- and short-term holdings so we never get confused about what game we are playing).\nFastly Stock\nAs much as everybody gottoo excited about FSLY last year, so, we think, has everybody gotten too miserable this year. We have a modest allocation to FSLY in long-term accounts because ultimately we don't think the company will form part of the fabric of Internet 3.0, at least not as an independent. We don't see sufficient force of management personality, sufficiently broad product vision, nor the surround sound of Twitterati talking the thing up. Wedothink thepersistent rumors of FSLY being acquiredhave every chance of playing out and so at any given moment, we see a 20-30% or better premium available should Cisco (CSCO) or another strategic come calling. So, again, long-term holdings, we're doing nothing. We're tempted to add a little right now but with earnings so close, why take the risk? Once again our approach here is to wait for earnings. We are likely to trade it short term on any unjustified stock cratering - and indeed if the fundamentals are improving, as we have a funny feeling they will - look at the below-the-radar improvements in deferred revenue above in the last two quarters for instance - we may well add to our long-term positions at that point. For now, doing nothing before earnings, so, again, Neutral. In each case, a one-word rating doesn't really convey our plans here which is why we lay them out in such wordy detail - now you can shoot them down in flames when doing your own work!","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":5439812,"gmtCreate":1628203721673,"gmtModify":1663231988750,"authorId":3587017307360366,"author":{"id":3587017307360366,"authorId":3587017307360366,"name":"rosatmk","avatar":"https://static.tigerbbs.com/a72ccfb40baf4c35d5d8a37cebbda989","vip":1,"crmLevel":5,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":899220074,"type":1,"supId":0,"prevId":0,"content":"Done","text":"Done","html":"Done"},{"id":5439579,"gmtCreate":1628202319386,"gmtModify":1663231985845,"authorId":3581576994334344,"author":{"id":3581576994334344,"authorId":3581576994334344,"name":"AdaT33","avatar":"https://static.tigerbbs.com/9b476e9f14e8b39151b8cf8342eeb34e","vip":1,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":899220074,"type":1,"supId":0,"prevId":0,"content":"??","text":"??","html":"??"},{"id":5439547,"gmtCreate":1628202087620,"gmtModify":1635159101856,"authorId":3576917742134919,"author":{"id":3576917742134919,"authorId":3576917742134919,"name":"T2C","avatar":"https://static.itradeup.com/news/bc988e20e446d98ea284e01ce997a013","vip":1,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":899220074,"type":1,"supId":0,"prevId":0,"content":"YEs","text":"YEs","html":"YEs"}],"langContent":"EN"},{"id":899264650,"gmtCreate":1628201860370,"gmtModify":1703502891655,"author":{"id":"3571085308696335","authorId":"3571085308696335","authorIdStr":"3571085308696335","name":"Zhouqi","avatar":"https://static.tigerbbs.com/50ba21dd25e81eeaa553a53e4a9b3d33","vip":1,"crmLevel":5,"crmLevelSwitch":0,"idStr":"3571085308696335"},"htmlText":"Ok","listText":"Ok","text":"Ok","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":9,"commentSize":3,"repostSize":0,"link":"https://ttm.financial/post/899264650","repostId":1197602353,"repostType":4,"repost":{"id":"1197602353","pubTimestamp":1628173558,"share":"https://ttm.financial/m/news/1197602353?lang=&edition=fundamental","pubTime":"2021-08-05 22:25","market":"us","language":"en","title":"Cloudflare Vs. Fastly Stock: Which Is The Better Buy?","url":"https://stock-news.laohu8.com/highlight/detail?id=1197602353","media":"seekingalpha","summary":"Summary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up rec","content":"Summary\n<ul>\n <li>Cloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.</li>\n <li>Fastly is a less good business with, in our view, less potential. Its stock price has cratered of late, as growth has slowed and cash flow worsened.</li>\n <li>Both stocks are shortly to report their Q2 earnings. We think earnings reaction risk is to the downside on Cloudflare, to the upside on Fastly.</li>\n <li>Ultimately, we believe Cloudflare offers more upside for long-term investors, but we own both names in staff personal accounts and intend to add to both on any post-earnings weakness.</li>\n <li>We would also flag that both companies look to us like they may raise capital soon - if, in the form of new equity, that can hit both stocks.</li>\n</ul>\nPing Times May Be Similar But Time To Live Likely Differs\nSince consumer traffic started in earnest to course through the public Internet in the 1990s, content acceleration became important. The initial leader of this market, Akamai (AKAM), grew up in the dot-com era and remains a very solid business today. AKAM's original business model was simple and remains the foundation for content delivery network plays today; buy servers, rent space in telecom companies' datacenters, rent capacity on telecom networks, bill content owners for accelerated delivery of said content. As you can see, the business model is likely to be less cash generative than the now-commonplace cloud application software player, because, one, your gross margin gets hit with the telco pay-aways, and, two, your capex bill is heavy as you have to keep buying server kit. So scaling such a business - meaning, achieve a rate of growth in cash flow faster than the rate of growth in revenue - isn't so easy.\nThe two hot names in content acceleration today are Cloudflare (NET) and Fastly (FSLY). We've covered both of them on multiple occasions here on Seeking Alpha - you can read our past notes on Cloudflare, Inchereand our prior work on Fastlyhere. In addition, we own both stocks in staff personal accounts. We have a much greater allocation to NET than we do to FSLY (in a ratio of approximately 2:1). We have enjoyed an easy ride up on NET with even some poorly-timed averaging-up buys being forgiven by the Trading Gods, whereas we have been battling FSLY to average down our in-costs in the expectation of future gain and our valor has yet to be rewarded. In staff long-term accounts, we presently show a big paper gain on NET and a modest paper loss on FSLY. Along the way, we have also enjoyed separate short-term account gains in NET by buying dips and selling peaks to realize rapid cash gains. (We cover both stocks and our own trades blow by blow in our real-time, real-money Seeking Alpha Marketplace service,Cestrian Fundamentals).\nWhilst Cloudflare and Fastly core services have plenty of overlap, their business models and management styles are very different and this informs our approach to owning the names and our expectations going forward. Allow us to walk you through our views here.\nHow Is Cloudflare Different From Fastly?\nWell, first let's take a look at the similarities. Both offer content acceleration services to content owners, and both offer you something called edge computing, which is in essence the ability to place not just your content (movies, audio, etc.) on a machine near the user (as in, physically and logically near the user on the network - not in a data center thousands of miles away) but also an entire web application or parts thereof. To our investor eye, Cloudflare appears to have more product ambition; taking advantage of its edge network positioning, the company has launched a number of security services, for instance - the goal being to act as a single Internet on-ramp for its customers, a kind of Zscaler (ZS) embedded in the suite offer. If you want to deep-dive into product by product comparison on these two names - and if you do, take a tin hat, for opinions run high - take a look at a couple of engineers-turned-stock-people who cover both stocks in their work.\nNow, putting aside for the moment our own investor view that NET has a superior span of product and indeed more extensive product ambition - let's turn to the numbers.\n<img src=\"https://static.tigerbbs.com/4b54705844ce46a8f48f7d986cd113f4\" tg-width=\"640\" tg-height=\"587\" width=\"100%\" height=\"auto\"><img src=\"https://static.tigerbbs.com/ea25982971170997ab631a0e0e0af99f\" tg-width=\"640\" tg-height=\"220\" width=\"100%\" height=\"auto\">Source: Company SEC filings, YCharts.com, Cestrian Analysis\nLot of numbers there. Here are the highlights and lowlights as we see them.\nThe good:\n<ul>\n <li>Revenue growth holding steady in the 50% range, gross margin holding steady in the 77% range.</li>\n <li>Remaining performance obligation (RPO) growth of 88% vs. prior year in Q1 2021. RPO is the total order book value, some of which is prepaid, most of which is not. RPO represents just over 90% of TTM recognized revenue so it is material vs. the recognized base, and it is growing faster than the recognized base. So, best guess, NET revenues can accelerate still further.</li>\n <li>Accounting profit in the guise of EBITDA (which we define as operating income, add back depreciation &amp; amortization, add back stock-based compensation) has gone from very negative in 2019 to modestly positive in 2021 - we look at the TTM measure which is slow to respond up or down, it gives you a smoothed-out view of the direction of travel.</li>\n</ul>\nThe bad:\n<ul>\n <li>Actual money-profit in the guise of unlevered pre-tax free cash flow, has gone from horribly negative in 2019 to, er, only very negative in 2021, which in and of itself is good, but, did we mention, cash flow was very negative on a TTM basis to the end of the March 2021 quarter. This is the whole nag with this business model - can they actually become cash flow positive, after capex, after change in working capital? Akamai is, but then it has nothing like the growth ambitions of these names.</li>\n <li>Only $643m of net cash in the bank at the 31 March point. Given the cash burn, we would not be at all surprised to see the company raise money via an equity or debt placement and, if equity, we would expect a material hit to the stock price on a short-term basis at least. (We are watching closely for this and hope to buy any major dip that comes along).</li>\n</ul>\nThe visually challenged:\n<ul>\n <li>Huge capital expenditure (\"capex\") bill. Capex as you know is simply money that you spend on stuff that makes a noise when you drop it. Capex at NET, and for that matter FSLY, is mainly computing hardware. We expect significant capex here. But capex as a % of revenue is yet to show a consistent falling pattern - andonlyif we start to see some yield improvements here, some growth without much capex, can we conclude that scale benefits are beginning to flow. Right now the jury is out, and this is a big deal fundamentally.</li>\n <li>Terrible working capital management. This sounds complicated but isn't. If that \"change in working capital\" line was mainly positive, it would mean that in essence, the company collects money from its customers faster than it pays its suppliers. If mainly negative, it pays suppliers faster than it collects cash from its customers. You can see from the numbers that the latter is true. So here we have a business which, already bleeding money into the capex line, further leaks cash into working capital. This again is a big deal fundamentally. Best case, it says the business lacks the management discipline to tell suppliers to wait whilst it chases up customers. Worst case, it means the business is merely a commodity provider of services which can easily be found elsewhere, and they don't chase their customers lest they churn. Now we don'tthinkthat latter point is true; we think NET has a differentiated and sticky set of services - and if that's right, it means management just needs to get religion on cash management. They don't have it today.</li>\n</ul>\nAs we shall see in a moment, Cloudflare's stock price flatters its fundamentals. It's not as good a business as its stock trajectory implies.\nFSLY Financials\nFastly, an early huge winner in the immediate response to the Covid crisis, now looks all beaten up if you look at its stock price, to which we shall turn in a moment. But if NET is not as good a business as its stock price implies, FSLY is not as bad a business asitsstock price implies. As investors, we must respect price before all else, everything else is just an input. But fundamentals do sometimes matter - very often you can see value building in the fundamentals that isn't reflected in the stock price, or indeed value waning that is yet to be reflected. Which means that sometimes, just sometimes, you can get ahead of the price game by reading the numbers. (If you read our Cloudflare notes linked above, you can see us making just that argument - hidden value - which did then come to fruition in the stock price).\nLet's take a look at Fastly's numbers.\n<img src=\"https://static.tigerbbs.com/c3aa249a8140f7dea48136c586415d87\" tg-width=\"640\" tg-height=\"621\" width=\"100%\" height=\"auto\">Source: Company SEC filings,YCharts.com, Cestrian Analysis\nOK, another lot of numbers. Less numbers though, because the company doesn't disclose its remaining performance obligation in its SEC reports. This is likely because there isn't much of it - they make much of the fact that billing (and by implication contracting) is usage-based and in arrears, so we wouldn't expect a great deal of revenue visibility here.\nTurning to the reported revenue - the deceleration is material, as you can see, and coupled with the lack of visibility, this is what we think is hurting the stock right now. Today's market is positively growth-addled and if your growth is coming down, well, your stock is going to get a beating. That said, it looks to us like folks' expectations just got all ahead of themselves. Look at the TTM revenue line - remember, this is a slow-burn indicator, gives you a smoothed-out look at how things are going. TTM revenue growth peaked at 47% in Q3 2020, and in Q1 2021, it stood at 44%, which isn't really very different if you zoom out far enough. It's just that early Covid Q2 2020 +62% vs Q2 2019 growth rate that got everybody overexcited.\nSkipping around a little here, the valuation stands at 16.5x TTM revenue in exchange for 44% TTM revenue growth. That is positive cheap by current standards.\n<img src=\"https://static.tigerbbs.com/5469d429652493191eb4cdcf2efee55e\" tg-width=\"238\" tg-height=\"247\" width=\"100%\" height=\"auto\">Cloudflare is asking you to pay 76x TTM revenue in exchange for 51% TTM revenue growth.\n<img src=\"https://static.tigerbbs.com/d1e47eab4ff42f7649937ad13cab0413\" tg-width=\"235\" tg-height=\"250\" width=\"100%\" height=\"auto\">Now don't get us wrong. Cloudflare is a better business. And we like how their management team rolls, all humblebrag-aw-shucks-what-me? whilst quietly stating that their aim is to be the dominant development environment and runtime forInternet 3.0(we paraphrase a little, but yes, that is what their grand plan is, and it might work). But it's notthatmuch better a business.\nBack to FSLY numbers. Remember how NET eats capex and leaks money into working capital? Well, same at FSLY.\nFirst, let's compare their capital expenditures using that slow-burn TTM method.\n<img src=\"https://static.tigerbbs.com/e8e760e2b8fb4ed434bfb9dec30b547b\" tg-width=\"640\" tg-height=\"89\" width=\"100%\" height=\"auto\"><img src=\"https://static.tigerbbs.com/04bb88b1b8d8d2722a84dfc263eefaec\" tg-width=\"640\" tg-height=\"91\" width=\"100%\" height=\"auto\">The company has TTM capex standing at 12% of TTM revenue, and is chalking up revenue growth of +44% on a TTM basis. Cloudflare, Inc is spending 18% of TTM revenue on its capex, again on a TTM basis; in exchange for +51% TTM revenue growth. So as a snapshot, FSLY is actually more efficient with its capex. The counter to that is, NET is building a big book of long-term business - as evidenced by its chunky RPO number - and that's what the additional capex is for. This is an interesting-if-true point to make. As in, it might be true and if so, it's a good use of their checkbook. But it has yet to translate into sufficient additional revenue growth vs. the competition to truly justify the expenditure on fundamental grounds.\nNext, margins. FSLY's gross margins are terrible, in the mid-50s%. It resembles Twilio (TWLO) in this regard, a big pay-away to telcos before you even get started. It's the biggest determinant of weak TTM EBITDA margins - which stand at negative 11% vs positive 3% at NET. And whilst those EBITDA margins at NET have been moving up, at FSLY, they have been moving down.\nTurning to cash flow - we've talked about capex already, now let's look at that boring-but-important point, change in working capital. (Remember this is simple. To do this well, pretty much all you have to do is collect cash from customers faster than you pay it to suppliers). If working capital management is bad at NET, and it is, then it is terrible at FSLY. TTM unlevered pre-tax free cash flow margins of negative 33%. This thing just eats money. And again, it has just $166m of net cash on hand vs. a TTM pre-tax pre-debt service cash burn of $104m as of the end of Q1. That means the company is very likely to raise money, via equity or debt placement. And off the back of a weak stock price that's likely to cause more pain in the stock.\nOK. You get the picture. NET is growing a little bit faster and spending more capex to do it; but its gross margins are much better so it has more money to burn in the first place. It appears to be building a big book of forward business in a way that FSLY is not, but right now, that is jam tomorrow, not revenue or earnings today. NET needs to raise capital soon in our view, and FSLY needs to raise capital sooner. So, on fundamentals, NET is a better pick, no question. But the valuation, yikes!\nNET and FSLY Stock Prices\nSince the Cloudflare IPO in 2019, NET has way outperformed FSLY and indeed the Nasdaq (shown here by way of the proxy ETF, Invesco QQQ Trust (QQQ).\n<img src=\"https://static.tigerbbs.com/89d1f9e65c0e2e7398b5ec7b053631ec\" tg-width=\"640\" tg-height=\"378\" width=\"100%\" height=\"auto\">As we state above, that NET has outperformed FSLY is justified to us on fundamentals. It's a better business with higher growth and more visibility of future growth. But right now, as earnings approaches for each of the stocks (FSLY reports on August 4th, NET on August 5th), which is the better bet for long-term investors? In short ...\nIs Cloudflare or Fastly Stock The Better Buy?\nThis isn't such a simple answer in our view. Allow us to ramble somewhat, and bear in mind, all we are talking about here is our own plans for our own money. You must, of course, do your own work and factor in your own risk appetite, time horizon, etc. But here's our approach.\nCloudflare Stock\nAs delighted as we are with the run-up in our NET holdings, and as much as we do in fact think that NET can deliver on some of those Internet 3.0 promises, the price is punchy indeed. So we rate NET at Neutral, meaning we ourselves aren't buying the stock at this point. We have a nice paper gain in long-term accounts and we've cashed a series of gains in short-term accounts along the way. But neither are we selling, because as extended as that stock price is, we think that the stock can move higher, maybe much higher, over the coming years. We think that 5-10 years out, $120/share for NET has every chance of looking like peanuts. We have about the right level of allocation now in those long-term accounts and so we are doing nothing there. If Q2 earnings are anything other than blowout, there is every chance the stock takes a dive and, if it does, we expect to play short-term once again, over and above our long-term holdings. (We keep totally separate accounts for long- and short-term holdings so we never get confused about what game we are playing).\nFastly Stock\nAs much as everybody gottoo excited about FSLY last year, so, we think, has everybody gotten too miserable this year. We have a modest allocation to FSLY in long-term accounts because ultimately we don't think the company will form part of the fabric of Internet 3.0, at least not as an independent. We don't see sufficient force of management personality, sufficiently broad product vision, nor the surround sound of Twitterati talking the thing up. Wedothink thepersistent rumors of FSLY being acquiredhave every chance of playing out and so at any given moment, we see a 20-30% or better premium available should Cisco (CSCO) or another strategic come calling. So, again, long-term holdings, we're doing nothing. We're tempted to add a little right now but with earnings so close, why take the risk? Once again our approach here is to wait for earnings. We are likely to trade it short term on any unjustified stock cratering - and indeed if the fundamentals are improving, as we have a funny feeling they will - look at the below-the-radar improvements in deferred revenue above in the last two quarters for instance - we may well add to our long-term positions at that point. For now, doing nothing before earnings, so, again, Neutral. In each case, a one-word rating doesn't really convey our plans here which is why we lay them out in such wordy detail - now you can shoot them down in flames when doing your own work!","source":"seekingalpha","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 Vs. Fastly Stock: Which Is The Better Buy?</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 Vs. Fastly Stock: Which Is The Better Buy?\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-08-05 22:25 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.\nFastly is a less good business with, in our view, less potential. ...\n\n<a href=\"https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy\">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.","FSLY":"Fastly, Inc."},"source_url":"https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1197602353","content_text":"Summary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.\nFastly is a less good business with, in our view, less potential. Its stock price has cratered of late, as growth has slowed and cash flow worsened.\nBoth stocks are shortly to report their Q2 earnings. We think earnings reaction risk is to the downside on Cloudflare, to the upside on Fastly.\nUltimately, we believe Cloudflare offers more upside for long-term investors, but we own both names in staff personal accounts and intend to add to both on any post-earnings weakness.\nWe would also flag that both companies look to us like they may raise capital soon - if, in the form of new equity, that can hit both stocks.\n\nPing Times May Be Similar But Time To Live Likely Differs\nSince consumer traffic started in earnest to course through the public Internet in the 1990s, content acceleration became important. The initial leader of this market, Akamai (AKAM), grew up in the dot-com era and remains a very solid business today. AKAM's original business model was simple and remains the foundation for content delivery network plays today; buy servers, rent space in telecom companies' datacenters, rent capacity on telecom networks, bill content owners for accelerated delivery of said content. As you can see, the business model is likely to be less cash generative than the now-commonplace cloud application software player, because, one, your gross margin gets hit with the telco pay-aways, and, two, your capex bill is heavy as you have to keep buying server kit. So scaling such a business - meaning, achieve a rate of growth in cash flow faster than the rate of growth in revenue - isn't so easy.\nThe two hot names in content acceleration today are Cloudflare (NET) and Fastly (FSLY). We've covered both of them on multiple occasions here on Seeking Alpha - you can read our past notes on Cloudflare, Inchereand our prior work on Fastlyhere. In addition, we own both stocks in staff personal accounts. We have a much greater allocation to NET than we do to FSLY (in a ratio of approximately 2:1). We have enjoyed an easy ride up on NET with even some poorly-timed averaging-up buys being forgiven by the Trading Gods, whereas we have been battling FSLY to average down our in-costs in the expectation of future gain and our valor has yet to be rewarded. In staff long-term accounts, we presently show a big paper gain on NET and a modest paper loss on FSLY. Along the way, we have also enjoyed separate short-term account gains in NET by buying dips and selling peaks to realize rapid cash gains. (We cover both stocks and our own trades blow by blow in our real-time, real-money Seeking Alpha Marketplace service,Cestrian Fundamentals).\nWhilst Cloudflare and Fastly core services have plenty of overlap, their business models and management styles are very different and this informs our approach to owning the names and our expectations going forward. Allow us to walk you through our views here.\nHow Is Cloudflare Different From Fastly?\nWell, first let's take a look at the similarities. Both offer content acceleration services to content owners, and both offer you something called edge computing, which is in essence the ability to place not just your content (movies, audio, etc.) on a machine near the user (as in, physically and logically near the user on the network - not in a data center thousands of miles away) but also an entire web application or parts thereof. To our investor eye, Cloudflare appears to have more product ambition; taking advantage of its edge network positioning, the company has launched a number of security services, for instance - the goal being to act as a single Internet on-ramp for its customers, a kind of Zscaler (ZS) embedded in the suite offer. If you want to deep-dive into product by product comparison on these two names - and if you do, take a tin hat, for opinions run high - take a look at a couple of engineers-turned-stock-people who cover both stocks in their work.\nNow, putting aside for the moment our own investor view that NET has a superior span of product and indeed more extensive product ambition - let's turn to the numbers.\nSource: Company SEC filings, YCharts.com, Cestrian Analysis\nLot of numbers there. Here are the highlights and lowlights as we see them.\nThe good:\n\nRevenue growth holding steady in the 50% range, gross margin holding steady in the 77% range.\nRemaining performance obligation (RPO) growth of 88% vs. prior year in Q1 2021. RPO is the total order book value, some of which is prepaid, most of which is not. RPO represents just over 90% of TTM recognized revenue so it is material vs. the recognized base, and it is growing faster than the recognized base. So, best guess, NET revenues can accelerate still further.\nAccounting profit in the guise of EBITDA (which we define as operating income, add back depreciation & amortization, add back stock-based compensation) has gone from very negative in 2019 to modestly positive in 2021 - we look at the TTM measure which is slow to respond up or down, it gives you a smoothed-out view of the direction of travel.\n\nThe bad:\n\nActual money-profit in the guise of unlevered pre-tax free cash flow, has gone from horribly negative in 2019 to, er, only very negative in 2021, which in and of itself is good, but, did we mention, cash flow was very negative on a TTM basis to the end of the March 2021 quarter. This is the whole nag with this business model - can they actually become cash flow positive, after capex, after change in working capital? Akamai is, but then it has nothing like the growth ambitions of these names.\nOnly $643m of net cash in the bank at the 31 March point. Given the cash burn, we would not be at all surprised to see the company raise money via an equity or debt placement and, if equity, we would expect a material hit to the stock price on a short-term basis at least. (We are watching closely for this and hope to buy any major dip that comes along).\n\nThe visually challenged:\n\nHuge capital expenditure (\"capex\") bill. Capex as you know is simply money that you spend on stuff that makes a noise when you drop it. Capex at NET, and for that matter FSLY, is mainly computing hardware. We expect significant capex here. But capex as a % of revenue is yet to show a consistent falling pattern - andonlyif we start to see some yield improvements here, some growth without much capex, can we conclude that scale benefits are beginning to flow. Right now the jury is out, and this is a big deal fundamentally.\nTerrible working capital management. This sounds complicated but isn't. If that \"change in working capital\" line was mainly positive, it would mean that in essence, the company collects money from its customers faster than it pays its suppliers. If mainly negative, it pays suppliers faster than it collects cash from its customers. You can see from the numbers that the latter is true. So here we have a business which, already bleeding money into the capex line, further leaks cash into working capital. This again is a big deal fundamentally. Best case, it says the business lacks the management discipline to tell suppliers to wait whilst it chases up customers. Worst case, it means the business is merely a commodity provider of services which can easily be found elsewhere, and they don't chase their customers lest they churn. Now we don'tthinkthat latter point is true; we think NET has a differentiated and sticky set of services - and if that's right, it means management just needs to get religion on cash management. They don't have it today.\n\nAs we shall see in a moment, Cloudflare's stock price flatters its fundamentals. It's not as good a business as its stock trajectory implies.\nFSLY Financials\nFastly, an early huge winner in the immediate response to the Covid crisis, now looks all beaten up if you look at its stock price, to which we shall turn in a moment. But if NET is not as good a business as its stock price implies, FSLY is not as bad a business asitsstock price implies. As investors, we must respect price before all else, everything else is just an input. But fundamentals do sometimes matter - very often you can see value building in the fundamentals that isn't reflected in the stock price, or indeed value waning that is yet to be reflected. Which means that sometimes, just sometimes, you can get ahead of the price game by reading the numbers. (If you read our Cloudflare notes linked above, you can see us making just that argument - hidden value - which did then come to fruition in the stock price).\nLet's take a look at Fastly's numbers.\nSource: Company SEC filings,YCharts.com, Cestrian Analysis\nOK, another lot of numbers. Less numbers though, because the company doesn't disclose its remaining performance obligation in its SEC reports. This is likely because there isn't much of it - they make much of the fact that billing (and by implication contracting) is usage-based and in arrears, so we wouldn't expect a great deal of revenue visibility here.\nTurning to the reported revenue - the deceleration is material, as you can see, and coupled with the lack of visibility, this is what we think is hurting the stock right now. Today's market is positively growth-addled and if your growth is coming down, well, your stock is going to get a beating. That said, it looks to us like folks' expectations just got all ahead of themselves. Look at the TTM revenue line - remember, this is a slow-burn indicator, gives you a smoothed-out look at how things are going. TTM revenue growth peaked at 47% in Q3 2020, and in Q1 2021, it stood at 44%, which isn't really very different if you zoom out far enough. It's just that early Covid Q2 2020 +62% vs Q2 2019 growth rate that got everybody overexcited.\nSkipping around a little here, the valuation stands at 16.5x TTM revenue in exchange for 44% TTM revenue growth. That is positive cheap by current standards.\nCloudflare is asking you to pay 76x TTM revenue in exchange for 51% TTM revenue growth.\nNow don't get us wrong. Cloudflare is a better business. And we like how their management team rolls, all humblebrag-aw-shucks-what-me? whilst quietly stating that their aim is to be the dominant development environment and runtime forInternet 3.0(we paraphrase a little, but yes, that is what their grand plan is, and it might work). But it's notthatmuch better a business.\nBack to FSLY numbers. Remember how NET eats capex and leaks money into working capital? Well, same at FSLY.\nFirst, let's compare their capital expenditures using that slow-burn TTM method.\nThe company has TTM capex standing at 12% of TTM revenue, and is chalking up revenue growth of +44% on a TTM basis. Cloudflare, Inc is spending 18% of TTM revenue on its capex, again on a TTM basis; in exchange for +51% TTM revenue growth. So as a snapshot, FSLY is actually more efficient with its capex. The counter to that is, NET is building a big book of long-term business - as evidenced by its chunky RPO number - and that's what the additional capex is for. This is an interesting-if-true point to make. As in, it might be true and if so, it's a good use of their checkbook. But it has yet to translate into sufficient additional revenue growth vs. the competition to truly justify the expenditure on fundamental grounds.\nNext, margins. FSLY's gross margins are terrible, in the mid-50s%. It resembles Twilio (TWLO) in this regard, a big pay-away to telcos before you even get started. It's the biggest determinant of weak TTM EBITDA margins - which stand at negative 11% vs positive 3% at NET. And whilst those EBITDA margins at NET have been moving up, at FSLY, they have been moving down.\nTurning to cash flow - we've talked about capex already, now let's look at that boring-but-important point, change in working capital. (Remember this is simple. To do this well, pretty much all you have to do is collect cash from customers faster than you pay it to suppliers). If working capital management is bad at NET, and it is, then it is terrible at FSLY. TTM unlevered pre-tax free cash flow margins of negative 33%. This thing just eats money. And again, it has just $166m of net cash on hand vs. a TTM pre-tax pre-debt service cash burn of $104m as of the end of Q1. That means the company is very likely to raise money, via equity or debt placement. And off the back of a weak stock price that's likely to cause more pain in the stock.\nOK. You get the picture. NET is growing a little bit faster and spending more capex to do it; but its gross margins are much better so it has more money to burn in the first place. It appears to be building a big book of forward business in a way that FSLY is not, but right now, that is jam tomorrow, not revenue or earnings today. NET needs to raise capital soon in our view, and FSLY needs to raise capital sooner. So, on fundamentals, NET is a better pick, no question. But the valuation, yikes!\nNET and FSLY Stock Prices\nSince the Cloudflare IPO in 2019, NET has way outperformed FSLY and indeed the Nasdaq (shown here by way of the proxy ETF, Invesco QQQ Trust (QQQ).\nAs we state above, that NET has outperformed FSLY is justified to us on fundamentals. It's a better business with higher growth and more visibility of future growth. But right now, as earnings approaches for each of the stocks (FSLY reports on August 4th, NET on August 5th), which is the better bet for long-term investors? In short ...\nIs Cloudflare or Fastly Stock The Better Buy?\nThis isn't such a simple answer in our view. Allow us to ramble somewhat, and bear in mind, all we are talking about here is our own plans for our own money. You must, of course, do your own work and factor in your own risk appetite, time horizon, etc. But here's our approach.\nCloudflare Stock\nAs delighted as we are with the run-up in our NET holdings, and as much as we do in fact think that NET can deliver on some of those Internet 3.0 promises, the price is punchy indeed. So we rate NET at Neutral, meaning we ourselves aren't buying the stock at this point. We have a nice paper gain in long-term accounts and we've cashed a series of gains in short-term accounts along the way. But neither are we selling, because as extended as that stock price is, we think that the stock can move higher, maybe much higher, over the coming years. We think that 5-10 years out, $120/share for NET has every chance of looking like peanuts. We have about the right level of allocation now in those long-term accounts and so we are doing nothing there. If Q2 earnings are anything other than blowout, there is every chance the stock takes a dive and, if it does, we expect to play short-term once again, over and above our long-term holdings. (We keep totally separate accounts for long- and short-term holdings so we never get confused about what game we are playing).\nFastly Stock\nAs much as everybody gottoo excited about FSLY last year, so, we think, has everybody gotten too miserable this year. We have a modest allocation to FSLY in long-term accounts because ultimately we don't think the company will form part of the fabric of Internet 3.0, at least not as an independent. We don't see sufficient force of management personality, sufficiently broad product vision, nor the surround sound of Twitterati talking the thing up. Wedothink thepersistent rumors of FSLY being acquiredhave every chance of playing out and so at any given moment, we see a 20-30% or better premium available should Cisco (CSCO) or another strategic come calling. So, again, long-term holdings, we're doing nothing. We're tempted to add a little right now but with earnings so close, why take the risk? Once again our approach here is to wait for earnings. We are likely to trade it short term on any unjustified stock cratering - and indeed if the fundamentals are improving, as we have a funny feeling they will - look at the below-the-radar improvements in deferred revenue above in the last two quarters for instance - we may well add to our long-term positions at that point. For now, doing nothing before earnings, so, again, Neutral. In each case, a one-word rating doesn't really convey our plans here which is why we lay them out in such wordy detail - now you can shoot them down in flames when doing your own work!","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":5439751,"gmtCreate":1628203294825,"gmtModify":1663231988227,"authorId":3557460658824677,"author":{"id":3557460658824677,"authorId":3557460658824677,"name":"Firework peh","avatar":"https://static.tigerbbs.com/9873e8ddb08004279796752daf19a999","vip":1,"currentWearingBadge":{"badgeId":"1026c425416b44e0aac28c11a0848493-3","templateUuid":"1026c425416b44e0aac28c11a0848493","name":" Tiger Idol","description":"Join the tiger community for 1500 days","bigImgUrl":"https://static.tigerbbs.com/8b40ae7da5bf081a1c84df14bf9e6367","smallImgUrl":"https://static.tigerbbs.com/f160eceddd7c284a8e1136557615cfad","grayImgUrl":"https://static.tigerbbs.com/11792805c468334a9b31c39f95a41c6a","redirectLinkEnabled":0,"hasAllocated":1,"isWearing":1,"stampPosition":0,"hasStamp":0,"allocationCount":1,"allocatedDate":"2024.08.19","individualDisplayEnabled":0,"individualDisplaySort":0,"categoryType":1001},"crmLevel":7,"crmLevelSwitch":1,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":899264650,"type":1,"supId":5439542,"prevId":0,"content":"Cloudfare certainly more stable","text":"Cloudfare certainly more stable","html":"Cloudfare certainly more stable"},{"id":5439952,"gmtCreate":1628204575948,"gmtModify":1663231987527,"authorId":3579391473717940,"author":{"id":3579391473717940,"authorId":3579391473717940,"name":"thekang","avatar":"https://static.tigerbbs.com/257a55b2b4eff5b143f883be20deac55","vip":1,"crmLevel":3,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":3557460658824677,"repliedAuthor":{"id":3557460658824677,"authorId":3557460658824677,"name":"Firework peh","avatar":"https://static.tigerbbs.com/9873e8ddb08004279796752daf19a999","vip":1,"currentWearingBadge":{"badgeId":"1026c425416b44e0aac28c11a0848493-3","templateUuid":"1026c425416b44e0aac28c11a0848493","name":" Tiger Idol","description":"Join the tiger community for 1500 days","bigImgUrl":"https://static.tigerbbs.com/8b40ae7da5bf081a1c84df14bf9e6367","smallImgUrl":"https://static.tigerbbs.com/f160eceddd7c284a8e1136557615cfad","grayImgUrl":"https://static.tigerbbs.com/11792805c468334a9b31c39f95a41c6a","redirectLinkEnabled":0,"hasAllocated":1,"isWearing":1,"stampPosition":0,"hasStamp":0,"allocationCount":1,"allocatedDate":"2024.08.19","individualDisplayEnabled":0,"individualDisplaySort":0,"categoryType":1001},"crmLevel":7,"crmLevelSwitch":1,"individualDisplayBadges":[]},"objectId":899264650,"type":1,"supId":5439542,"prevId":5439751,"content":"yes agreed","text":"yes agreed","html":"yes agreed"},{"id":5439542,"gmtCreate":1628202040215,"gmtModify":1663231987245,"authorId":3583621807888930,"author":{"id":3583621807888930,"authorId":3583621807888930,"name":"HF133","avatar":"https://static.tigerbbs.com/ce211305e06a021e08ecfcbc0e23bbb5","vip":1,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":899264650,"type":1,"supId":0,"prevId":0,"content":"like","text":"like","html":"like"}],"langContent":"EN"},{"id":899265488,"gmtCreate":1628201705844,"gmtModify":1703502891004,"author":{"id":"3586470645934044","authorId":"3586470645934044","authorIdStr":"3586470645934044","name":"ramius75","avatar":"https://community-static.tradeup.com/news/9bf23146914ff935921288dd903ce4fa","vip":1,"crmLevel":5,"crmLevelSwitch":1,"idStr":"3586470645934044"},"htmlText":"?","listText":"?","text":"?","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":4,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/899265488","repostId":1197602353,"repostType":4,"repost":{"id":"1197602353","pubTimestamp":1628173558,"share":"https://ttm.financial/m/news/1197602353?lang=&edition=fundamental","pubTime":"2021-08-05 22:25","market":"us","language":"en","title":"Cloudflare Vs. Fastly Stock: Which Is The Better Buy?","url":"https://stock-news.laohu8.com/highlight/detail?id=1197602353","media":"seekingalpha","summary":"Summary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up rec","content":"Summary\n<ul>\n <li>Cloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.</li>\n <li>Fastly is a less good business with, in our view, less potential. Its stock price has cratered of late, as growth has slowed and cash flow worsened.</li>\n <li>Both stocks are shortly to report their Q2 earnings. We think earnings reaction risk is to the downside on Cloudflare, to the upside on Fastly.</li>\n <li>Ultimately, we believe Cloudflare offers more upside for long-term investors, but we own both names in staff personal accounts and intend to add to both on any post-earnings weakness.</li>\n <li>We would also flag that both companies look to us like they may raise capital soon - if, in the form of new equity, that can hit both stocks.</li>\n</ul>\nPing Times May Be Similar But Time To Live Likely Differs\nSince consumer traffic started in earnest to course through the public Internet in the 1990s, content acceleration became important. The initial leader of this market, Akamai (AKAM), grew up in the dot-com era and remains a very solid business today. AKAM's original business model was simple and remains the foundation for content delivery network plays today; buy servers, rent space in telecom companies' datacenters, rent capacity on telecom networks, bill content owners for accelerated delivery of said content. As you can see, the business model is likely to be less cash generative than the now-commonplace cloud application software player, because, one, your gross margin gets hit with the telco pay-aways, and, two, your capex bill is heavy as you have to keep buying server kit. So scaling such a business - meaning, achieve a rate of growth in cash flow faster than the rate of growth in revenue - isn't so easy.\nThe two hot names in content acceleration today are Cloudflare (NET) and Fastly (FSLY). We've covered both of them on multiple occasions here on Seeking Alpha - you can read our past notes on Cloudflare, Inchereand our prior work on Fastlyhere. In addition, we own both stocks in staff personal accounts. We have a much greater allocation to NET than we do to FSLY (in a ratio of approximately 2:1). We have enjoyed an easy ride up on NET with even some poorly-timed averaging-up buys being forgiven by the Trading Gods, whereas we have been battling FSLY to average down our in-costs in the expectation of future gain and our valor has yet to be rewarded. In staff long-term accounts, we presently show a big paper gain on NET and a modest paper loss on FSLY. Along the way, we have also enjoyed separate short-term account gains in NET by buying dips and selling peaks to realize rapid cash gains. (We cover both stocks and our own trades blow by blow in our real-time, real-money Seeking Alpha Marketplace service,Cestrian Fundamentals).\nWhilst Cloudflare and Fastly core services have plenty of overlap, their business models and management styles are very different and this informs our approach to owning the names and our expectations going forward. Allow us to walk you through our views here.\nHow Is Cloudflare Different From Fastly?\nWell, first let's take a look at the similarities. Both offer content acceleration services to content owners, and both offer you something called edge computing, which is in essence the ability to place not just your content (movies, audio, etc.) on a machine near the user (as in, physically and logically near the user on the network - not in a data center thousands of miles away) but also an entire web application or parts thereof. To our investor eye, Cloudflare appears to have more product ambition; taking advantage of its edge network positioning, the company has launched a number of security services, for instance - the goal being to act as a single Internet on-ramp for its customers, a kind of Zscaler (ZS) embedded in the suite offer. If you want to deep-dive into product by product comparison on these two names - and if you do, take a tin hat, for opinions run high - take a look at a couple of engineers-turned-stock-people who cover both stocks in their work.\nNow, putting aside for the moment our own investor view that NET has a superior span of product and indeed more extensive product ambition - let's turn to the numbers.\n<img src=\"https://static.tigerbbs.com/4b54705844ce46a8f48f7d986cd113f4\" tg-width=\"640\" tg-height=\"587\" width=\"100%\" height=\"auto\"><img src=\"https://static.tigerbbs.com/ea25982971170997ab631a0e0e0af99f\" tg-width=\"640\" tg-height=\"220\" width=\"100%\" height=\"auto\">Source: Company SEC filings, YCharts.com, Cestrian Analysis\nLot of numbers there. Here are the highlights and lowlights as we see them.\nThe good:\n<ul>\n <li>Revenue growth holding steady in the 50% range, gross margin holding steady in the 77% range.</li>\n <li>Remaining performance obligation (RPO) growth of 88% vs. prior year in Q1 2021. RPO is the total order book value, some of which is prepaid, most of which is not. RPO represents just over 90% of TTM recognized revenue so it is material vs. the recognized base, and it is growing faster than the recognized base. So, best guess, NET revenues can accelerate still further.</li>\n <li>Accounting profit in the guise of EBITDA (which we define as operating income, add back depreciation &amp; amortization, add back stock-based compensation) has gone from very negative in 2019 to modestly positive in 2021 - we look at the TTM measure which is slow to respond up or down, it gives you a smoothed-out view of the direction of travel.</li>\n</ul>\nThe bad:\n<ul>\n <li>Actual money-profit in the guise of unlevered pre-tax free cash flow, has gone from horribly negative in 2019 to, er, only very negative in 2021, which in and of itself is good, but, did we mention, cash flow was very negative on a TTM basis to the end of the March 2021 quarter. This is the whole nag with this business model - can they actually become cash flow positive, after capex, after change in working capital? Akamai is, but then it has nothing like the growth ambitions of these names.</li>\n <li>Only $643m of net cash in the bank at the 31 March point. Given the cash burn, we would not be at all surprised to see the company raise money via an equity or debt placement and, if equity, we would expect a material hit to the stock price on a short-term basis at least. (We are watching closely for this and hope to buy any major dip that comes along).</li>\n</ul>\nThe visually challenged:\n<ul>\n <li>Huge capital expenditure (\"capex\") bill. Capex as you know is simply money that you spend on stuff that makes a noise when you drop it. Capex at NET, and for that matter FSLY, is mainly computing hardware. We expect significant capex here. But capex as a % of revenue is yet to show a consistent falling pattern - andonlyif we start to see some yield improvements here, some growth without much capex, can we conclude that scale benefits are beginning to flow. Right now the jury is out, and this is a big deal fundamentally.</li>\n <li>Terrible working capital management. This sounds complicated but isn't. If that \"change in working capital\" line was mainly positive, it would mean that in essence, the company collects money from its customers faster than it pays its suppliers. If mainly negative, it pays suppliers faster than it collects cash from its customers. You can see from the numbers that the latter is true. So here we have a business which, already bleeding money into the capex line, further leaks cash into working capital. This again is a big deal fundamentally. Best case, it says the business lacks the management discipline to tell suppliers to wait whilst it chases up customers. Worst case, it means the business is merely a commodity provider of services which can easily be found elsewhere, and they don't chase their customers lest they churn. Now we don'tthinkthat latter point is true; we think NET has a differentiated and sticky set of services - and if that's right, it means management just needs to get religion on cash management. They don't have it today.</li>\n</ul>\nAs we shall see in a moment, Cloudflare's stock price flatters its fundamentals. It's not as good a business as its stock trajectory implies.\nFSLY Financials\nFastly, an early huge winner in the immediate response to the Covid crisis, now looks all beaten up if you look at its stock price, to which we shall turn in a moment. But if NET is not as good a business as its stock price implies, FSLY is not as bad a business asitsstock price implies. As investors, we must respect price before all else, everything else is just an input. But fundamentals do sometimes matter - very often you can see value building in the fundamentals that isn't reflected in the stock price, or indeed value waning that is yet to be reflected. Which means that sometimes, just sometimes, you can get ahead of the price game by reading the numbers. (If you read our Cloudflare notes linked above, you can see us making just that argument - hidden value - which did then come to fruition in the stock price).\nLet's take a look at Fastly's numbers.\n<img src=\"https://static.tigerbbs.com/c3aa249a8140f7dea48136c586415d87\" tg-width=\"640\" tg-height=\"621\" width=\"100%\" height=\"auto\">Source: Company SEC filings,YCharts.com, Cestrian Analysis\nOK, another lot of numbers. Less numbers though, because the company doesn't disclose its remaining performance obligation in its SEC reports. This is likely because there isn't much of it - they make much of the fact that billing (and by implication contracting) is usage-based and in arrears, so we wouldn't expect a great deal of revenue visibility here.\nTurning to the reported revenue - the deceleration is material, as you can see, and coupled with the lack of visibility, this is what we think is hurting the stock right now. Today's market is positively growth-addled and if your growth is coming down, well, your stock is going to get a beating. That said, it looks to us like folks' expectations just got all ahead of themselves. Look at the TTM revenue line - remember, this is a slow-burn indicator, gives you a smoothed-out look at how things are going. TTM revenue growth peaked at 47% in Q3 2020, and in Q1 2021, it stood at 44%, which isn't really very different if you zoom out far enough. It's just that early Covid Q2 2020 +62% vs Q2 2019 growth rate that got everybody overexcited.\nSkipping around a little here, the valuation stands at 16.5x TTM revenue in exchange for 44% TTM revenue growth. That is positive cheap by current standards.\n<img src=\"https://static.tigerbbs.com/5469d429652493191eb4cdcf2efee55e\" tg-width=\"238\" tg-height=\"247\" width=\"100%\" height=\"auto\">Cloudflare is asking you to pay 76x TTM revenue in exchange for 51% TTM revenue growth.\n<img src=\"https://static.tigerbbs.com/d1e47eab4ff42f7649937ad13cab0413\" tg-width=\"235\" tg-height=\"250\" width=\"100%\" height=\"auto\">Now don't get us wrong. Cloudflare is a better business. And we like how their management team rolls, all humblebrag-aw-shucks-what-me? whilst quietly stating that their aim is to be the dominant development environment and runtime forInternet 3.0(we paraphrase a little, but yes, that is what their grand plan is, and it might work). But it's notthatmuch better a business.\nBack to FSLY numbers. Remember how NET eats capex and leaks money into working capital? Well, same at FSLY.\nFirst, let's compare their capital expenditures using that slow-burn TTM method.\n<img src=\"https://static.tigerbbs.com/e8e760e2b8fb4ed434bfb9dec30b547b\" tg-width=\"640\" tg-height=\"89\" width=\"100%\" height=\"auto\"><img src=\"https://static.tigerbbs.com/04bb88b1b8d8d2722a84dfc263eefaec\" tg-width=\"640\" tg-height=\"91\" width=\"100%\" height=\"auto\">The company has TTM capex standing at 12% of TTM revenue, and is chalking up revenue growth of +44% on a TTM basis. Cloudflare, Inc is spending 18% of TTM revenue on its capex, again on a TTM basis; in exchange for +51% TTM revenue growth. So as a snapshot, FSLY is actually more efficient with its capex. The counter to that is, NET is building a big book of long-term business - as evidenced by its chunky RPO number - and that's what the additional capex is for. This is an interesting-if-true point to make. As in, it might be true and if so, it's a good use of their checkbook. But it has yet to translate into sufficient additional revenue growth vs. the competition to truly justify the expenditure on fundamental grounds.\nNext, margins. FSLY's gross margins are terrible, in the mid-50s%. It resembles Twilio (TWLO) in this regard, a big pay-away to telcos before you even get started. It's the biggest determinant of weak TTM EBITDA margins - which stand at negative 11% vs positive 3% at NET. And whilst those EBITDA margins at NET have been moving up, at FSLY, they have been moving down.\nTurning to cash flow - we've talked about capex already, now let's look at that boring-but-important point, change in working capital. (Remember this is simple. To do this well, pretty much all you have to do is collect cash from customers faster than you pay it to suppliers). If working capital management is bad at NET, and it is, then it is terrible at FSLY. TTM unlevered pre-tax free cash flow margins of negative 33%. This thing just eats money. And again, it has just $166m of net cash on hand vs. a TTM pre-tax pre-debt service cash burn of $104m as of the end of Q1. That means the company is very likely to raise money, via equity or debt placement. And off the back of a weak stock price that's likely to cause more pain in the stock.\nOK. You get the picture. NET is growing a little bit faster and spending more capex to do it; but its gross margins are much better so it has more money to burn in the first place. It appears to be building a big book of forward business in a way that FSLY is not, but right now, that is jam tomorrow, not revenue or earnings today. NET needs to raise capital soon in our view, and FSLY needs to raise capital sooner. So, on fundamentals, NET is a better pick, no question. But the valuation, yikes!\nNET and FSLY Stock Prices\nSince the Cloudflare IPO in 2019, NET has way outperformed FSLY and indeed the Nasdaq (shown here by way of the proxy ETF, Invesco QQQ Trust (QQQ).\n<img src=\"https://static.tigerbbs.com/89d1f9e65c0e2e7398b5ec7b053631ec\" tg-width=\"640\" tg-height=\"378\" width=\"100%\" height=\"auto\">As we state above, that NET has outperformed FSLY is justified to us on fundamentals. It's a better business with higher growth and more visibility of future growth. But right now, as earnings approaches for each of the stocks (FSLY reports on August 4th, NET on August 5th), which is the better bet for long-term investors? In short ...\nIs Cloudflare or Fastly Stock The Better Buy?\nThis isn't such a simple answer in our view. Allow us to ramble somewhat, and bear in mind, all we are talking about here is our own plans for our own money. You must, of course, do your own work and factor in your own risk appetite, time horizon, etc. But here's our approach.\nCloudflare Stock\nAs delighted as we are with the run-up in our NET holdings, and as much as we do in fact think that NET can deliver on some of those Internet 3.0 promises, the price is punchy indeed. So we rate NET at Neutral, meaning we ourselves aren't buying the stock at this point. We have a nice paper gain in long-term accounts and we've cashed a series of gains in short-term accounts along the way. But neither are we selling, because as extended as that stock price is, we think that the stock can move higher, maybe much higher, over the coming years. We think that 5-10 years out, $120/share for NET has every chance of looking like peanuts. We have about the right level of allocation now in those long-term accounts and so we are doing nothing there. If Q2 earnings are anything other than blowout, there is every chance the stock takes a dive and, if it does, we expect to play short-term once again, over and above our long-term holdings. (We keep totally separate accounts for long- and short-term holdings so we never get confused about what game we are playing).\nFastly Stock\nAs much as everybody gottoo excited about FSLY last year, so, we think, has everybody gotten too miserable this year. We have a modest allocation to FSLY in long-term accounts because ultimately we don't think the company will form part of the fabric of Internet 3.0, at least not as an independent. We don't see sufficient force of management personality, sufficiently broad product vision, nor the surround sound of Twitterati talking the thing up. Wedothink thepersistent rumors of FSLY being acquiredhave every chance of playing out and so at any given moment, we see a 20-30% or better premium available should Cisco (CSCO) or another strategic come calling. So, again, long-term holdings, we're doing nothing. We're tempted to add a little right now but with earnings so close, why take the risk? Once again our approach here is to wait for earnings. We are likely to trade it short term on any unjustified stock cratering - and indeed if the fundamentals are improving, as we have a funny feeling they will - look at the below-the-radar improvements in deferred revenue above in the last two quarters for instance - we may well add to our long-term positions at that point. For now, doing nothing before earnings, so, again, Neutral. In each case, a one-word rating doesn't really convey our plans here which is why we lay them out in such wordy detail - now you can shoot them down in flames when doing your own work!","source":"seekingalpha","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 Vs. Fastly Stock: Which Is The Better Buy?</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 Vs. Fastly Stock: Which Is The Better Buy?\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-08-05 22:25 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.\nFastly is a less good business with, in our view, less potential. ...\n\n<a href=\"https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy\">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.","FSLY":"Fastly, Inc."},"source_url":"https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1197602353","content_text":"Summary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.\nFastly is a less good business with, in our view, less potential. Its stock price has cratered of late, as growth has slowed and cash flow worsened.\nBoth stocks are shortly to report their Q2 earnings. We think earnings reaction risk is to the downside on Cloudflare, to the upside on Fastly.\nUltimately, we believe Cloudflare offers more upside for long-term investors, but we own both names in staff personal accounts and intend to add to both on any post-earnings weakness.\nWe would also flag that both companies look to us like they may raise capital soon - if, in the form of new equity, that can hit both stocks.\n\nPing Times May Be Similar But Time To Live Likely Differs\nSince consumer traffic started in earnest to course through the public Internet in the 1990s, content acceleration became important. The initial leader of this market, Akamai (AKAM), grew up in the dot-com era and remains a very solid business today. AKAM's original business model was simple and remains the foundation for content delivery network plays today; buy servers, rent space in telecom companies' datacenters, rent capacity on telecom networks, bill content owners for accelerated delivery of said content. As you can see, the business model is likely to be less cash generative than the now-commonplace cloud application software player, because, one, your gross margin gets hit with the telco pay-aways, and, two, your capex bill is heavy as you have to keep buying server kit. So scaling such a business - meaning, achieve a rate of growth in cash flow faster than the rate of growth in revenue - isn't so easy.\nThe two hot names in content acceleration today are Cloudflare (NET) and Fastly (FSLY). We've covered both of them on multiple occasions here on Seeking Alpha - you can read our past notes on Cloudflare, Inchereand our prior work on Fastlyhere. In addition, we own both stocks in staff personal accounts. We have a much greater allocation to NET than we do to FSLY (in a ratio of approximately 2:1). We have enjoyed an easy ride up on NET with even some poorly-timed averaging-up buys being forgiven by the Trading Gods, whereas we have been battling FSLY to average down our in-costs in the expectation of future gain and our valor has yet to be rewarded. In staff long-term accounts, we presently show a big paper gain on NET and a modest paper loss on FSLY. Along the way, we have also enjoyed separate short-term account gains in NET by buying dips and selling peaks to realize rapid cash gains. (We cover both stocks and our own trades blow by blow in our real-time, real-money Seeking Alpha Marketplace service,Cestrian Fundamentals).\nWhilst Cloudflare and Fastly core services have plenty of overlap, their business models and management styles are very different and this informs our approach to owning the names and our expectations going forward. Allow us to walk you through our views here.\nHow Is Cloudflare Different From Fastly?\nWell, first let's take a look at the similarities. Both offer content acceleration services to content owners, and both offer you something called edge computing, which is in essence the ability to place not just your content (movies, audio, etc.) on a machine near the user (as in, physically and logically near the user on the network - not in a data center thousands of miles away) but also an entire web application or parts thereof. To our investor eye, Cloudflare appears to have more product ambition; taking advantage of its edge network positioning, the company has launched a number of security services, for instance - the goal being to act as a single Internet on-ramp for its customers, a kind of Zscaler (ZS) embedded in the suite offer. If you want to deep-dive into product by product comparison on these two names - and if you do, take a tin hat, for opinions run high - take a look at a couple of engineers-turned-stock-people who cover both stocks in their work.\nNow, putting aside for the moment our own investor view that NET has a superior span of product and indeed more extensive product ambition - let's turn to the numbers.\nSource: Company SEC filings, YCharts.com, Cestrian Analysis\nLot of numbers there. Here are the highlights and lowlights as we see them.\nThe good:\n\nRevenue growth holding steady in the 50% range, gross margin holding steady in the 77% range.\nRemaining performance obligation (RPO) growth of 88% vs. prior year in Q1 2021. RPO is the total order book value, some of which is prepaid, most of which is not. RPO represents just over 90% of TTM recognized revenue so it is material vs. the recognized base, and it is growing faster than the recognized base. So, best guess, NET revenues can accelerate still further.\nAccounting profit in the guise of EBITDA (which we define as operating income, add back depreciation & amortization, add back stock-based compensation) has gone from very negative in 2019 to modestly positive in 2021 - we look at the TTM measure which is slow to respond up or down, it gives you a smoothed-out view of the direction of travel.\n\nThe bad:\n\nActual money-profit in the guise of unlevered pre-tax free cash flow, has gone from horribly negative in 2019 to, er, only very negative in 2021, which in and of itself is good, but, did we mention, cash flow was very negative on a TTM basis to the end of the March 2021 quarter. This is the whole nag with this business model - can they actually become cash flow positive, after capex, after change in working capital? Akamai is, but then it has nothing like the growth ambitions of these names.\nOnly $643m of net cash in the bank at the 31 March point. Given the cash burn, we would not be at all surprised to see the company raise money via an equity or debt placement and, if equity, we would expect a material hit to the stock price on a short-term basis at least. (We are watching closely for this and hope to buy any major dip that comes along).\n\nThe visually challenged:\n\nHuge capital expenditure (\"capex\") bill. Capex as you know is simply money that you spend on stuff that makes a noise when you drop it. Capex at NET, and for that matter FSLY, is mainly computing hardware. We expect significant capex here. But capex as a % of revenue is yet to show a consistent falling pattern - andonlyif we start to see some yield improvements here, some growth without much capex, can we conclude that scale benefits are beginning to flow. Right now the jury is out, and this is a big deal fundamentally.\nTerrible working capital management. This sounds complicated but isn't. If that \"change in working capital\" line was mainly positive, it would mean that in essence, the company collects money from its customers faster than it pays its suppliers. If mainly negative, it pays suppliers faster than it collects cash from its customers. You can see from the numbers that the latter is true. So here we have a business which, already bleeding money into the capex line, further leaks cash into working capital. This again is a big deal fundamentally. Best case, it says the business lacks the management discipline to tell suppliers to wait whilst it chases up customers. Worst case, it means the business is merely a commodity provider of services which can easily be found elsewhere, and they don't chase their customers lest they churn. Now we don'tthinkthat latter point is true; we think NET has a differentiated and sticky set of services - and if that's right, it means management just needs to get religion on cash management. They don't have it today.\n\nAs we shall see in a moment, Cloudflare's stock price flatters its fundamentals. It's not as good a business as its stock trajectory implies.\nFSLY Financials\nFastly, an early huge winner in the immediate response to the Covid crisis, now looks all beaten up if you look at its stock price, to which we shall turn in a moment. But if NET is not as good a business as its stock price implies, FSLY is not as bad a business asitsstock price implies. As investors, we must respect price before all else, everything else is just an input. But fundamentals do sometimes matter - very often you can see value building in the fundamentals that isn't reflected in the stock price, or indeed value waning that is yet to be reflected. Which means that sometimes, just sometimes, you can get ahead of the price game by reading the numbers. (If you read our Cloudflare notes linked above, you can see us making just that argument - hidden value - which did then come to fruition in the stock price).\nLet's take a look at Fastly's numbers.\nSource: Company SEC filings,YCharts.com, Cestrian Analysis\nOK, another lot of numbers. Less numbers though, because the company doesn't disclose its remaining performance obligation in its SEC reports. This is likely because there isn't much of it - they make much of the fact that billing (and by implication contracting) is usage-based and in arrears, so we wouldn't expect a great deal of revenue visibility here.\nTurning to the reported revenue - the deceleration is material, as you can see, and coupled with the lack of visibility, this is what we think is hurting the stock right now. Today's market is positively growth-addled and if your growth is coming down, well, your stock is going to get a beating. That said, it looks to us like folks' expectations just got all ahead of themselves. Look at the TTM revenue line - remember, this is a slow-burn indicator, gives you a smoothed-out look at how things are going. TTM revenue growth peaked at 47% in Q3 2020, and in Q1 2021, it stood at 44%, which isn't really very different if you zoom out far enough. It's just that early Covid Q2 2020 +62% vs Q2 2019 growth rate that got everybody overexcited.\nSkipping around a little here, the valuation stands at 16.5x TTM revenue in exchange for 44% TTM revenue growth. That is positive cheap by current standards.\nCloudflare is asking you to pay 76x TTM revenue in exchange for 51% TTM revenue growth.\nNow don't get us wrong. Cloudflare is a better business. And we like how their management team rolls, all humblebrag-aw-shucks-what-me? whilst quietly stating that their aim is to be the dominant development environment and runtime forInternet 3.0(we paraphrase a little, but yes, that is what their grand plan is, and it might work). But it's notthatmuch better a business.\nBack to FSLY numbers. Remember how NET eats capex and leaks money into working capital? Well, same at FSLY.\nFirst, let's compare their capital expenditures using that slow-burn TTM method.\nThe company has TTM capex standing at 12% of TTM revenue, and is chalking up revenue growth of +44% on a TTM basis. Cloudflare, Inc is spending 18% of TTM revenue on its capex, again on a TTM basis; in exchange for +51% TTM revenue growth. So as a snapshot, FSLY is actually more efficient with its capex. The counter to that is, NET is building a big book of long-term business - as evidenced by its chunky RPO number - and that's what the additional capex is for. This is an interesting-if-true point to make. As in, it might be true and if so, it's a good use of their checkbook. But it has yet to translate into sufficient additional revenue growth vs. the competition to truly justify the expenditure on fundamental grounds.\nNext, margins. FSLY's gross margins are terrible, in the mid-50s%. It resembles Twilio (TWLO) in this regard, a big pay-away to telcos before you even get started. It's the biggest determinant of weak TTM EBITDA margins - which stand at negative 11% vs positive 3% at NET. And whilst those EBITDA margins at NET have been moving up, at FSLY, they have been moving down.\nTurning to cash flow - we've talked about capex already, now let's look at that boring-but-important point, change in working capital. (Remember this is simple. To do this well, pretty much all you have to do is collect cash from customers faster than you pay it to suppliers). If working capital management is bad at NET, and it is, then it is terrible at FSLY. TTM unlevered pre-tax free cash flow margins of negative 33%. This thing just eats money. And again, it has just $166m of net cash on hand vs. a TTM pre-tax pre-debt service cash burn of $104m as of the end of Q1. That means the company is very likely to raise money, via equity or debt placement. And off the back of a weak stock price that's likely to cause more pain in the stock.\nOK. You get the picture. NET is growing a little bit faster and spending more capex to do it; but its gross margins are much better so it has more money to burn in the first place. It appears to be building a big book of forward business in a way that FSLY is not, but right now, that is jam tomorrow, not revenue or earnings today. NET needs to raise capital soon in our view, and FSLY needs to raise capital sooner. So, on fundamentals, NET is a better pick, no question. But the valuation, yikes!\nNET and FSLY Stock Prices\nSince the Cloudflare IPO in 2019, NET has way outperformed FSLY and indeed the Nasdaq (shown here by way of the proxy ETF, Invesco QQQ Trust (QQQ).\nAs we state above, that NET has outperformed FSLY is justified to us on fundamentals. It's a better business with higher growth and more visibility of future growth. But right now, as earnings approaches for each of the stocks (FSLY reports on August 4th, NET on August 5th), which is the better bet for long-term investors? In short ...\nIs Cloudflare or Fastly Stock The Better Buy?\nThis isn't such a simple answer in our view. Allow us to ramble somewhat, and bear in mind, all we are talking about here is our own plans for our own money. You must, of course, do your own work and factor in your own risk appetite, time horizon, etc. But here's our approach.\nCloudflare Stock\nAs delighted as we are with the run-up in our NET holdings, and as much as we do in fact think that NET can deliver on some of those Internet 3.0 promises, the price is punchy indeed. So we rate NET at Neutral, meaning we ourselves aren't buying the stock at this point. We have a nice paper gain in long-term accounts and we've cashed a series of gains in short-term accounts along the way. But neither are we selling, because as extended as that stock price is, we think that the stock can move higher, maybe much higher, over the coming years. We think that 5-10 years out, $120/share for NET has every chance of looking like peanuts. We have about the right level of allocation now in those long-term accounts and so we are doing nothing there. If Q2 earnings are anything other than blowout, there is every chance the stock takes a dive and, if it does, we expect to play short-term once again, over and above our long-term holdings. (We keep totally separate accounts for long- and short-term holdings so we never get confused about what game we are playing).\nFastly Stock\nAs much as everybody gottoo excited about FSLY last year, so, we think, has everybody gotten too miserable this year. We have a modest allocation to FSLY in long-term accounts because ultimately we don't think the company will form part of the fabric of Internet 3.0, at least not as an independent. We don't see sufficient force of management personality, sufficiently broad product vision, nor the surround sound of Twitterati talking the thing up. Wedothink thepersistent rumors of FSLY being acquiredhave every chance of playing out and so at any given moment, we see a 20-30% or better premium available should Cisco (CSCO) or another strategic come calling. So, again, long-term holdings, we're doing nothing. We're tempted to add a little right now but with earnings so close, why take the risk? Once again our approach here is to wait for earnings. We are likely to trade it short term on any unjustified stock cratering - and indeed if the fundamentals are improving, as we have a funny feeling they will - look at the below-the-radar improvements in deferred revenue above in the last two quarters for instance - we may well add to our long-term positions at that point. For now, doing nothing before earnings, so, again, Neutral. In each case, a one-word rating doesn't really convey our plans here which is why we lay them out in such wordy detail - now you can shoot them down in flames when doing your own work!","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":899269360,"gmtCreate":1628201330850,"gmtModify":1703502881079,"author":{"id":"3565265885231810","authorId":"3565265885231810","authorIdStr":"3565265885231810","name":"Dearon","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":4,"crmLevelSwitch":0,"idStr":"3565265885231810"},"htmlText":"Please like&nbsp;","listText":"Please like&nbsp;","text":"Please like","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":5,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/899269360","repostId":1197602353,"repostType":4,"repost":{"id":"1197602353","pubTimestamp":1628173558,"share":"https://ttm.financial/m/news/1197602353?lang=&edition=fundamental","pubTime":"2021-08-05 22:25","market":"us","language":"en","title":"Cloudflare Vs. Fastly Stock: Which Is The Better Buy?","url":"https://stock-news.laohu8.com/highlight/detail?id=1197602353","media":"seekingalpha","summary":"Summary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up rec","content":"Summary\n<ul>\n <li>Cloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.</li>\n <li>Fastly is a less good business with, in our view, less potential. Its stock price has cratered of late, as growth has slowed and cash flow worsened.</li>\n <li>Both stocks are shortly to report their Q2 earnings. We think earnings reaction risk is to the downside on Cloudflare, to the upside on Fastly.</li>\n <li>Ultimately, we believe Cloudflare offers more upside for long-term investors, but we own both names in staff personal accounts and intend to add to both on any post-earnings weakness.</li>\n <li>We would also flag that both companies look to us like they may raise capital soon - if, in the form of new equity, that can hit both stocks.</li>\n</ul>\nPing Times May Be Similar But Time To Live Likely Differs\nSince consumer traffic started in earnest to course through the public Internet in the 1990s, content acceleration became important. The initial leader of this market, Akamai (AKAM), grew up in the dot-com era and remains a very solid business today. AKAM's original business model was simple and remains the foundation for content delivery network plays today; buy servers, rent space in telecom companies' datacenters, rent capacity on telecom networks, bill content owners for accelerated delivery of said content. As you can see, the business model is likely to be less cash generative than the now-commonplace cloud application software player, because, one, your gross margin gets hit with the telco pay-aways, and, two, your capex bill is heavy as you have to keep buying server kit. So scaling such a business - meaning, achieve a rate of growth in cash flow faster than the rate of growth in revenue - isn't so easy.\nThe two hot names in content acceleration today are Cloudflare (NET) and Fastly (FSLY). We've covered both of them on multiple occasions here on Seeking Alpha - you can read our past notes on Cloudflare, Inchereand our prior work on Fastlyhere. In addition, we own both stocks in staff personal accounts. We have a much greater allocation to NET than we do to FSLY (in a ratio of approximately 2:1). We have enjoyed an easy ride up on NET with even some poorly-timed averaging-up buys being forgiven by the Trading Gods, whereas we have been battling FSLY to average down our in-costs in the expectation of future gain and our valor has yet to be rewarded. In staff long-term accounts, we presently show a big paper gain on NET and a modest paper loss on FSLY. Along the way, we have also enjoyed separate short-term account gains in NET by buying dips and selling peaks to realize rapid cash gains. (We cover both stocks and our own trades blow by blow in our real-time, real-money Seeking Alpha Marketplace service,Cestrian Fundamentals).\nWhilst Cloudflare and Fastly core services have plenty of overlap, their business models and management styles are very different and this informs our approach to owning the names and our expectations going forward. Allow us to walk you through our views here.\nHow Is Cloudflare Different From Fastly?\nWell, first let's take a look at the similarities. Both offer content acceleration services to content owners, and both offer you something called edge computing, which is in essence the ability to place not just your content (movies, audio, etc.) on a machine near the user (as in, physically and logically near the user on the network - not in a data center thousands of miles away) but also an entire web application or parts thereof. To our investor eye, Cloudflare appears to have more product ambition; taking advantage of its edge network positioning, the company has launched a number of security services, for instance - the goal being to act as a single Internet on-ramp for its customers, a kind of Zscaler (ZS) embedded in the suite offer. If you want to deep-dive into product by product comparison on these two names - and if you do, take a tin hat, for opinions run high - take a look at a couple of engineers-turned-stock-people who cover both stocks in their work.\nNow, putting aside for the moment our own investor view that NET has a superior span of product and indeed more extensive product ambition - let's turn to the numbers.\n<img src=\"https://static.tigerbbs.com/4b54705844ce46a8f48f7d986cd113f4\" tg-width=\"640\" tg-height=\"587\" width=\"100%\" height=\"auto\"><img src=\"https://static.tigerbbs.com/ea25982971170997ab631a0e0e0af99f\" tg-width=\"640\" tg-height=\"220\" width=\"100%\" height=\"auto\">Source: Company SEC filings, YCharts.com, Cestrian Analysis\nLot of numbers there. Here are the highlights and lowlights as we see them.\nThe good:\n<ul>\n <li>Revenue growth holding steady in the 50% range, gross margin holding steady in the 77% range.</li>\n <li>Remaining performance obligation (RPO) growth of 88% vs. prior year in Q1 2021. RPO is the total order book value, some of which is prepaid, most of which is not. RPO represents just over 90% of TTM recognized revenue so it is material vs. the recognized base, and it is growing faster than the recognized base. So, best guess, NET revenues can accelerate still further.</li>\n <li>Accounting profit in the guise of EBITDA (which we define as operating income, add back depreciation &amp; amortization, add back stock-based compensation) has gone from very negative in 2019 to modestly positive in 2021 - we look at the TTM measure which is slow to respond up or down, it gives you a smoothed-out view of the direction of travel.</li>\n</ul>\nThe bad:\n<ul>\n <li>Actual money-profit in the guise of unlevered pre-tax free cash flow, has gone from horribly negative in 2019 to, er, only very negative in 2021, which in and of itself is good, but, did we mention, cash flow was very negative on a TTM basis to the end of the March 2021 quarter. This is the whole nag with this business model - can they actually become cash flow positive, after capex, after change in working capital? Akamai is, but then it has nothing like the growth ambitions of these names.</li>\n <li>Only $643m of net cash in the bank at the 31 March point. Given the cash burn, we would not be at all surprised to see the company raise money via an equity or debt placement and, if equity, we would expect a material hit to the stock price on a short-term basis at least. (We are watching closely for this and hope to buy any major dip that comes along).</li>\n</ul>\nThe visually challenged:\n<ul>\n <li>Huge capital expenditure (\"capex\") bill. Capex as you know is simply money that you spend on stuff that makes a noise when you drop it. Capex at NET, and for that matter FSLY, is mainly computing hardware. We expect significant capex here. But capex as a % of revenue is yet to show a consistent falling pattern - andonlyif we start to see some yield improvements here, some growth without much capex, can we conclude that scale benefits are beginning to flow. Right now the jury is out, and this is a big deal fundamentally.</li>\n <li>Terrible working capital management. This sounds complicated but isn't. If that \"change in working capital\" line was mainly positive, it would mean that in essence, the company collects money from its customers faster than it pays its suppliers. If mainly negative, it pays suppliers faster than it collects cash from its customers. You can see from the numbers that the latter is true. So here we have a business which, already bleeding money into the capex line, further leaks cash into working capital. This again is a big deal fundamentally. Best case, it says the business lacks the management discipline to tell suppliers to wait whilst it chases up customers. Worst case, it means the business is merely a commodity provider of services which can easily be found elsewhere, and they don't chase their customers lest they churn. Now we don'tthinkthat latter point is true; we think NET has a differentiated and sticky set of services - and if that's right, it means management just needs to get religion on cash management. They don't have it today.</li>\n</ul>\nAs we shall see in a moment, Cloudflare's stock price flatters its fundamentals. It's not as good a business as its stock trajectory implies.\nFSLY Financials\nFastly, an early huge winner in the immediate response to the Covid crisis, now looks all beaten up if you look at its stock price, to which we shall turn in a moment. But if NET is not as good a business as its stock price implies, FSLY is not as bad a business asitsstock price implies. As investors, we must respect price before all else, everything else is just an input. But fundamentals do sometimes matter - very often you can see value building in the fundamentals that isn't reflected in the stock price, or indeed value waning that is yet to be reflected. Which means that sometimes, just sometimes, you can get ahead of the price game by reading the numbers. (If you read our Cloudflare notes linked above, you can see us making just that argument - hidden value - which did then come to fruition in the stock price).\nLet's take a look at Fastly's numbers.\n<img src=\"https://static.tigerbbs.com/c3aa249a8140f7dea48136c586415d87\" tg-width=\"640\" tg-height=\"621\" width=\"100%\" height=\"auto\">Source: Company SEC filings,YCharts.com, Cestrian Analysis\nOK, another lot of numbers. Less numbers though, because the company doesn't disclose its remaining performance obligation in its SEC reports. This is likely because there isn't much of it - they make much of the fact that billing (and by implication contracting) is usage-based and in arrears, so we wouldn't expect a great deal of revenue visibility here.\nTurning to the reported revenue - the deceleration is material, as you can see, and coupled with the lack of visibility, this is what we think is hurting the stock right now. Today's market is positively growth-addled and if your growth is coming down, well, your stock is going to get a beating. That said, it looks to us like folks' expectations just got all ahead of themselves. Look at the TTM revenue line - remember, this is a slow-burn indicator, gives you a smoothed-out look at how things are going. TTM revenue growth peaked at 47% in Q3 2020, and in Q1 2021, it stood at 44%, which isn't really very different if you zoom out far enough. It's just that early Covid Q2 2020 +62% vs Q2 2019 growth rate that got everybody overexcited.\nSkipping around a little here, the valuation stands at 16.5x TTM revenue in exchange for 44% TTM revenue growth. That is positive cheap by current standards.\n<img src=\"https://static.tigerbbs.com/5469d429652493191eb4cdcf2efee55e\" tg-width=\"238\" tg-height=\"247\" width=\"100%\" height=\"auto\">Cloudflare is asking you to pay 76x TTM revenue in exchange for 51% TTM revenue growth.\n<img src=\"https://static.tigerbbs.com/d1e47eab4ff42f7649937ad13cab0413\" tg-width=\"235\" tg-height=\"250\" width=\"100%\" height=\"auto\">Now don't get us wrong. Cloudflare is a better business. And we like how their management team rolls, all humblebrag-aw-shucks-what-me? whilst quietly stating that their aim is to be the dominant development environment and runtime forInternet 3.0(we paraphrase a little, but yes, that is what their grand plan is, and it might work). But it's notthatmuch better a business.\nBack to FSLY numbers. Remember how NET eats capex and leaks money into working capital? Well, same at FSLY.\nFirst, let's compare their capital expenditures using that slow-burn TTM method.\n<img src=\"https://static.tigerbbs.com/e8e760e2b8fb4ed434bfb9dec30b547b\" tg-width=\"640\" tg-height=\"89\" width=\"100%\" height=\"auto\"><img src=\"https://static.tigerbbs.com/04bb88b1b8d8d2722a84dfc263eefaec\" tg-width=\"640\" tg-height=\"91\" width=\"100%\" height=\"auto\">The company has TTM capex standing at 12% of TTM revenue, and is chalking up revenue growth of +44% on a TTM basis. Cloudflare, Inc is spending 18% of TTM revenue on its capex, again on a TTM basis; in exchange for +51% TTM revenue growth. So as a snapshot, FSLY is actually more efficient with its capex. The counter to that is, NET is building a big book of long-term business - as evidenced by its chunky RPO number - and that's what the additional capex is for. This is an interesting-if-true point to make. As in, it might be true and if so, it's a good use of their checkbook. But it has yet to translate into sufficient additional revenue growth vs. the competition to truly justify the expenditure on fundamental grounds.\nNext, margins. FSLY's gross margins are terrible, in the mid-50s%. It resembles Twilio (TWLO) in this regard, a big pay-away to telcos before you even get started. It's the biggest determinant of weak TTM EBITDA margins - which stand at negative 11% vs positive 3% at NET. And whilst those EBITDA margins at NET have been moving up, at FSLY, they have been moving down.\nTurning to cash flow - we've talked about capex already, now let's look at that boring-but-important point, change in working capital. (Remember this is simple. To do this well, pretty much all you have to do is collect cash from customers faster than you pay it to suppliers). If working capital management is bad at NET, and it is, then it is terrible at FSLY. TTM unlevered pre-tax free cash flow margins of negative 33%. This thing just eats money. And again, it has just $166m of net cash on hand vs. a TTM pre-tax pre-debt service cash burn of $104m as of the end of Q1. That means the company is very likely to raise money, via equity or debt placement. And off the back of a weak stock price that's likely to cause more pain in the stock.\nOK. You get the picture. NET is growing a little bit faster and spending more capex to do it; but its gross margins are much better so it has more money to burn in the first place. It appears to be building a big book of forward business in a way that FSLY is not, but right now, that is jam tomorrow, not revenue or earnings today. NET needs to raise capital soon in our view, and FSLY needs to raise capital sooner. So, on fundamentals, NET is a better pick, no question. But the valuation, yikes!\nNET and FSLY Stock Prices\nSince the Cloudflare IPO in 2019, NET has way outperformed FSLY and indeed the Nasdaq (shown here by way of the proxy ETF, Invesco QQQ Trust (QQQ).\n<img src=\"https://static.tigerbbs.com/89d1f9e65c0e2e7398b5ec7b053631ec\" tg-width=\"640\" tg-height=\"378\" width=\"100%\" height=\"auto\">As we state above, that NET has outperformed FSLY is justified to us on fundamentals. It's a better business with higher growth and more visibility of future growth. But right now, as earnings approaches for each of the stocks (FSLY reports on August 4th, NET on August 5th), which is the better bet for long-term investors? In short ...\nIs Cloudflare or Fastly Stock The Better Buy?\nThis isn't such a simple answer in our view. Allow us to ramble somewhat, and bear in mind, all we are talking about here is our own plans for our own money. You must, of course, do your own work and factor in your own risk appetite, time horizon, etc. But here's our approach.\nCloudflare Stock\nAs delighted as we are with the run-up in our NET holdings, and as much as we do in fact think that NET can deliver on some of those Internet 3.0 promises, the price is punchy indeed. So we rate NET at Neutral, meaning we ourselves aren't buying the stock at this point. We have a nice paper gain in long-term accounts and we've cashed a series of gains in short-term accounts along the way. But neither are we selling, because as extended as that stock price is, we think that the stock can move higher, maybe much higher, over the coming years. We think that 5-10 years out, $120/share for NET has every chance of looking like peanuts. We have about the right level of allocation now in those long-term accounts and so we are doing nothing there. If Q2 earnings are anything other than blowout, there is every chance the stock takes a dive and, if it does, we expect to play short-term once again, over and above our long-term holdings. (We keep totally separate accounts for long- and short-term holdings so we never get confused about what game we are playing).\nFastly Stock\nAs much as everybody gottoo excited about FSLY last year, so, we think, has everybody gotten too miserable this year. We have a modest allocation to FSLY in long-term accounts because ultimately we don't think the company will form part of the fabric of Internet 3.0, at least not as an independent. We don't see sufficient force of management personality, sufficiently broad product vision, nor the surround sound of Twitterati talking the thing up. Wedothink thepersistent rumors of FSLY being acquiredhave every chance of playing out and so at any given moment, we see a 20-30% or better premium available should Cisco (CSCO) or another strategic come calling. So, again, long-term holdings, we're doing nothing. We're tempted to add a little right now but with earnings so close, why take the risk? Once again our approach here is to wait for earnings. We are likely to trade it short term on any unjustified stock cratering - and indeed if the fundamentals are improving, as we have a funny feeling they will - look at the below-the-radar improvements in deferred revenue above in the last two quarters for instance - we may well add to our long-term positions at that point. For now, doing nothing before earnings, so, again, Neutral. In each case, a one-word rating doesn't really convey our plans here which is why we lay them out in such wordy detail - now you can shoot them down in flames when doing your own work!","source":"seekingalpha","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 Vs. Fastly Stock: Which Is The Better Buy?</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 Vs. Fastly Stock: Which Is The Better Buy?\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-08-05 22:25 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.\nFastly is a less good business with, in our view, less potential. ...\n\n<a href=\"https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy\">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.","FSLY":"Fastly, Inc."},"source_url":"https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1197602353","content_text":"Summary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.\nFastly is a less good business with, in our view, less potential. Its stock price has cratered of late, as growth has slowed and cash flow worsened.\nBoth stocks are shortly to report their Q2 earnings. We think earnings reaction risk is to the downside on Cloudflare, to the upside on Fastly.\nUltimately, we believe Cloudflare offers more upside for long-term investors, but we own both names in staff personal accounts and intend to add to both on any post-earnings weakness.\nWe would also flag that both companies look to us like they may raise capital soon - if, in the form of new equity, that can hit both stocks.\n\nPing Times May Be Similar But Time To Live Likely Differs\nSince consumer traffic started in earnest to course through the public Internet in the 1990s, content acceleration became important. The initial leader of this market, Akamai (AKAM), grew up in the dot-com era and remains a very solid business today. AKAM's original business model was simple and remains the foundation for content delivery network plays today; buy servers, rent space in telecom companies' datacenters, rent capacity on telecom networks, bill content owners for accelerated delivery of said content. As you can see, the business model is likely to be less cash generative than the now-commonplace cloud application software player, because, one, your gross margin gets hit with the telco pay-aways, and, two, your capex bill is heavy as you have to keep buying server kit. So scaling such a business - meaning, achieve a rate of growth in cash flow faster than the rate of growth in revenue - isn't so easy.\nThe two hot names in content acceleration today are Cloudflare (NET) and Fastly (FSLY). We've covered both of them on multiple occasions here on Seeking Alpha - you can read our past notes on Cloudflare, Inchereand our prior work on Fastlyhere. In addition, we own both stocks in staff personal accounts. We have a much greater allocation to NET than we do to FSLY (in a ratio of approximately 2:1). We have enjoyed an easy ride up on NET with even some poorly-timed averaging-up buys being forgiven by the Trading Gods, whereas we have been battling FSLY to average down our in-costs in the expectation of future gain and our valor has yet to be rewarded. In staff long-term accounts, we presently show a big paper gain on NET and a modest paper loss on FSLY. Along the way, we have also enjoyed separate short-term account gains in NET by buying dips and selling peaks to realize rapid cash gains. (We cover both stocks and our own trades blow by blow in our real-time, real-money Seeking Alpha Marketplace service,Cestrian Fundamentals).\nWhilst Cloudflare and Fastly core services have plenty of overlap, their business models and management styles are very different and this informs our approach to owning the names and our expectations going forward. Allow us to walk you through our views here.\nHow Is Cloudflare Different From Fastly?\nWell, first let's take a look at the similarities. Both offer content acceleration services to content owners, and both offer you something called edge computing, which is in essence the ability to place not just your content (movies, audio, etc.) on a machine near the user (as in, physically and logically near the user on the network - not in a data center thousands of miles away) but also an entire web application or parts thereof. To our investor eye, Cloudflare appears to have more product ambition; taking advantage of its edge network positioning, the company has launched a number of security services, for instance - the goal being to act as a single Internet on-ramp for its customers, a kind of Zscaler (ZS) embedded in the suite offer. If you want to deep-dive into product by product comparison on these two names - and if you do, take a tin hat, for opinions run high - take a look at a couple of engineers-turned-stock-people who cover both stocks in their work.\nNow, putting aside for the moment our own investor view that NET has a superior span of product and indeed more extensive product ambition - let's turn to the numbers.\nSource: Company SEC filings, YCharts.com, Cestrian Analysis\nLot of numbers there. Here are the highlights and lowlights as we see them.\nThe good:\n\nRevenue growth holding steady in the 50% range, gross margin holding steady in the 77% range.\nRemaining performance obligation (RPO) growth of 88% vs. prior year in Q1 2021. RPO is the total order book value, some of which is prepaid, most of which is not. RPO represents just over 90% of TTM recognized revenue so it is material vs. the recognized base, and it is growing faster than the recognized base. So, best guess, NET revenues can accelerate still further.\nAccounting profit in the guise of EBITDA (which we define as operating income, add back depreciation & amortization, add back stock-based compensation) has gone from very negative in 2019 to modestly positive in 2021 - we look at the TTM measure which is slow to respond up or down, it gives you a smoothed-out view of the direction of travel.\n\nThe bad:\n\nActual money-profit in the guise of unlevered pre-tax free cash flow, has gone from horribly negative in 2019 to, er, only very negative in 2021, which in and of itself is good, but, did we mention, cash flow was very negative on a TTM basis to the end of the March 2021 quarter. This is the whole nag with this business model - can they actually become cash flow positive, after capex, after change in working capital? Akamai is, but then it has nothing like the growth ambitions of these names.\nOnly $643m of net cash in the bank at the 31 March point. Given the cash burn, we would not be at all surprised to see the company raise money via an equity or debt placement and, if equity, we would expect a material hit to the stock price on a short-term basis at least. (We are watching closely for this and hope to buy any major dip that comes along).\n\nThe visually challenged:\n\nHuge capital expenditure (\"capex\") bill. Capex as you know is simply money that you spend on stuff that makes a noise when you drop it. Capex at NET, and for that matter FSLY, is mainly computing hardware. We expect significant capex here. But capex as a % of revenue is yet to show a consistent falling pattern - andonlyif we start to see some yield improvements here, some growth without much capex, can we conclude that scale benefits are beginning to flow. Right now the jury is out, and this is a big deal fundamentally.\nTerrible working capital management. This sounds complicated but isn't. If that \"change in working capital\" line was mainly positive, it would mean that in essence, the company collects money from its customers faster than it pays its suppliers. If mainly negative, it pays suppliers faster than it collects cash from its customers. You can see from the numbers that the latter is true. So here we have a business which, already bleeding money into the capex line, further leaks cash into working capital. This again is a big deal fundamentally. Best case, it says the business lacks the management discipline to tell suppliers to wait whilst it chases up customers. Worst case, it means the business is merely a commodity provider of services which can easily be found elsewhere, and they don't chase their customers lest they churn. Now we don'tthinkthat latter point is true; we think NET has a differentiated and sticky set of services - and if that's right, it means management just needs to get religion on cash management. They don't have it today.\n\nAs we shall see in a moment, Cloudflare's stock price flatters its fundamentals. It's not as good a business as its stock trajectory implies.\nFSLY Financials\nFastly, an early huge winner in the immediate response to the Covid crisis, now looks all beaten up if you look at its stock price, to which we shall turn in a moment. But if NET is not as good a business as its stock price implies, FSLY is not as bad a business asitsstock price implies. As investors, we must respect price before all else, everything else is just an input. But fundamentals do sometimes matter - very often you can see value building in the fundamentals that isn't reflected in the stock price, or indeed value waning that is yet to be reflected. Which means that sometimes, just sometimes, you can get ahead of the price game by reading the numbers. (If you read our Cloudflare notes linked above, you can see us making just that argument - hidden value - which did then come to fruition in the stock price).\nLet's take a look at Fastly's numbers.\nSource: Company SEC filings,YCharts.com, Cestrian Analysis\nOK, another lot of numbers. Less numbers though, because the company doesn't disclose its remaining performance obligation in its SEC reports. This is likely because there isn't much of it - they make much of the fact that billing (and by implication contracting) is usage-based and in arrears, so we wouldn't expect a great deal of revenue visibility here.\nTurning to the reported revenue - the deceleration is material, as you can see, and coupled with the lack of visibility, this is what we think is hurting the stock right now. Today's market is positively growth-addled and if your growth is coming down, well, your stock is going to get a beating. That said, it looks to us like folks' expectations just got all ahead of themselves. Look at the TTM revenue line - remember, this is a slow-burn indicator, gives you a smoothed-out look at how things are going. TTM revenue growth peaked at 47% in Q3 2020, and in Q1 2021, it stood at 44%, which isn't really very different if you zoom out far enough. It's just that early Covid Q2 2020 +62% vs Q2 2019 growth rate that got everybody overexcited.\nSkipping around a little here, the valuation stands at 16.5x TTM revenue in exchange for 44% TTM revenue growth. That is positive cheap by current standards.\nCloudflare is asking you to pay 76x TTM revenue in exchange for 51% TTM revenue growth.\nNow don't get us wrong. Cloudflare is a better business. And we like how their management team rolls, all humblebrag-aw-shucks-what-me? whilst quietly stating that their aim is to be the dominant development environment and runtime forInternet 3.0(we paraphrase a little, but yes, that is what their grand plan is, and it might work). But it's notthatmuch better a business.\nBack to FSLY numbers. Remember how NET eats capex and leaks money into working capital? Well, same at FSLY.\nFirst, let's compare their capital expenditures using that slow-burn TTM method.\nThe company has TTM capex standing at 12% of TTM revenue, and is chalking up revenue growth of +44% on a TTM basis. Cloudflare, Inc is spending 18% of TTM revenue on its capex, again on a TTM basis; in exchange for +51% TTM revenue growth. So as a snapshot, FSLY is actually more efficient with its capex. The counter to that is, NET is building a big book of long-term business - as evidenced by its chunky RPO number - and that's what the additional capex is for. This is an interesting-if-true point to make. As in, it might be true and if so, it's a good use of their checkbook. But it has yet to translate into sufficient additional revenue growth vs. the competition to truly justify the expenditure on fundamental grounds.\nNext, margins. FSLY's gross margins are terrible, in the mid-50s%. It resembles Twilio (TWLO) in this regard, a big pay-away to telcos before you even get started. It's the biggest determinant of weak TTM EBITDA margins - which stand at negative 11% vs positive 3% at NET. And whilst those EBITDA margins at NET have been moving up, at FSLY, they have been moving down.\nTurning to cash flow - we've talked about capex already, now let's look at that boring-but-important point, change in working capital. (Remember this is simple. To do this well, pretty much all you have to do is collect cash from customers faster than you pay it to suppliers). If working capital management is bad at NET, and it is, then it is terrible at FSLY. TTM unlevered pre-tax free cash flow margins of negative 33%. This thing just eats money. And again, it has just $166m of net cash on hand vs. a TTM pre-tax pre-debt service cash burn of $104m as of the end of Q1. That means the company is very likely to raise money, via equity or debt placement. And off the back of a weak stock price that's likely to cause more pain in the stock.\nOK. You get the picture. NET is growing a little bit faster and spending more capex to do it; but its gross margins are much better so it has more money to burn in the first place. It appears to be building a big book of forward business in a way that FSLY is not, but right now, that is jam tomorrow, not revenue or earnings today. NET needs to raise capital soon in our view, and FSLY needs to raise capital sooner. So, on fundamentals, NET is a better pick, no question. But the valuation, yikes!\nNET and FSLY Stock Prices\nSince the Cloudflare IPO in 2019, NET has way outperformed FSLY and indeed the Nasdaq (shown here by way of the proxy ETF, Invesco QQQ Trust (QQQ).\nAs we state above, that NET has outperformed FSLY is justified to us on fundamentals. It's a better business with higher growth and more visibility of future growth. But right now, as earnings approaches for each of the stocks (FSLY reports on August 4th, NET on August 5th), which is the better bet for long-term investors? In short ...\nIs Cloudflare or Fastly Stock The Better Buy?\nThis isn't such a simple answer in our view. Allow us to ramble somewhat, and bear in mind, all we are talking about here is our own plans for our own money. You must, of course, do your own work and factor in your own risk appetite, time horizon, etc. But here's our approach.\nCloudflare Stock\nAs delighted as we are with the run-up in our NET holdings, and as much as we do in fact think that NET can deliver on some of those Internet 3.0 promises, the price is punchy indeed. So we rate NET at Neutral, meaning we ourselves aren't buying the stock at this point. We have a nice paper gain in long-term accounts and we've cashed a series of gains in short-term accounts along the way. But neither are we selling, because as extended as that stock price is, we think that the stock can move higher, maybe much higher, over the coming years. We think that 5-10 years out, $120/share for NET has every chance of looking like peanuts. We have about the right level of allocation now in those long-term accounts and so we are doing nothing there. If Q2 earnings are anything other than blowout, there is every chance the stock takes a dive and, if it does, we expect to play short-term once again, over and above our long-term holdings. (We keep totally separate accounts for long- and short-term holdings so we never get confused about what game we are playing).\nFastly Stock\nAs much as everybody gottoo excited about FSLY last year, so, we think, has everybody gotten too miserable this year. We have a modest allocation to FSLY in long-term accounts because ultimately we don't think the company will form part of the fabric of Internet 3.0, at least not as an independent. We don't see sufficient force of management personality, sufficiently broad product vision, nor the surround sound of Twitterati talking the thing up. Wedothink thepersistent rumors of FSLY being acquiredhave every chance of playing out and so at any given moment, we see a 20-30% or better premium available should Cisco (CSCO) or another strategic come calling. So, again, long-term holdings, we're doing nothing. We're tempted to add a little right now but with earnings so close, why take the risk? Once again our approach here is to wait for earnings. We are likely to trade it short term on any unjustified stock cratering - and indeed if the fundamentals are improving, as we have a funny feeling they will - look at the below-the-radar improvements in deferred revenue above in the last two quarters for instance - we may well add to our long-term positions at that point. For now, doing nothing before earnings, so, again, Neutral. In each case, a one-word rating doesn't really convey our plans here which is why we lay them out in such wordy detail - now you can shoot them down in flames when doing your own work!","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":899287400,"gmtCreate":1628201147000,"gmtModify":1703502878630,"author":{"id":"3571129545109571","authorId":"3571129545109571","authorIdStr":"3571129545109571","name":"MrMrsBean","avatar":"https://static.tigerbbs.com/8f1ab99fec06884945521404915aec0e","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3571129545109571"},"htmlText":"Please like and comment. Thanks","listText":"Please like and comment. Thanks","text":"Please like and comment. Thanks","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":3,"commentSize":1,"repostSize":0,"link":"https://ttm.financial/post/899287400","repostId":1197602353,"repostType":4,"repost":{"id":"1197602353","pubTimestamp":1628173558,"share":"https://ttm.financial/m/news/1197602353?lang=&edition=fundamental","pubTime":"2021-08-05 22:25","market":"us","language":"en","title":"Cloudflare Vs. Fastly Stock: Which Is The Better Buy?","url":"https://stock-news.laohu8.com/highlight/detail?id=1197602353","media":"seekingalpha","summary":"Summary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up rec","content":"Summary\n<ul>\n <li>Cloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.</li>\n <li>Fastly is a less good business with, in our view, less potential. Its stock price has cratered of late, as growth has slowed and cash flow worsened.</li>\n <li>Both stocks are shortly to report their Q2 earnings. We think earnings reaction risk is to the downside on Cloudflare, to the upside on Fastly.</li>\n <li>Ultimately, we believe Cloudflare offers more upside for long-term investors, but we own both names in staff personal accounts and intend to add to both on any post-earnings weakness.</li>\n <li>We would also flag that both companies look to us like they may raise capital soon - if, in the form of new equity, that can hit both stocks.</li>\n</ul>\nPing Times May Be Similar But Time To Live Likely Differs\nSince consumer traffic started in earnest to course through the public Internet in the 1990s, content acceleration became important. The initial leader of this market, Akamai (AKAM), grew up in the dot-com era and remains a very solid business today. AKAM's original business model was simple and remains the foundation for content delivery network plays today; buy servers, rent space in telecom companies' datacenters, rent capacity on telecom networks, bill content owners for accelerated delivery of said content. As you can see, the business model is likely to be less cash generative than the now-commonplace cloud application software player, because, one, your gross margin gets hit with the telco pay-aways, and, two, your capex bill is heavy as you have to keep buying server kit. So scaling such a business - meaning, achieve a rate of growth in cash flow faster than the rate of growth in revenue - isn't so easy.\nThe two hot names in content acceleration today are Cloudflare (NET) and Fastly (FSLY). We've covered both of them on multiple occasions here on Seeking Alpha - you can read our past notes on Cloudflare, Inchereand our prior work on Fastlyhere. In addition, we own both stocks in staff personal accounts. We have a much greater allocation to NET than we do to FSLY (in a ratio of approximately 2:1). We have enjoyed an easy ride up on NET with even some poorly-timed averaging-up buys being forgiven by the Trading Gods, whereas we have been battling FSLY to average down our in-costs in the expectation of future gain and our valor has yet to be rewarded. In staff long-term accounts, we presently show a big paper gain on NET and a modest paper loss on FSLY. Along the way, we have also enjoyed separate short-term account gains in NET by buying dips and selling peaks to realize rapid cash gains. (We cover both stocks and our own trades blow by blow in our real-time, real-money Seeking Alpha Marketplace service,Cestrian Fundamentals).\nWhilst Cloudflare and Fastly core services have plenty of overlap, their business models and management styles are very different and this informs our approach to owning the names and our expectations going forward. Allow us to walk you through our views here.\nHow Is Cloudflare Different From Fastly?\nWell, first let's take a look at the similarities. Both offer content acceleration services to content owners, and both offer you something called edge computing, which is in essence the ability to place not just your content (movies, audio, etc.) on a machine near the user (as in, physically and logically near the user on the network - not in a data center thousands of miles away) but also an entire web application or parts thereof. To our investor eye, Cloudflare appears to have more product ambition; taking advantage of its edge network positioning, the company has launched a number of security services, for instance - the goal being to act as a single Internet on-ramp for its customers, a kind of Zscaler (ZS) embedded in the suite offer. If you want to deep-dive into product by product comparison on these two names - and if you do, take a tin hat, for opinions run high - take a look at a couple of engineers-turned-stock-people who cover both stocks in their work.\nNow, putting aside for the moment our own investor view that NET has a superior span of product and indeed more extensive product ambition - let's turn to the numbers.\n<img src=\"https://static.tigerbbs.com/4b54705844ce46a8f48f7d986cd113f4\" tg-width=\"640\" tg-height=\"587\" width=\"100%\" height=\"auto\"><img src=\"https://static.tigerbbs.com/ea25982971170997ab631a0e0e0af99f\" tg-width=\"640\" tg-height=\"220\" width=\"100%\" height=\"auto\">Source: Company SEC filings, YCharts.com, Cestrian Analysis\nLot of numbers there. Here are the highlights and lowlights as we see them.\nThe good:\n<ul>\n <li>Revenue growth holding steady in the 50% range, gross margin holding steady in the 77% range.</li>\n <li>Remaining performance obligation (RPO) growth of 88% vs. prior year in Q1 2021. RPO is the total order book value, some of which is prepaid, most of which is not. RPO represents just over 90% of TTM recognized revenue so it is material vs. the recognized base, and it is growing faster than the recognized base. So, best guess, NET revenues can accelerate still further.</li>\n <li>Accounting profit in the guise of EBITDA (which we define as operating income, add back depreciation &amp; amortization, add back stock-based compensation) has gone from very negative in 2019 to modestly positive in 2021 - we look at the TTM measure which is slow to respond up or down, it gives you a smoothed-out view of the direction of travel.</li>\n</ul>\nThe bad:\n<ul>\n <li>Actual money-profit in the guise of unlevered pre-tax free cash flow, has gone from horribly negative in 2019 to, er, only very negative in 2021, which in and of itself is good, but, did we mention, cash flow was very negative on a TTM basis to the end of the March 2021 quarter. This is the whole nag with this business model - can they actually become cash flow positive, after capex, after change in working capital? Akamai is, but then it has nothing like the growth ambitions of these names.</li>\n <li>Only $643m of net cash in the bank at the 31 March point. Given the cash burn, we would not be at all surprised to see the company raise money via an equity or debt placement and, if equity, we would expect a material hit to the stock price on a short-term basis at least. (We are watching closely for this and hope to buy any major dip that comes along).</li>\n</ul>\nThe visually challenged:\n<ul>\n <li>Huge capital expenditure (\"capex\") bill. Capex as you know is simply money that you spend on stuff that makes a noise when you drop it. Capex at NET, and for that matter FSLY, is mainly computing hardware. We expect significant capex here. But capex as a % of revenue is yet to show a consistent falling pattern - andonlyif we start to see some yield improvements here, some growth without much capex, can we conclude that scale benefits are beginning to flow. Right now the jury is out, and this is a big deal fundamentally.</li>\n <li>Terrible working capital management. This sounds complicated but isn't. If that \"change in working capital\" line was mainly positive, it would mean that in essence, the company collects money from its customers faster than it pays its suppliers. If mainly negative, it pays suppliers faster than it collects cash from its customers. You can see from the numbers that the latter is true. So here we have a business which, already bleeding money into the capex line, further leaks cash into working capital. This again is a big deal fundamentally. Best case, it says the business lacks the management discipline to tell suppliers to wait whilst it chases up customers. Worst case, it means the business is merely a commodity provider of services which can easily be found elsewhere, and they don't chase their customers lest they churn. Now we don'tthinkthat latter point is true; we think NET has a differentiated and sticky set of services - and if that's right, it means management just needs to get religion on cash management. They don't have it today.</li>\n</ul>\nAs we shall see in a moment, Cloudflare's stock price flatters its fundamentals. It's not as good a business as its stock trajectory implies.\nFSLY Financials\nFastly, an early huge winner in the immediate response to the Covid crisis, now looks all beaten up if you look at its stock price, to which we shall turn in a moment. But if NET is not as good a business as its stock price implies, FSLY is not as bad a business asitsstock price implies. As investors, we must respect price before all else, everything else is just an input. But fundamentals do sometimes matter - very often you can see value building in the fundamentals that isn't reflected in the stock price, or indeed value waning that is yet to be reflected. Which means that sometimes, just sometimes, you can get ahead of the price game by reading the numbers. (If you read our Cloudflare notes linked above, you can see us making just that argument - hidden value - which did then come to fruition in the stock price).\nLet's take a look at Fastly's numbers.\n<img src=\"https://static.tigerbbs.com/c3aa249a8140f7dea48136c586415d87\" tg-width=\"640\" tg-height=\"621\" width=\"100%\" height=\"auto\">Source: Company SEC filings,YCharts.com, Cestrian Analysis\nOK, another lot of numbers. Less numbers though, because the company doesn't disclose its remaining performance obligation in its SEC reports. This is likely because there isn't much of it - they make much of the fact that billing (and by implication contracting) is usage-based and in arrears, so we wouldn't expect a great deal of revenue visibility here.\nTurning to the reported revenue - the deceleration is material, as you can see, and coupled with the lack of visibility, this is what we think is hurting the stock right now. Today's market is positively growth-addled and if your growth is coming down, well, your stock is going to get a beating. That said, it looks to us like folks' expectations just got all ahead of themselves. Look at the TTM revenue line - remember, this is a slow-burn indicator, gives you a smoothed-out look at how things are going. TTM revenue growth peaked at 47% in Q3 2020, and in Q1 2021, it stood at 44%, which isn't really very different if you zoom out far enough. It's just that early Covid Q2 2020 +62% vs Q2 2019 growth rate that got everybody overexcited.\nSkipping around a little here, the valuation stands at 16.5x TTM revenue in exchange for 44% TTM revenue growth. That is positive cheap by current standards.\n<img src=\"https://static.tigerbbs.com/5469d429652493191eb4cdcf2efee55e\" tg-width=\"238\" tg-height=\"247\" width=\"100%\" height=\"auto\">Cloudflare is asking you to pay 76x TTM revenue in exchange for 51% TTM revenue growth.\n<img src=\"https://static.tigerbbs.com/d1e47eab4ff42f7649937ad13cab0413\" tg-width=\"235\" tg-height=\"250\" width=\"100%\" height=\"auto\">Now don't get us wrong. Cloudflare is a better business. And we like how their management team rolls, all humblebrag-aw-shucks-what-me? whilst quietly stating that their aim is to be the dominant development environment and runtime forInternet 3.0(we paraphrase a little, but yes, that is what their grand plan is, and it might work). But it's notthatmuch better a business.\nBack to FSLY numbers. Remember how NET eats capex and leaks money into working capital? Well, same at FSLY.\nFirst, let's compare their capital expenditures using that slow-burn TTM method.\n<img src=\"https://static.tigerbbs.com/e8e760e2b8fb4ed434bfb9dec30b547b\" tg-width=\"640\" tg-height=\"89\" width=\"100%\" height=\"auto\"><img src=\"https://static.tigerbbs.com/04bb88b1b8d8d2722a84dfc263eefaec\" tg-width=\"640\" tg-height=\"91\" width=\"100%\" height=\"auto\">The company has TTM capex standing at 12% of TTM revenue, and is chalking up revenue growth of +44% on a TTM basis. Cloudflare, Inc is spending 18% of TTM revenue on its capex, again on a TTM basis; in exchange for +51% TTM revenue growth. So as a snapshot, FSLY is actually more efficient with its capex. The counter to that is, NET is building a big book of long-term business - as evidenced by its chunky RPO number - and that's what the additional capex is for. This is an interesting-if-true point to make. As in, it might be true and if so, it's a good use of their checkbook. But it has yet to translate into sufficient additional revenue growth vs. the competition to truly justify the expenditure on fundamental grounds.\nNext, margins. FSLY's gross margins are terrible, in the mid-50s%. It resembles Twilio (TWLO) in this regard, a big pay-away to telcos before you even get started. It's the biggest determinant of weak TTM EBITDA margins - which stand at negative 11% vs positive 3% at NET. And whilst those EBITDA margins at NET have been moving up, at FSLY, they have been moving down.\nTurning to cash flow - we've talked about capex already, now let's look at that boring-but-important point, change in working capital. (Remember this is simple. To do this well, pretty much all you have to do is collect cash from customers faster than you pay it to suppliers). If working capital management is bad at NET, and it is, then it is terrible at FSLY. TTM unlevered pre-tax free cash flow margins of negative 33%. This thing just eats money. And again, it has just $166m of net cash on hand vs. a TTM pre-tax pre-debt service cash burn of $104m as of the end of Q1. That means the company is very likely to raise money, via equity or debt placement. And off the back of a weak stock price that's likely to cause more pain in the stock.\nOK. You get the picture. NET is growing a little bit faster and spending more capex to do it; but its gross margins are much better so it has more money to burn in the first place. It appears to be building a big book of forward business in a way that FSLY is not, but right now, that is jam tomorrow, not revenue or earnings today. NET needs to raise capital soon in our view, and FSLY needs to raise capital sooner. So, on fundamentals, NET is a better pick, no question. But the valuation, yikes!\nNET and FSLY Stock Prices\nSince the Cloudflare IPO in 2019, NET has way outperformed FSLY and indeed the Nasdaq (shown here by way of the proxy ETF, Invesco QQQ Trust (QQQ).\n<img src=\"https://static.tigerbbs.com/89d1f9e65c0e2e7398b5ec7b053631ec\" tg-width=\"640\" tg-height=\"378\" width=\"100%\" height=\"auto\">As we state above, that NET has outperformed FSLY is justified to us on fundamentals. It's a better business with higher growth and more visibility of future growth. But right now, as earnings approaches for each of the stocks (FSLY reports on August 4th, NET on August 5th), which is the better bet for long-term investors? In short ...\nIs Cloudflare or Fastly Stock The Better Buy?\nThis isn't such a simple answer in our view. Allow us to ramble somewhat, and bear in mind, all we are talking about here is our own plans for our own money. You must, of course, do your own work and factor in your own risk appetite, time horizon, etc. But here's our approach.\nCloudflare Stock\nAs delighted as we are with the run-up in our NET holdings, and as much as we do in fact think that NET can deliver on some of those Internet 3.0 promises, the price is punchy indeed. So we rate NET at Neutral, meaning we ourselves aren't buying the stock at this point. We have a nice paper gain in long-term accounts and we've cashed a series of gains in short-term accounts along the way. But neither are we selling, because as extended as that stock price is, we think that the stock can move higher, maybe much higher, over the coming years. We think that 5-10 years out, $120/share for NET has every chance of looking like peanuts. We have about the right level of allocation now in those long-term accounts and so we are doing nothing there. If Q2 earnings are anything other than blowout, there is every chance the stock takes a dive and, if it does, we expect to play short-term once again, over and above our long-term holdings. (We keep totally separate accounts for long- and short-term holdings so we never get confused about what game we are playing).\nFastly Stock\nAs much as everybody gottoo excited about FSLY last year, so, we think, has everybody gotten too miserable this year. We have a modest allocation to FSLY in long-term accounts because ultimately we don't think the company will form part of the fabric of Internet 3.0, at least not as an independent. We don't see sufficient force of management personality, sufficiently broad product vision, nor the surround sound of Twitterati talking the thing up. Wedothink thepersistent rumors of FSLY being acquiredhave every chance of playing out and so at any given moment, we see a 20-30% or better premium available should Cisco (CSCO) or another strategic come calling. So, again, long-term holdings, we're doing nothing. We're tempted to add a little right now but with earnings so close, why take the risk? Once again our approach here is to wait for earnings. We are likely to trade it short term on any unjustified stock cratering - and indeed if the fundamentals are improving, as we have a funny feeling they will - look at the below-the-radar improvements in deferred revenue above in the last two quarters for instance - we may well add to our long-term positions at that point. For now, doing nothing before earnings, so, again, Neutral. In each case, a one-word rating doesn't really convey our plans here which is why we lay them out in such wordy detail - now you can shoot them down in flames when doing your own work!","source":"seekingalpha","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 Vs. Fastly Stock: Which Is The Better Buy?</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 Vs. Fastly Stock: Which Is The Better Buy?\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-08-05 22:25 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.\nFastly is a less good business with, in our view, less potential. ...\n\n<a href=\"https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy\">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.","FSLY":"Fastly, Inc."},"source_url":"https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1197602353","content_text":"Summary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.\nFastly is a less good business with, in our view, less potential. Its stock price has cratered of late, as growth has slowed and cash flow worsened.\nBoth stocks are shortly to report their Q2 earnings. We think earnings reaction risk is to the downside on Cloudflare, to the upside on Fastly.\nUltimately, we believe Cloudflare offers more upside for long-term investors, but we own both names in staff personal accounts and intend to add to both on any post-earnings weakness.\nWe would also flag that both companies look to us like they may raise capital soon - if, in the form of new equity, that can hit both stocks.\n\nPing Times May Be Similar But Time To Live Likely Differs\nSince consumer traffic started in earnest to course through the public Internet in the 1990s, content acceleration became important. The initial leader of this market, Akamai (AKAM), grew up in the dot-com era and remains a very solid business today. AKAM's original business model was simple and remains the foundation for content delivery network plays today; buy servers, rent space in telecom companies' datacenters, rent capacity on telecom networks, bill content owners for accelerated delivery of said content. As you can see, the business model is likely to be less cash generative than the now-commonplace cloud application software player, because, one, your gross margin gets hit with the telco pay-aways, and, two, your capex bill is heavy as you have to keep buying server kit. So scaling such a business - meaning, achieve a rate of growth in cash flow faster than the rate of growth in revenue - isn't so easy.\nThe two hot names in content acceleration today are Cloudflare (NET) and Fastly (FSLY). We've covered both of them on multiple occasions here on Seeking Alpha - you can read our past notes on Cloudflare, Inchereand our prior work on Fastlyhere. In addition, we own both stocks in staff personal accounts. We have a much greater allocation to NET than we do to FSLY (in a ratio of approximately 2:1). We have enjoyed an easy ride up on NET with even some poorly-timed averaging-up buys being forgiven by the Trading Gods, whereas we have been battling FSLY to average down our in-costs in the expectation of future gain and our valor has yet to be rewarded. In staff long-term accounts, we presently show a big paper gain on NET and a modest paper loss on FSLY. Along the way, we have also enjoyed separate short-term account gains in NET by buying dips and selling peaks to realize rapid cash gains. (We cover both stocks and our own trades blow by blow in our real-time, real-money Seeking Alpha Marketplace service,Cestrian Fundamentals).\nWhilst Cloudflare and Fastly core services have plenty of overlap, their business models and management styles are very different and this informs our approach to owning the names and our expectations going forward. Allow us to walk you through our views here.\nHow Is Cloudflare Different From Fastly?\nWell, first let's take a look at the similarities. Both offer content acceleration services to content owners, and both offer you something called edge computing, which is in essence the ability to place not just your content (movies, audio, etc.) on a machine near the user (as in, physically and logically near the user on the network - not in a data center thousands of miles away) but also an entire web application or parts thereof. To our investor eye, Cloudflare appears to have more product ambition; taking advantage of its edge network positioning, the company has launched a number of security services, for instance - the goal being to act as a single Internet on-ramp for its customers, a kind of Zscaler (ZS) embedded in the suite offer. If you want to deep-dive into product by product comparison on these two names - and if you do, take a tin hat, for opinions run high - take a look at a couple of engineers-turned-stock-people who cover both stocks in their work.\nNow, putting aside for the moment our own investor view that NET has a superior span of product and indeed more extensive product ambition - let's turn to the numbers.\nSource: Company SEC filings, YCharts.com, Cestrian Analysis\nLot of numbers there. Here are the highlights and lowlights as we see them.\nThe good:\n\nRevenue growth holding steady in the 50% range, gross margin holding steady in the 77% range.\nRemaining performance obligation (RPO) growth of 88% vs. prior year in Q1 2021. RPO is the total order book value, some of which is prepaid, most of which is not. RPO represents just over 90% of TTM recognized revenue so it is material vs. the recognized base, and it is growing faster than the recognized base. So, best guess, NET revenues can accelerate still further.\nAccounting profit in the guise of EBITDA (which we define as operating income, add back depreciation & amortization, add back stock-based compensation) has gone from very negative in 2019 to modestly positive in 2021 - we look at the TTM measure which is slow to respond up or down, it gives you a smoothed-out view of the direction of travel.\n\nThe bad:\n\nActual money-profit in the guise of unlevered pre-tax free cash flow, has gone from horribly negative in 2019 to, er, only very negative in 2021, which in and of itself is good, but, did we mention, cash flow was very negative on a TTM basis to the end of the March 2021 quarter. This is the whole nag with this business model - can they actually become cash flow positive, after capex, after change in working capital? Akamai is, but then it has nothing like the growth ambitions of these names.\nOnly $643m of net cash in the bank at the 31 March point. Given the cash burn, we would not be at all surprised to see the company raise money via an equity or debt placement and, if equity, we would expect a material hit to the stock price on a short-term basis at least. (We are watching closely for this and hope to buy any major dip that comes along).\n\nThe visually challenged:\n\nHuge capital expenditure (\"capex\") bill. Capex as you know is simply money that you spend on stuff that makes a noise when you drop it. Capex at NET, and for that matter FSLY, is mainly computing hardware. We expect significant capex here. But capex as a % of revenue is yet to show a consistent falling pattern - andonlyif we start to see some yield improvements here, some growth without much capex, can we conclude that scale benefits are beginning to flow. Right now the jury is out, and this is a big deal fundamentally.\nTerrible working capital management. This sounds complicated but isn't. If that \"change in working capital\" line was mainly positive, it would mean that in essence, the company collects money from its customers faster than it pays its suppliers. If mainly negative, it pays suppliers faster than it collects cash from its customers. You can see from the numbers that the latter is true. So here we have a business which, already bleeding money into the capex line, further leaks cash into working capital. This again is a big deal fundamentally. Best case, it says the business lacks the management discipline to tell suppliers to wait whilst it chases up customers. Worst case, it means the business is merely a commodity provider of services which can easily be found elsewhere, and they don't chase their customers lest they churn. Now we don'tthinkthat latter point is true; we think NET has a differentiated and sticky set of services - and if that's right, it means management just needs to get religion on cash management. They don't have it today.\n\nAs we shall see in a moment, Cloudflare's stock price flatters its fundamentals. It's not as good a business as its stock trajectory implies.\nFSLY Financials\nFastly, an early huge winner in the immediate response to the Covid crisis, now looks all beaten up if you look at its stock price, to which we shall turn in a moment. But if NET is not as good a business as its stock price implies, FSLY is not as bad a business asitsstock price implies. As investors, we must respect price before all else, everything else is just an input. But fundamentals do sometimes matter - very often you can see value building in the fundamentals that isn't reflected in the stock price, or indeed value waning that is yet to be reflected. Which means that sometimes, just sometimes, you can get ahead of the price game by reading the numbers. (If you read our Cloudflare notes linked above, you can see us making just that argument - hidden value - which did then come to fruition in the stock price).\nLet's take a look at Fastly's numbers.\nSource: Company SEC filings,YCharts.com, Cestrian Analysis\nOK, another lot of numbers. Less numbers though, because the company doesn't disclose its remaining performance obligation in its SEC reports. This is likely because there isn't much of it - they make much of the fact that billing (and by implication contracting) is usage-based and in arrears, so we wouldn't expect a great deal of revenue visibility here.\nTurning to the reported revenue - the deceleration is material, as you can see, and coupled with the lack of visibility, this is what we think is hurting the stock right now. Today's market is positively growth-addled and if your growth is coming down, well, your stock is going to get a beating. That said, it looks to us like folks' expectations just got all ahead of themselves. Look at the TTM revenue line - remember, this is a slow-burn indicator, gives you a smoothed-out look at how things are going. TTM revenue growth peaked at 47% in Q3 2020, and in Q1 2021, it stood at 44%, which isn't really very different if you zoom out far enough. It's just that early Covid Q2 2020 +62% vs Q2 2019 growth rate that got everybody overexcited.\nSkipping around a little here, the valuation stands at 16.5x TTM revenue in exchange for 44% TTM revenue growth. That is positive cheap by current standards.\nCloudflare is asking you to pay 76x TTM revenue in exchange for 51% TTM revenue growth.\nNow don't get us wrong. Cloudflare is a better business. And we like how their management team rolls, all humblebrag-aw-shucks-what-me? whilst quietly stating that their aim is to be the dominant development environment and runtime forInternet 3.0(we paraphrase a little, but yes, that is what their grand plan is, and it might work). But it's notthatmuch better a business.\nBack to FSLY numbers. Remember how NET eats capex and leaks money into working capital? Well, same at FSLY.\nFirst, let's compare their capital expenditures using that slow-burn TTM method.\nThe company has TTM capex standing at 12% of TTM revenue, and is chalking up revenue growth of +44% on a TTM basis. Cloudflare, Inc is spending 18% of TTM revenue on its capex, again on a TTM basis; in exchange for +51% TTM revenue growth. So as a snapshot, FSLY is actually more efficient with its capex. The counter to that is, NET is building a big book of long-term business - as evidenced by its chunky RPO number - and that's what the additional capex is for. This is an interesting-if-true point to make. As in, it might be true and if so, it's a good use of their checkbook. But it has yet to translate into sufficient additional revenue growth vs. the competition to truly justify the expenditure on fundamental grounds.\nNext, margins. FSLY's gross margins are terrible, in the mid-50s%. It resembles Twilio (TWLO) in this regard, a big pay-away to telcos before you even get started. It's the biggest determinant of weak TTM EBITDA margins - which stand at negative 11% vs positive 3% at NET. And whilst those EBITDA margins at NET have been moving up, at FSLY, they have been moving down.\nTurning to cash flow - we've talked about capex already, now let's look at that boring-but-important point, change in working capital. (Remember this is simple. To do this well, pretty much all you have to do is collect cash from customers faster than you pay it to suppliers). If working capital management is bad at NET, and it is, then it is terrible at FSLY. TTM unlevered pre-tax free cash flow margins of negative 33%. This thing just eats money. And again, it has just $166m of net cash on hand vs. a TTM pre-tax pre-debt service cash burn of $104m as of the end of Q1. That means the company is very likely to raise money, via equity or debt placement. And off the back of a weak stock price that's likely to cause more pain in the stock.\nOK. You get the picture. NET is growing a little bit faster and spending more capex to do it; but its gross margins are much better so it has more money to burn in the first place. It appears to be building a big book of forward business in a way that FSLY is not, but right now, that is jam tomorrow, not revenue or earnings today. NET needs to raise capital soon in our view, and FSLY needs to raise capital sooner. So, on fundamentals, NET is a better pick, no question. But the valuation, yikes!\nNET and FSLY Stock Prices\nSince the Cloudflare IPO in 2019, NET has way outperformed FSLY and indeed the Nasdaq (shown here by way of the proxy ETF, Invesco QQQ Trust (QQQ).\nAs we state above, that NET has outperformed FSLY is justified to us on fundamentals. It's a better business with higher growth and more visibility of future growth. But right now, as earnings approaches for each of the stocks (FSLY reports on August 4th, NET on August 5th), which is the better bet for long-term investors? In short ...\nIs Cloudflare or Fastly Stock The Better Buy?\nThis isn't such a simple answer in our view. Allow us to ramble somewhat, and bear in mind, all we are talking about here is our own plans for our own money. You must, of course, do your own work and factor in your own risk appetite, time horizon, etc. But here's our approach.\nCloudflare Stock\nAs delighted as we are with the run-up in our NET holdings, and as much as we do in fact think that NET can deliver on some of those Internet 3.0 promises, the price is punchy indeed. So we rate NET at Neutral, meaning we ourselves aren't buying the stock at this point. We have a nice paper gain in long-term accounts and we've cashed a series of gains in short-term accounts along the way. But neither are we selling, because as extended as that stock price is, we think that the stock can move higher, maybe much higher, over the coming years. We think that 5-10 years out, $120/share for NET has every chance of looking like peanuts. We have about the right level of allocation now in those long-term accounts and so we are doing nothing there. If Q2 earnings are anything other than blowout, there is every chance the stock takes a dive and, if it does, we expect to play short-term once again, over and above our long-term holdings. (We keep totally separate accounts for long- and short-term holdings so we never get confused about what game we are playing).\nFastly Stock\nAs much as everybody gottoo excited about FSLY last year, so, we think, has everybody gotten too miserable this year. We have a modest allocation to FSLY in long-term accounts because ultimately we don't think the company will form part of the fabric of Internet 3.0, at least not as an independent. We don't see sufficient force of management personality, sufficiently broad product vision, nor the surround sound of Twitterati talking the thing up. Wedothink thepersistent rumors of FSLY being acquiredhave every chance of playing out and so at any given moment, we see a 20-30% or better premium available should Cisco (CSCO) or another strategic come calling. So, again, long-term holdings, we're doing nothing. We're tempted to add a little right now but with earnings so close, why take the risk? Once again our approach here is to wait for earnings. We are likely to trade it short term on any unjustified stock cratering - and indeed if the fundamentals are improving, as we have a funny feeling they will - look at the below-the-radar improvements in deferred revenue above in the last two quarters for instance - we may well add to our long-term positions at that point. For now, doing nothing before earnings, so, again, Neutral. In each case, a one-word rating doesn't really convey our plans here which is why we lay them out in such wordy detail - now you can shoot them down in flames when doing your own work!","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":5439589,"gmtCreate":1628202366607,"gmtModify":1663231985462,"authorId":3580357525252052,"author":{"id":3580357525252052,"authorId":3580357525252052,"name":"oOoHades","avatar":"https://static.tigerbbs.com/d7c71a9367d1c7307b367e622fc6b54c","vip":1,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":899287400,"type":1,"supId":0,"prevId":0,"content":"[Strong]","text":"[Strong]","html":"[Strong]"}],"langContent":"EN"},{"id":899286305,"gmtCreate":1628200610107,"gmtModify":1703502872577,"author":{"id":"3583487187442003","authorId":"3583487187442003","authorIdStr":"3583487187442003","name":"Kalpana","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":1,"crmLevelSwitch":0,"idStr":"3583487187442003"},"htmlText":"?&nbsp;","listText":"?&nbsp;","text":"?","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":5,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/899286305","repostId":1197602353,"repostType":4,"repost":{"id":"1197602353","pubTimestamp":1628173558,"share":"https://ttm.financial/m/news/1197602353?lang=&edition=fundamental","pubTime":"2021-08-05 22:25","market":"us","language":"en","title":"Cloudflare Vs. Fastly Stock: Which Is The Better Buy?","url":"https://stock-news.laohu8.com/highlight/detail?id=1197602353","media":"seekingalpha","summary":"Summary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up rec","content":"Summary\n<ul>\n <li>Cloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.</li>\n <li>Fastly is a less good business with, in our view, less potential. Its stock price has cratered of late, as growth has slowed and cash flow worsened.</li>\n <li>Both stocks are shortly to report their Q2 earnings. We think earnings reaction risk is to the downside on Cloudflare, to the upside on Fastly.</li>\n <li>Ultimately, we believe Cloudflare offers more upside for long-term investors, but we own both names in staff personal accounts and intend to add to both on any post-earnings weakness.</li>\n <li>We would also flag that both companies look to us like they may raise capital soon - if, in the form of new equity, that can hit both stocks.</li>\n</ul>\nPing Times May Be Similar But Time To Live Likely Differs\nSince consumer traffic started in earnest to course through the public Internet in the 1990s, content acceleration became important. The initial leader of this market, Akamai (AKAM), grew up in the dot-com era and remains a very solid business today. AKAM's original business model was simple and remains the foundation for content delivery network plays today; buy servers, rent space in telecom companies' datacenters, rent capacity on telecom networks, bill content owners for accelerated delivery of said content. As you can see, the business model is likely to be less cash generative than the now-commonplace cloud application software player, because, one, your gross margin gets hit with the telco pay-aways, and, two, your capex bill is heavy as you have to keep buying server kit. So scaling such a business - meaning, achieve a rate of growth in cash flow faster than the rate of growth in revenue - isn't so easy.\nThe two hot names in content acceleration today are Cloudflare (NET) and Fastly (FSLY). We've covered both of them on multiple occasions here on Seeking Alpha - you can read our past notes on Cloudflare, Inchereand our prior work on Fastlyhere. In addition, we own both stocks in staff personal accounts. We have a much greater allocation to NET than we do to FSLY (in a ratio of approximately 2:1). We have enjoyed an easy ride up on NET with even some poorly-timed averaging-up buys being forgiven by the Trading Gods, whereas we have been battling FSLY to average down our in-costs in the expectation of future gain and our valor has yet to be rewarded. In staff long-term accounts, we presently show a big paper gain on NET and a modest paper loss on FSLY. Along the way, we have also enjoyed separate short-term account gains in NET by buying dips and selling peaks to realize rapid cash gains. (We cover both stocks and our own trades blow by blow in our real-time, real-money Seeking Alpha Marketplace service,Cestrian Fundamentals).\nWhilst Cloudflare and Fastly core services have plenty of overlap, their business models and management styles are very different and this informs our approach to owning the names and our expectations going forward. Allow us to walk you through our views here.\nHow Is Cloudflare Different From Fastly?\nWell, first let's take a look at the similarities. Both offer content acceleration services to content owners, and both offer you something called edge computing, which is in essence the ability to place not just your content (movies, audio, etc.) on a machine near the user (as in, physically and logically near the user on the network - not in a data center thousands of miles away) but also an entire web application or parts thereof. To our investor eye, Cloudflare appears to have more product ambition; taking advantage of its edge network positioning, the company has launched a number of security services, for instance - the goal being to act as a single Internet on-ramp for its customers, a kind of Zscaler (ZS) embedded in the suite offer. If you want to deep-dive into product by product comparison on these two names - and if you do, take a tin hat, for opinions run high - take a look at a couple of engineers-turned-stock-people who cover both stocks in their work.\nNow, putting aside for the moment our own investor view that NET has a superior span of product and indeed more extensive product ambition - let's turn to the numbers.\n<img src=\"https://static.tigerbbs.com/4b54705844ce46a8f48f7d986cd113f4\" tg-width=\"640\" tg-height=\"587\" width=\"100%\" height=\"auto\"><img src=\"https://static.tigerbbs.com/ea25982971170997ab631a0e0e0af99f\" tg-width=\"640\" tg-height=\"220\" width=\"100%\" height=\"auto\">Source: Company SEC filings, YCharts.com, Cestrian Analysis\nLot of numbers there. Here are the highlights and lowlights as we see them.\nThe good:\n<ul>\n <li>Revenue growth holding steady in the 50% range, gross margin holding steady in the 77% range.</li>\n <li>Remaining performance obligation (RPO) growth of 88% vs. prior year in Q1 2021. RPO is the total order book value, some of which is prepaid, most of which is not. RPO represents just over 90% of TTM recognized revenue so it is material vs. the recognized base, and it is growing faster than the recognized base. So, best guess, NET revenues can accelerate still further.</li>\n <li>Accounting profit in the guise of EBITDA (which we define as operating income, add back depreciation &amp; amortization, add back stock-based compensation) has gone from very negative in 2019 to modestly positive in 2021 - we look at the TTM measure which is slow to respond up or down, it gives you a smoothed-out view of the direction of travel.</li>\n</ul>\nThe bad:\n<ul>\n <li>Actual money-profit in the guise of unlevered pre-tax free cash flow, has gone from horribly negative in 2019 to, er, only very negative in 2021, which in and of itself is good, but, did we mention, cash flow was very negative on a TTM basis to the end of the March 2021 quarter. This is the whole nag with this business model - can they actually become cash flow positive, after capex, after change in working capital? Akamai is, but then it has nothing like the growth ambitions of these names.</li>\n <li>Only $643m of net cash in the bank at the 31 March point. Given the cash burn, we would not be at all surprised to see the company raise money via an equity or debt placement and, if equity, we would expect a material hit to the stock price on a short-term basis at least. (We are watching closely for this and hope to buy any major dip that comes along).</li>\n</ul>\nThe visually challenged:\n<ul>\n <li>Huge capital expenditure (\"capex\") bill. Capex as you know is simply money that you spend on stuff that makes a noise when you drop it. Capex at NET, and for that matter FSLY, is mainly computing hardware. We expect significant capex here. But capex as a % of revenue is yet to show a consistent falling pattern - andonlyif we start to see some yield improvements here, some growth without much capex, can we conclude that scale benefits are beginning to flow. Right now the jury is out, and this is a big deal fundamentally.</li>\n <li>Terrible working capital management. This sounds complicated but isn't. If that \"change in working capital\" line was mainly positive, it would mean that in essence, the company collects money from its customers faster than it pays its suppliers. If mainly negative, it pays suppliers faster than it collects cash from its customers. You can see from the numbers that the latter is true. So here we have a business which, already bleeding money into the capex line, further leaks cash into working capital. This again is a big deal fundamentally. Best case, it says the business lacks the management discipline to tell suppliers to wait whilst it chases up customers. Worst case, it means the business is merely a commodity provider of services which can easily be found elsewhere, and they don't chase their customers lest they churn. Now we don'tthinkthat latter point is true; we think NET has a differentiated and sticky set of services - and if that's right, it means management just needs to get religion on cash management. They don't have it today.</li>\n</ul>\nAs we shall see in a moment, Cloudflare's stock price flatters its fundamentals. It's not as good a business as its stock trajectory implies.\nFSLY Financials\nFastly, an early huge winner in the immediate response to the Covid crisis, now looks all beaten up if you look at its stock price, to which we shall turn in a moment. But if NET is not as good a business as its stock price implies, FSLY is not as bad a business asitsstock price implies. As investors, we must respect price before all else, everything else is just an input. But fundamentals do sometimes matter - very often you can see value building in the fundamentals that isn't reflected in the stock price, or indeed value waning that is yet to be reflected. Which means that sometimes, just sometimes, you can get ahead of the price game by reading the numbers. (If you read our Cloudflare notes linked above, you can see us making just that argument - hidden value - which did then come to fruition in the stock price).\nLet's take a look at Fastly's numbers.\n<img src=\"https://static.tigerbbs.com/c3aa249a8140f7dea48136c586415d87\" tg-width=\"640\" tg-height=\"621\" width=\"100%\" height=\"auto\">Source: Company SEC filings,YCharts.com, Cestrian Analysis\nOK, another lot of numbers. Less numbers though, because the company doesn't disclose its remaining performance obligation in its SEC reports. This is likely because there isn't much of it - they make much of the fact that billing (and by implication contracting) is usage-based and in arrears, so we wouldn't expect a great deal of revenue visibility here.\nTurning to the reported revenue - the deceleration is material, as you can see, and coupled with the lack of visibility, this is what we think is hurting the stock right now. Today's market is positively growth-addled and if your growth is coming down, well, your stock is going to get a beating. That said, it looks to us like folks' expectations just got all ahead of themselves. Look at the TTM revenue line - remember, this is a slow-burn indicator, gives you a smoothed-out look at how things are going. TTM revenue growth peaked at 47% in Q3 2020, and in Q1 2021, it stood at 44%, which isn't really very different if you zoom out far enough. It's just that early Covid Q2 2020 +62% vs Q2 2019 growth rate that got everybody overexcited.\nSkipping around a little here, the valuation stands at 16.5x TTM revenue in exchange for 44% TTM revenue growth. That is positive cheap by current standards.\n<img src=\"https://static.tigerbbs.com/5469d429652493191eb4cdcf2efee55e\" tg-width=\"238\" tg-height=\"247\" width=\"100%\" height=\"auto\">Cloudflare is asking you to pay 76x TTM revenue in exchange for 51% TTM revenue growth.\n<img src=\"https://static.tigerbbs.com/d1e47eab4ff42f7649937ad13cab0413\" tg-width=\"235\" tg-height=\"250\" width=\"100%\" height=\"auto\">Now don't get us wrong. Cloudflare is a better business. And we like how their management team rolls, all humblebrag-aw-shucks-what-me? whilst quietly stating that their aim is to be the dominant development environment and runtime forInternet 3.0(we paraphrase a little, but yes, that is what their grand plan is, and it might work). But it's notthatmuch better a business.\nBack to FSLY numbers. Remember how NET eats capex and leaks money into working capital? Well, same at FSLY.\nFirst, let's compare their capital expenditures using that slow-burn TTM method.\n<img src=\"https://static.tigerbbs.com/e8e760e2b8fb4ed434bfb9dec30b547b\" tg-width=\"640\" tg-height=\"89\" width=\"100%\" height=\"auto\"><img src=\"https://static.tigerbbs.com/04bb88b1b8d8d2722a84dfc263eefaec\" tg-width=\"640\" tg-height=\"91\" width=\"100%\" height=\"auto\">The company has TTM capex standing at 12% of TTM revenue, and is chalking up revenue growth of +44% on a TTM basis. Cloudflare, Inc is spending 18% of TTM revenue on its capex, again on a TTM basis; in exchange for +51% TTM revenue growth. So as a snapshot, FSLY is actually more efficient with its capex. The counter to that is, NET is building a big book of long-term business - as evidenced by its chunky RPO number - and that's what the additional capex is for. This is an interesting-if-true point to make. As in, it might be true and if so, it's a good use of their checkbook. But it has yet to translate into sufficient additional revenue growth vs. the competition to truly justify the expenditure on fundamental grounds.\nNext, margins. FSLY's gross margins are terrible, in the mid-50s%. It resembles Twilio (TWLO) in this regard, a big pay-away to telcos before you even get started. It's the biggest determinant of weak TTM EBITDA margins - which stand at negative 11% vs positive 3% at NET. And whilst those EBITDA margins at NET have been moving up, at FSLY, they have been moving down.\nTurning to cash flow - we've talked about capex already, now let's look at that boring-but-important point, change in working capital. (Remember this is simple. To do this well, pretty much all you have to do is collect cash from customers faster than you pay it to suppliers). If working capital management is bad at NET, and it is, then it is terrible at FSLY. TTM unlevered pre-tax free cash flow margins of negative 33%. This thing just eats money. And again, it has just $166m of net cash on hand vs. a TTM pre-tax pre-debt service cash burn of $104m as of the end of Q1. That means the company is very likely to raise money, via equity or debt placement. And off the back of a weak stock price that's likely to cause more pain in the stock.\nOK. You get the picture. NET is growing a little bit faster and spending more capex to do it; but its gross margins are much better so it has more money to burn in the first place. It appears to be building a big book of forward business in a way that FSLY is not, but right now, that is jam tomorrow, not revenue or earnings today. NET needs to raise capital soon in our view, and FSLY needs to raise capital sooner. So, on fundamentals, NET is a better pick, no question. But the valuation, yikes!\nNET and FSLY Stock Prices\nSince the Cloudflare IPO in 2019, NET has way outperformed FSLY and indeed the Nasdaq (shown here by way of the proxy ETF, Invesco QQQ Trust (QQQ).\n<img src=\"https://static.tigerbbs.com/89d1f9e65c0e2e7398b5ec7b053631ec\" tg-width=\"640\" tg-height=\"378\" width=\"100%\" height=\"auto\">As we state above, that NET has outperformed FSLY is justified to us on fundamentals. It's a better business with higher growth and more visibility of future growth. But right now, as earnings approaches for each of the stocks (FSLY reports on August 4th, NET on August 5th), which is the better bet for long-term investors? In short ...\nIs Cloudflare or Fastly Stock The Better Buy?\nThis isn't such a simple answer in our view. Allow us to ramble somewhat, and bear in mind, all we are talking about here is our own plans for our own money. You must, of course, do your own work and factor in your own risk appetite, time horizon, etc. But here's our approach.\nCloudflare Stock\nAs delighted as we are with the run-up in our NET holdings, and as much as we do in fact think that NET can deliver on some of those Internet 3.0 promises, the price is punchy indeed. So we rate NET at Neutral, meaning we ourselves aren't buying the stock at this point. We have a nice paper gain in long-term accounts and we've cashed a series of gains in short-term accounts along the way. But neither are we selling, because as extended as that stock price is, we think that the stock can move higher, maybe much higher, over the coming years. We think that 5-10 years out, $120/share for NET has every chance of looking like peanuts. We have about the right level of allocation now in those long-term accounts and so we are doing nothing there. If Q2 earnings are anything other than blowout, there is every chance the stock takes a dive and, if it does, we expect to play short-term once again, over and above our long-term holdings. (We keep totally separate accounts for long- and short-term holdings so we never get confused about what game we are playing).\nFastly Stock\nAs much as everybody gottoo excited about FSLY last year, so, we think, has everybody gotten too miserable this year. We have a modest allocation to FSLY in long-term accounts because ultimately we don't think the company will form part of the fabric of Internet 3.0, at least not as an independent. We don't see sufficient force of management personality, sufficiently broad product vision, nor the surround sound of Twitterati talking the thing up. Wedothink thepersistent rumors of FSLY being acquiredhave every chance of playing out and so at any given moment, we see a 20-30% or better premium available should Cisco (CSCO) or another strategic come calling. So, again, long-term holdings, we're doing nothing. We're tempted to add a little right now but with earnings so close, why take the risk? Once again our approach here is to wait for earnings. We are likely to trade it short term on any unjustified stock cratering - and indeed if the fundamentals are improving, as we have a funny feeling they will - look at the below-the-radar improvements in deferred revenue above in the last two quarters for instance - we may well add to our long-term positions at that point. For now, doing nothing before earnings, so, again, Neutral. In each case, a one-word rating doesn't really convey our plans here which is why we lay them out in such wordy detail - now you can shoot them down in flames when doing your own work!","source":"seekingalpha","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 Vs. Fastly Stock: Which Is The Better Buy?</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 Vs. Fastly Stock: Which Is The Better Buy?\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-08-05 22:25 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.\nFastly is a less good business with, in our view, less potential. ...\n\n<a href=\"https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy\">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.","FSLY":"Fastly, Inc."},"source_url":"https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1197602353","content_text":"Summary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.\nFastly is a less good business with, in our view, less potential. Its stock price has cratered of late, as growth has slowed and cash flow worsened.\nBoth stocks are shortly to report their Q2 earnings. We think earnings reaction risk is to the downside on Cloudflare, to the upside on Fastly.\nUltimately, we believe Cloudflare offers more upside for long-term investors, but we own both names in staff personal accounts and intend to add to both on any post-earnings weakness.\nWe would also flag that both companies look to us like they may raise capital soon - if, in the form of new equity, that can hit both stocks.\n\nPing Times May Be Similar But Time To Live Likely Differs\nSince consumer traffic started in earnest to course through the public Internet in the 1990s, content acceleration became important. The initial leader of this market, Akamai (AKAM), grew up in the dot-com era and remains a very solid business today. AKAM's original business model was simple and remains the foundation for content delivery network plays today; buy servers, rent space in telecom companies' datacenters, rent capacity on telecom networks, bill content owners for accelerated delivery of said content. As you can see, the business model is likely to be less cash generative than the now-commonplace cloud application software player, because, one, your gross margin gets hit with the telco pay-aways, and, two, your capex bill is heavy as you have to keep buying server kit. So scaling such a business - meaning, achieve a rate of growth in cash flow faster than the rate of growth in revenue - isn't so easy.\nThe two hot names in content acceleration today are Cloudflare (NET) and Fastly (FSLY). We've covered both of them on multiple occasions here on Seeking Alpha - you can read our past notes on Cloudflare, Inchereand our prior work on Fastlyhere. In addition, we own both stocks in staff personal accounts. We have a much greater allocation to NET than we do to FSLY (in a ratio of approximately 2:1). We have enjoyed an easy ride up on NET with even some poorly-timed averaging-up buys being forgiven by the Trading Gods, whereas we have been battling FSLY to average down our in-costs in the expectation of future gain and our valor has yet to be rewarded. In staff long-term accounts, we presently show a big paper gain on NET and a modest paper loss on FSLY. Along the way, we have also enjoyed separate short-term account gains in NET by buying dips and selling peaks to realize rapid cash gains. (We cover both stocks and our own trades blow by blow in our real-time, real-money Seeking Alpha Marketplace service,Cestrian Fundamentals).\nWhilst Cloudflare and Fastly core services have plenty of overlap, their business models and management styles are very different and this informs our approach to owning the names and our expectations going forward. Allow us to walk you through our views here.\nHow Is Cloudflare Different From Fastly?\nWell, first let's take a look at the similarities. Both offer content acceleration services to content owners, and both offer you something called edge computing, which is in essence the ability to place not just your content (movies, audio, etc.) on a machine near the user (as in, physically and logically near the user on the network - not in a data center thousands of miles away) but also an entire web application or parts thereof. To our investor eye, Cloudflare appears to have more product ambition; taking advantage of its edge network positioning, the company has launched a number of security services, for instance - the goal being to act as a single Internet on-ramp for its customers, a kind of Zscaler (ZS) embedded in the suite offer. If you want to deep-dive into product by product comparison on these two names - and if you do, take a tin hat, for opinions run high - take a look at a couple of engineers-turned-stock-people who cover both stocks in their work.\nNow, putting aside for the moment our own investor view that NET has a superior span of product and indeed more extensive product ambition - let's turn to the numbers.\nSource: Company SEC filings, YCharts.com, Cestrian Analysis\nLot of numbers there. Here are the highlights and lowlights as we see them.\nThe good:\n\nRevenue growth holding steady in the 50% range, gross margin holding steady in the 77% range.\nRemaining performance obligation (RPO) growth of 88% vs. prior year in Q1 2021. RPO is the total order book value, some of which is prepaid, most of which is not. RPO represents just over 90% of TTM recognized revenue so it is material vs. the recognized base, and it is growing faster than the recognized base. So, best guess, NET revenues can accelerate still further.\nAccounting profit in the guise of EBITDA (which we define as operating income, add back depreciation & amortization, add back stock-based compensation) has gone from very negative in 2019 to modestly positive in 2021 - we look at the TTM measure which is slow to respond up or down, it gives you a smoothed-out view of the direction of travel.\n\nThe bad:\n\nActual money-profit in the guise of unlevered pre-tax free cash flow, has gone from horribly negative in 2019 to, er, only very negative in 2021, which in and of itself is good, but, did we mention, cash flow was very negative on a TTM basis to the end of the March 2021 quarter. This is the whole nag with this business model - can they actually become cash flow positive, after capex, after change in working capital? Akamai is, but then it has nothing like the growth ambitions of these names.\nOnly $643m of net cash in the bank at the 31 March point. Given the cash burn, we would not be at all surprised to see the company raise money via an equity or debt placement and, if equity, we would expect a material hit to the stock price on a short-term basis at least. (We are watching closely for this and hope to buy any major dip that comes along).\n\nThe visually challenged:\n\nHuge capital expenditure (\"capex\") bill. Capex as you know is simply money that you spend on stuff that makes a noise when you drop it. Capex at NET, and for that matter FSLY, is mainly computing hardware. We expect significant capex here. But capex as a % of revenue is yet to show a consistent falling pattern - andonlyif we start to see some yield improvements here, some growth without much capex, can we conclude that scale benefits are beginning to flow. Right now the jury is out, and this is a big deal fundamentally.\nTerrible working capital management. This sounds complicated but isn't. If that \"change in working capital\" line was mainly positive, it would mean that in essence, the company collects money from its customers faster than it pays its suppliers. If mainly negative, it pays suppliers faster than it collects cash from its customers. You can see from the numbers that the latter is true. So here we have a business which, already bleeding money into the capex line, further leaks cash into working capital. This again is a big deal fundamentally. Best case, it says the business lacks the management discipline to tell suppliers to wait whilst it chases up customers. Worst case, it means the business is merely a commodity provider of services which can easily be found elsewhere, and they don't chase their customers lest they churn. Now we don'tthinkthat latter point is true; we think NET has a differentiated and sticky set of services - and if that's right, it means management just needs to get religion on cash management. They don't have it today.\n\nAs we shall see in a moment, Cloudflare's stock price flatters its fundamentals. It's not as good a business as its stock trajectory implies.\nFSLY Financials\nFastly, an early huge winner in the immediate response to the Covid crisis, now looks all beaten up if you look at its stock price, to which we shall turn in a moment. But if NET is not as good a business as its stock price implies, FSLY is not as bad a business asitsstock price implies. As investors, we must respect price before all else, everything else is just an input. But fundamentals do sometimes matter - very often you can see value building in the fundamentals that isn't reflected in the stock price, or indeed value waning that is yet to be reflected. Which means that sometimes, just sometimes, you can get ahead of the price game by reading the numbers. (If you read our Cloudflare notes linked above, you can see us making just that argument - hidden value - which did then come to fruition in the stock price).\nLet's take a look at Fastly's numbers.\nSource: Company SEC filings,YCharts.com, Cestrian Analysis\nOK, another lot of numbers. Less numbers though, because the company doesn't disclose its remaining performance obligation in its SEC reports. This is likely because there isn't much of it - they make much of the fact that billing (and by implication contracting) is usage-based and in arrears, so we wouldn't expect a great deal of revenue visibility here.\nTurning to the reported revenue - the deceleration is material, as you can see, and coupled with the lack of visibility, this is what we think is hurting the stock right now. Today's market is positively growth-addled and if your growth is coming down, well, your stock is going to get a beating. That said, it looks to us like folks' expectations just got all ahead of themselves. Look at the TTM revenue line - remember, this is a slow-burn indicator, gives you a smoothed-out look at how things are going. TTM revenue growth peaked at 47% in Q3 2020, and in Q1 2021, it stood at 44%, which isn't really very different if you zoom out far enough. It's just that early Covid Q2 2020 +62% vs Q2 2019 growth rate that got everybody overexcited.\nSkipping around a little here, the valuation stands at 16.5x TTM revenue in exchange for 44% TTM revenue growth. That is positive cheap by current standards.\nCloudflare is asking you to pay 76x TTM revenue in exchange for 51% TTM revenue growth.\nNow don't get us wrong. Cloudflare is a better business. And we like how their management team rolls, all humblebrag-aw-shucks-what-me? whilst quietly stating that their aim is to be the dominant development environment and runtime forInternet 3.0(we paraphrase a little, but yes, that is what their grand plan is, and it might work). But it's notthatmuch better a business.\nBack to FSLY numbers. Remember how NET eats capex and leaks money into working capital? Well, same at FSLY.\nFirst, let's compare their capital expenditures using that slow-burn TTM method.\nThe company has TTM capex standing at 12% of TTM revenue, and is chalking up revenue growth of +44% on a TTM basis. Cloudflare, Inc is spending 18% of TTM revenue on its capex, again on a TTM basis; in exchange for +51% TTM revenue growth. So as a snapshot, FSLY is actually more efficient with its capex. The counter to that is, NET is building a big book of long-term business - as evidenced by its chunky RPO number - and that's what the additional capex is for. This is an interesting-if-true point to make. As in, it might be true and if so, it's a good use of their checkbook. But it has yet to translate into sufficient additional revenue growth vs. the competition to truly justify the expenditure on fundamental grounds.\nNext, margins. FSLY's gross margins are terrible, in the mid-50s%. It resembles Twilio (TWLO) in this regard, a big pay-away to telcos before you even get started. It's the biggest determinant of weak TTM EBITDA margins - which stand at negative 11% vs positive 3% at NET. And whilst those EBITDA margins at NET have been moving up, at FSLY, they have been moving down.\nTurning to cash flow - we've talked about capex already, now let's look at that boring-but-important point, change in working capital. (Remember this is simple. To do this well, pretty much all you have to do is collect cash from customers faster than you pay it to suppliers). If working capital management is bad at NET, and it is, then it is terrible at FSLY. TTM unlevered pre-tax free cash flow margins of negative 33%. This thing just eats money. And again, it has just $166m of net cash on hand vs. a TTM pre-tax pre-debt service cash burn of $104m as of the end of Q1. That means the company is very likely to raise money, via equity or debt placement. And off the back of a weak stock price that's likely to cause more pain in the stock.\nOK. You get the picture. NET is growing a little bit faster and spending more capex to do it; but its gross margins are much better so it has more money to burn in the first place. It appears to be building a big book of forward business in a way that FSLY is not, but right now, that is jam tomorrow, not revenue or earnings today. NET needs to raise capital soon in our view, and FSLY needs to raise capital sooner. So, on fundamentals, NET is a better pick, no question. But the valuation, yikes!\nNET and FSLY Stock Prices\nSince the Cloudflare IPO in 2019, NET has way outperformed FSLY and indeed the Nasdaq (shown here by way of the proxy ETF, Invesco QQQ Trust (QQQ).\nAs we state above, that NET has outperformed FSLY is justified to us on fundamentals. It's a better business with higher growth and more visibility of future growth. But right now, as earnings approaches for each of the stocks (FSLY reports on August 4th, NET on August 5th), which is the better bet for long-term investors? In short ...\nIs Cloudflare or Fastly Stock The Better Buy?\nThis isn't such a simple answer in our view. Allow us to ramble somewhat, and bear in mind, all we are talking about here is our own plans for our own money. You must, of course, do your own work and factor in your own risk appetite, time horizon, etc. But here's our approach.\nCloudflare Stock\nAs delighted as we are with the run-up in our NET holdings, and as much as we do in fact think that NET can deliver on some of those Internet 3.0 promises, the price is punchy indeed. So we rate NET at Neutral, meaning we ourselves aren't buying the stock at this point. We have a nice paper gain in long-term accounts and we've cashed a series of gains in short-term accounts along the way. But neither are we selling, because as extended as that stock price is, we think that the stock can move higher, maybe much higher, over the coming years. We think that 5-10 years out, $120/share for NET has every chance of looking like peanuts. We have about the right level of allocation now in those long-term accounts and so we are doing nothing there. If Q2 earnings are anything other than blowout, there is every chance the stock takes a dive and, if it does, we expect to play short-term once again, over and above our long-term holdings. (We keep totally separate accounts for long- and short-term holdings so we never get confused about what game we are playing).\nFastly Stock\nAs much as everybody gottoo excited about FSLY last year, so, we think, has everybody gotten too miserable this year. We have a modest allocation to FSLY in long-term accounts because ultimately we don't think the company will form part of the fabric of Internet 3.0, at least not as an independent. We don't see sufficient force of management personality, sufficiently broad product vision, nor the surround sound of Twitterati talking the thing up. Wedothink thepersistent rumors of FSLY being acquiredhave every chance of playing out and so at any given moment, we see a 20-30% or better premium available should Cisco (CSCO) or another strategic come calling. So, again, long-term holdings, we're doing nothing. We're tempted to add a little right now but with earnings so close, why take the risk? Once again our approach here is to wait for earnings. We are likely to trade it short term on any unjustified stock cratering - and indeed if the fundamentals are improving, as we have a funny feeling they will - look at the below-the-radar improvements in deferred revenue above in the last two quarters for instance - we may well add to our long-term positions at that point. For now, doing nothing before earnings, so, again, Neutral. In each case, a one-word rating doesn't really convey our plans here which is why we lay them out in such wordy detail - now you can shoot them down in flames when doing your own work!","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":899280519,"gmtCreate":1628200144031,"gmtModify":1703502866895,"author":{"id":"3581539047362830","authorId":"3581539047362830","authorIdStr":"3581539047362830","name":"Sunny0809","avatar":"https://static.tigerbbs.com/3ffb7aab0292fd1f17dfb9f99bc5eb03","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3581539047362830"},"htmlText":"?","listText":"?","text":"?","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":3,"commentSize":1,"repostSize":0,"link":"https://ttm.financial/post/899280519","repostId":1197602353,"repostType":4,"repost":{"id":"1197602353","pubTimestamp":1628173558,"share":"https://ttm.financial/m/news/1197602353?lang=&edition=fundamental","pubTime":"2021-08-05 22:25","market":"us","language":"en","title":"Cloudflare Vs. Fastly Stock: Which Is The Better Buy?","url":"https://stock-news.laohu8.com/highlight/detail?id=1197602353","media":"seekingalpha","summary":"Summary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up rec","content":"Summary\n<ul>\n <li>Cloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.</li>\n <li>Fastly is a less good business with, in our view, less potential. Its stock price has cratered of late, as growth has slowed and cash flow worsened.</li>\n <li>Both stocks are shortly to report their Q2 earnings. We think earnings reaction risk is to the downside on Cloudflare, to the upside on Fastly.</li>\n <li>Ultimately, we believe Cloudflare offers more upside for long-term investors, but we own both names in staff personal accounts and intend to add to both on any post-earnings weakness.</li>\n <li>We would also flag that both companies look to us like they may raise capital soon - if, in the form of new equity, that can hit both stocks.</li>\n</ul>\nPing Times May Be Similar But Time To Live Likely Differs\nSince consumer traffic started in earnest to course through the public Internet in the 1990s, content acceleration became important. The initial leader of this market, Akamai (AKAM), grew up in the dot-com era and remains a very solid business today. AKAM's original business model was simple and remains the foundation for content delivery network plays today; buy servers, rent space in telecom companies' datacenters, rent capacity on telecom networks, bill content owners for accelerated delivery of said content. As you can see, the business model is likely to be less cash generative than the now-commonplace cloud application software player, because, one, your gross margin gets hit with the telco pay-aways, and, two, your capex bill is heavy as you have to keep buying server kit. So scaling such a business - meaning, achieve a rate of growth in cash flow faster than the rate of growth in revenue - isn't so easy.\nThe two hot names in content acceleration today are Cloudflare (NET) and Fastly (FSLY). We've covered both of them on multiple occasions here on Seeking Alpha - you can read our past notes on Cloudflare, Inchereand our prior work on Fastlyhere. In addition, we own both stocks in staff personal accounts. We have a much greater allocation to NET than we do to FSLY (in a ratio of approximately 2:1). We have enjoyed an easy ride up on NET with even some poorly-timed averaging-up buys being forgiven by the Trading Gods, whereas we have been battling FSLY to average down our in-costs in the expectation of future gain and our valor has yet to be rewarded. In staff long-term accounts, we presently show a big paper gain on NET and a modest paper loss on FSLY. Along the way, we have also enjoyed separate short-term account gains in NET by buying dips and selling peaks to realize rapid cash gains. (We cover both stocks and our own trades blow by blow in our real-time, real-money Seeking Alpha Marketplace service,Cestrian Fundamentals).\nWhilst Cloudflare and Fastly core services have plenty of overlap, their business models and management styles are very different and this informs our approach to owning the names and our expectations going forward. Allow us to walk you through our views here.\nHow Is Cloudflare Different From Fastly?\nWell, first let's take a look at the similarities. Both offer content acceleration services to content owners, and both offer you something called edge computing, which is in essence the ability to place not just your content (movies, audio, etc.) on a machine near the user (as in, physically and logically near the user on the network - not in a data center thousands of miles away) but also an entire web application or parts thereof. To our investor eye, Cloudflare appears to have more product ambition; taking advantage of its edge network positioning, the company has launched a number of security services, for instance - the goal being to act as a single Internet on-ramp for its customers, a kind of Zscaler (ZS) embedded in the suite offer. If you want to deep-dive into product by product comparison on these two names - and if you do, take a tin hat, for opinions run high - take a look at a couple of engineers-turned-stock-people who cover both stocks in their work.\nNow, putting aside for the moment our own investor view that NET has a superior span of product and indeed more extensive product ambition - let's turn to the numbers.\n<img src=\"https://static.tigerbbs.com/4b54705844ce46a8f48f7d986cd113f4\" tg-width=\"640\" tg-height=\"587\" width=\"100%\" height=\"auto\"><img src=\"https://static.tigerbbs.com/ea25982971170997ab631a0e0e0af99f\" tg-width=\"640\" tg-height=\"220\" width=\"100%\" height=\"auto\">Source: Company SEC filings, YCharts.com, Cestrian Analysis\nLot of numbers there. Here are the highlights and lowlights as we see them.\nThe good:\n<ul>\n <li>Revenue growth holding steady in the 50% range, gross margin holding steady in the 77% range.</li>\n <li>Remaining performance obligation (RPO) growth of 88% vs. prior year in Q1 2021. RPO is the total order book value, some of which is prepaid, most of which is not. RPO represents just over 90% of TTM recognized revenue so it is material vs. the recognized base, and it is growing faster than the recognized base. So, best guess, NET revenues can accelerate still further.</li>\n <li>Accounting profit in the guise of EBITDA (which we define as operating income, add back depreciation &amp; amortization, add back stock-based compensation) has gone from very negative in 2019 to modestly positive in 2021 - we look at the TTM measure which is slow to respond up or down, it gives you a smoothed-out view of the direction of travel.</li>\n</ul>\nThe bad:\n<ul>\n <li>Actual money-profit in the guise of unlevered pre-tax free cash flow, has gone from horribly negative in 2019 to, er, only very negative in 2021, which in and of itself is good, but, did we mention, cash flow was very negative on a TTM basis to the end of the March 2021 quarter. This is the whole nag with this business model - can they actually become cash flow positive, after capex, after change in working capital? Akamai is, but then it has nothing like the growth ambitions of these names.</li>\n <li>Only $643m of net cash in the bank at the 31 March point. Given the cash burn, we would not be at all surprised to see the company raise money via an equity or debt placement and, if equity, we would expect a material hit to the stock price on a short-term basis at least. (We are watching closely for this and hope to buy any major dip that comes along).</li>\n</ul>\nThe visually challenged:\n<ul>\n <li>Huge capital expenditure (\"capex\") bill. Capex as you know is simply money that you spend on stuff that makes a noise when you drop it. Capex at NET, and for that matter FSLY, is mainly computing hardware. We expect significant capex here. But capex as a % of revenue is yet to show a consistent falling pattern - andonlyif we start to see some yield improvements here, some growth without much capex, can we conclude that scale benefits are beginning to flow. Right now the jury is out, and this is a big deal fundamentally.</li>\n <li>Terrible working capital management. This sounds complicated but isn't. If that \"change in working capital\" line was mainly positive, it would mean that in essence, the company collects money from its customers faster than it pays its suppliers. If mainly negative, it pays suppliers faster than it collects cash from its customers. You can see from the numbers that the latter is true. So here we have a business which, already bleeding money into the capex line, further leaks cash into working capital. This again is a big deal fundamentally. Best case, it says the business lacks the management discipline to tell suppliers to wait whilst it chases up customers. Worst case, it means the business is merely a commodity provider of services which can easily be found elsewhere, and they don't chase their customers lest they churn. Now we don'tthinkthat latter point is true; we think NET has a differentiated and sticky set of services - and if that's right, it means management just needs to get religion on cash management. They don't have it today.</li>\n</ul>\nAs we shall see in a moment, Cloudflare's stock price flatters its fundamentals. It's not as good a business as its stock trajectory implies.\nFSLY Financials\nFastly, an early huge winner in the immediate response to the Covid crisis, now looks all beaten up if you look at its stock price, to which we shall turn in a moment. But if NET is not as good a business as its stock price implies, FSLY is not as bad a business asitsstock price implies. As investors, we must respect price before all else, everything else is just an input. But fundamentals do sometimes matter - very often you can see value building in the fundamentals that isn't reflected in the stock price, or indeed value waning that is yet to be reflected. Which means that sometimes, just sometimes, you can get ahead of the price game by reading the numbers. (If you read our Cloudflare notes linked above, you can see us making just that argument - hidden value - which did then come to fruition in the stock price).\nLet's take a look at Fastly's numbers.\n<img src=\"https://static.tigerbbs.com/c3aa249a8140f7dea48136c586415d87\" tg-width=\"640\" tg-height=\"621\" width=\"100%\" height=\"auto\">Source: Company SEC filings,YCharts.com, Cestrian Analysis\nOK, another lot of numbers. Less numbers though, because the company doesn't disclose its remaining performance obligation in its SEC reports. This is likely because there isn't much of it - they make much of the fact that billing (and by implication contracting) is usage-based and in arrears, so we wouldn't expect a great deal of revenue visibility here.\nTurning to the reported revenue - the deceleration is material, as you can see, and coupled with the lack of visibility, this is what we think is hurting the stock right now. Today's market is positively growth-addled and if your growth is coming down, well, your stock is going to get a beating. That said, it looks to us like folks' expectations just got all ahead of themselves. Look at the TTM revenue line - remember, this is a slow-burn indicator, gives you a smoothed-out look at how things are going. TTM revenue growth peaked at 47% in Q3 2020, and in Q1 2021, it stood at 44%, which isn't really very different if you zoom out far enough. It's just that early Covid Q2 2020 +62% vs Q2 2019 growth rate that got everybody overexcited.\nSkipping around a little here, the valuation stands at 16.5x TTM revenue in exchange for 44% TTM revenue growth. That is positive cheap by current standards.\n<img src=\"https://static.tigerbbs.com/5469d429652493191eb4cdcf2efee55e\" tg-width=\"238\" tg-height=\"247\" width=\"100%\" height=\"auto\">Cloudflare is asking you to pay 76x TTM revenue in exchange for 51% TTM revenue growth.\n<img src=\"https://static.tigerbbs.com/d1e47eab4ff42f7649937ad13cab0413\" tg-width=\"235\" tg-height=\"250\" width=\"100%\" height=\"auto\">Now don't get us wrong. Cloudflare is a better business. And we like how their management team rolls, all humblebrag-aw-shucks-what-me? whilst quietly stating that their aim is to be the dominant development environment and runtime forInternet 3.0(we paraphrase a little, but yes, that is what their grand plan is, and it might work). But it's notthatmuch better a business.\nBack to FSLY numbers. Remember how NET eats capex and leaks money into working capital? Well, same at FSLY.\nFirst, let's compare their capital expenditures using that slow-burn TTM method.\n<img src=\"https://static.tigerbbs.com/e8e760e2b8fb4ed434bfb9dec30b547b\" tg-width=\"640\" tg-height=\"89\" width=\"100%\" height=\"auto\"><img src=\"https://static.tigerbbs.com/04bb88b1b8d8d2722a84dfc263eefaec\" tg-width=\"640\" tg-height=\"91\" width=\"100%\" height=\"auto\">The company has TTM capex standing at 12% of TTM revenue, and is chalking up revenue growth of +44% on a TTM basis. Cloudflare, Inc is spending 18% of TTM revenue on its capex, again on a TTM basis; in exchange for +51% TTM revenue growth. So as a snapshot, FSLY is actually more efficient with its capex. The counter to that is, NET is building a big book of long-term business - as evidenced by its chunky RPO number - and that's what the additional capex is for. This is an interesting-if-true point to make. As in, it might be true and if so, it's a good use of their checkbook. But it has yet to translate into sufficient additional revenue growth vs. the competition to truly justify the expenditure on fundamental grounds.\nNext, margins. FSLY's gross margins are terrible, in the mid-50s%. It resembles Twilio (TWLO) in this regard, a big pay-away to telcos before you even get started. It's the biggest determinant of weak TTM EBITDA margins - which stand at negative 11% vs positive 3% at NET. And whilst those EBITDA margins at NET have been moving up, at FSLY, they have been moving down.\nTurning to cash flow - we've talked about capex already, now let's look at that boring-but-important point, change in working capital. (Remember this is simple. To do this well, pretty much all you have to do is collect cash from customers faster than you pay it to suppliers). If working capital management is bad at NET, and it is, then it is terrible at FSLY. TTM unlevered pre-tax free cash flow margins of negative 33%. This thing just eats money. And again, it has just $166m of net cash on hand vs. a TTM pre-tax pre-debt service cash burn of $104m as of the end of Q1. That means the company is very likely to raise money, via equity or debt placement. And off the back of a weak stock price that's likely to cause more pain in the stock.\nOK. You get the picture. NET is growing a little bit faster and spending more capex to do it; but its gross margins are much better so it has more money to burn in the first place. It appears to be building a big book of forward business in a way that FSLY is not, but right now, that is jam tomorrow, not revenue or earnings today. NET needs to raise capital soon in our view, and FSLY needs to raise capital sooner. So, on fundamentals, NET is a better pick, no question. But the valuation, yikes!\nNET and FSLY Stock Prices\nSince the Cloudflare IPO in 2019, NET has way outperformed FSLY and indeed the Nasdaq (shown here by way of the proxy ETF, Invesco QQQ Trust (QQQ).\n<img src=\"https://static.tigerbbs.com/89d1f9e65c0e2e7398b5ec7b053631ec\" tg-width=\"640\" tg-height=\"378\" width=\"100%\" height=\"auto\">As we state above, that NET has outperformed FSLY is justified to us on fundamentals. It's a better business with higher growth and more visibility of future growth. But right now, as earnings approaches for each of the stocks (FSLY reports on August 4th, NET on August 5th), which is the better bet for long-term investors? In short ...\nIs Cloudflare or Fastly Stock The Better Buy?\nThis isn't such a simple answer in our view. Allow us to ramble somewhat, and bear in mind, all we are talking about here is our own plans for our own money. You must, of course, do your own work and factor in your own risk appetite, time horizon, etc. But here's our approach.\nCloudflare Stock\nAs delighted as we are with the run-up in our NET holdings, and as much as we do in fact think that NET can deliver on some of those Internet 3.0 promises, the price is punchy indeed. So we rate NET at Neutral, meaning we ourselves aren't buying the stock at this point. We have a nice paper gain in long-term accounts and we've cashed a series of gains in short-term accounts along the way. But neither are we selling, because as extended as that stock price is, we think that the stock can move higher, maybe much higher, over the coming years. We think that 5-10 years out, $120/share for NET has every chance of looking like peanuts. We have about the right level of allocation now in those long-term accounts and so we are doing nothing there. If Q2 earnings are anything other than blowout, there is every chance the stock takes a dive and, if it does, we expect to play short-term once again, over and above our long-term holdings. (We keep totally separate accounts for long- and short-term holdings so we never get confused about what game we are playing).\nFastly Stock\nAs much as everybody gottoo excited about FSLY last year, so, we think, has everybody gotten too miserable this year. We have a modest allocation to FSLY in long-term accounts because ultimately we don't think the company will form part of the fabric of Internet 3.0, at least not as an independent. We don't see sufficient force of management personality, sufficiently broad product vision, nor the surround sound of Twitterati talking the thing up. Wedothink thepersistent rumors of FSLY being acquiredhave every chance of playing out and so at any given moment, we see a 20-30% or better premium available should Cisco (CSCO) or another strategic come calling. So, again, long-term holdings, we're doing nothing. We're tempted to add a little right now but with earnings so close, why take the risk? Once again our approach here is to wait for earnings. We are likely to trade it short term on any unjustified stock cratering - and indeed if the fundamentals are improving, as we have a funny feeling they will - look at the below-the-radar improvements in deferred revenue above in the last two quarters for instance - we may well add to our long-term positions at that point. For now, doing nothing before earnings, so, again, Neutral. In each case, a one-word rating doesn't really convey our plans here which is why we lay them out in such wordy detail - now you can shoot them down in flames when doing your own work!","source":"seekingalpha","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 Vs. Fastly Stock: Which Is The Better Buy?</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 Vs. Fastly Stock: Which Is The Better Buy?\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-08-05 22:25 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.\nFastly is a less good business with, in our view, less potential. ...\n\n<a href=\"https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy\">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.","FSLY":"Fastly, Inc."},"source_url":"https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1197602353","content_text":"Summary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.\nFastly is a less good business with, in our view, less potential. Its stock price has cratered of late, as growth has slowed and cash flow worsened.\nBoth stocks are shortly to report their Q2 earnings. We think earnings reaction risk is to the downside on Cloudflare, to the upside on Fastly.\nUltimately, we believe Cloudflare offers more upside for long-term investors, but we own both names in staff personal accounts and intend to add to both on any post-earnings weakness.\nWe would also flag that both companies look to us like they may raise capital soon - if, in the form of new equity, that can hit both stocks.\n\nPing Times May Be Similar But Time To Live Likely Differs\nSince consumer traffic started in earnest to course through the public Internet in the 1990s, content acceleration became important. The initial leader of this market, Akamai (AKAM), grew up in the dot-com era and remains a very solid business today. AKAM's original business model was simple and remains the foundation for content delivery network plays today; buy servers, rent space in telecom companies' datacenters, rent capacity on telecom networks, bill content owners for accelerated delivery of said content. As you can see, the business model is likely to be less cash generative than the now-commonplace cloud application software player, because, one, your gross margin gets hit with the telco pay-aways, and, two, your capex bill is heavy as you have to keep buying server kit. So scaling such a business - meaning, achieve a rate of growth in cash flow faster than the rate of growth in revenue - isn't so easy.\nThe two hot names in content acceleration today are Cloudflare (NET) and Fastly (FSLY). We've covered both of them on multiple occasions here on Seeking Alpha - you can read our past notes on Cloudflare, Inchereand our prior work on Fastlyhere. In addition, we own both stocks in staff personal accounts. We have a much greater allocation to NET than we do to FSLY (in a ratio of approximately 2:1). We have enjoyed an easy ride up on NET with even some poorly-timed averaging-up buys being forgiven by the Trading Gods, whereas we have been battling FSLY to average down our in-costs in the expectation of future gain and our valor has yet to be rewarded. In staff long-term accounts, we presently show a big paper gain on NET and a modest paper loss on FSLY. Along the way, we have also enjoyed separate short-term account gains in NET by buying dips and selling peaks to realize rapid cash gains. (We cover both stocks and our own trades blow by blow in our real-time, real-money Seeking Alpha Marketplace service,Cestrian Fundamentals).\nWhilst Cloudflare and Fastly core services have plenty of overlap, their business models and management styles are very different and this informs our approach to owning the names and our expectations going forward. Allow us to walk you through our views here.\nHow Is Cloudflare Different From Fastly?\nWell, first let's take a look at the similarities. Both offer content acceleration services to content owners, and both offer you something called edge computing, which is in essence the ability to place not just your content (movies, audio, etc.) on a machine near the user (as in, physically and logically near the user on the network - not in a data center thousands of miles away) but also an entire web application or parts thereof. To our investor eye, Cloudflare appears to have more product ambition; taking advantage of its edge network positioning, the company has launched a number of security services, for instance - the goal being to act as a single Internet on-ramp for its customers, a kind of Zscaler (ZS) embedded in the suite offer. If you want to deep-dive into product by product comparison on these two names - and if you do, take a tin hat, for opinions run high - take a look at a couple of engineers-turned-stock-people who cover both stocks in their work.\nNow, putting aside for the moment our own investor view that NET has a superior span of product and indeed more extensive product ambition - let's turn to the numbers.\nSource: Company SEC filings, YCharts.com, Cestrian Analysis\nLot of numbers there. Here are the highlights and lowlights as we see them.\nThe good:\n\nRevenue growth holding steady in the 50% range, gross margin holding steady in the 77% range.\nRemaining performance obligation (RPO) growth of 88% vs. prior year in Q1 2021. RPO is the total order book value, some of which is prepaid, most of which is not. RPO represents just over 90% of TTM recognized revenue so it is material vs. the recognized base, and it is growing faster than the recognized base. So, best guess, NET revenues can accelerate still further.\nAccounting profit in the guise of EBITDA (which we define as operating income, add back depreciation & amortization, add back stock-based compensation) has gone from very negative in 2019 to modestly positive in 2021 - we look at the TTM measure which is slow to respond up or down, it gives you a smoothed-out view of the direction of travel.\n\nThe bad:\n\nActual money-profit in the guise of unlevered pre-tax free cash flow, has gone from horribly negative in 2019 to, er, only very negative in 2021, which in and of itself is good, but, did we mention, cash flow was very negative on a TTM basis to the end of the March 2021 quarter. This is the whole nag with this business model - can they actually become cash flow positive, after capex, after change in working capital? Akamai is, but then it has nothing like the growth ambitions of these names.\nOnly $643m of net cash in the bank at the 31 March point. Given the cash burn, we would not be at all surprised to see the company raise money via an equity or debt placement and, if equity, we would expect a material hit to the stock price on a short-term basis at least. (We are watching closely for this and hope to buy any major dip that comes along).\n\nThe visually challenged:\n\nHuge capital expenditure (\"capex\") bill. Capex as you know is simply money that you spend on stuff that makes a noise when you drop it. Capex at NET, and for that matter FSLY, is mainly computing hardware. We expect significant capex here. But capex as a % of revenue is yet to show a consistent falling pattern - andonlyif we start to see some yield improvements here, some growth without much capex, can we conclude that scale benefits are beginning to flow. Right now the jury is out, and this is a big deal fundamentally.\nTerrible working capital management. This sounds complicated but isn't. If that \"change in working capital\" line was mainly positive, it would mean that in essence, the company collects money from its customers faster than it pays its suppliers. If mainly negative, it pays suppliers faster than it collects cash from its customers. You can see from the numbers that the latter is true. So here we have a business which, already bleeding money into the capex line, further leaks cash into working capital. This again is a big deal fundamentally. Best case, it says the business lacks the management discipline to tell suppliers to wait whilst it chases up customers. Worst case, it means the business is merely a commodity provider of services which can easily be found elsewhere, and they don't chase their customers lest they churn. Now we don'tthinkthat latter point is true; we think NET has a differentiated and sticky set of services - and if that's right, it means management just needs to get religion on cash management. They don't have it today.\n\nAs we shall see in a moment, Cloudflare's stock price flatters its fundamentals. It's not as good a business as its stock trajectory implies.\nFSLY Financials\nFastly, an early huge winner in the immediate response to the Covid crisis, now looks all beaten up if you look at its stock price, to which we shall turn in a moment. But if NET is not as good a business as its stock price implies, FSLY is not as bad a business asitsstock price implies. As investors, we must respect price before all else, everything else is just an input. But fundamentals do sometimes matter - very often you can see value building in the fundamentals that isn't reflected in the stock price, or indeed value waning that is yet to be reflected. Which means that sometimes, just sometimes, you can get ahead of the price game by reading the numbers. (If you read our Cloudflare notes linked above, you can see us making just that argument - hidden value - which did then come to fruition in the stock price).\nLet's take a look at Fastly's numbers.\nSource: Company SEC filings,YCharts.com, Cestrian Analysis\nOK, another lot of numbers. Less numbers though, because the company doesn't disclose its remaining performance obligation in its SEC reports. This is likely because there isn't much of it - they make much of the fact that billing (and by implication contracting) is usage-based and in arrears, so we wouldn't expect a great deal of revenue visibility here.\nTurning to the reported revenue - the deceleration is material, as you can see, and coupled with the lack of visibility, this is what we think is hurting the stock right now. Today's market is positively growth-addled and if your growth is coming down, well, your stock is going to get a beating. That said, it looks to us like folks' expectations just got all ahead of themselves. Look at the TTM revenue line - remember, this is a slow-burn indicator, gives you a smoothed-out look at how things are going. TTM revenue growth peaked at 47% in Q3 2020, and in Q1 2021, it stood at 44%, which isn't really very different if you zoom out far enough. It's just that early Covid Q2 2020 +62% vs Q2 2019 growth rate that got everybody overexcited.\nSkipping around a little here, the valuation stands at 16.5x TTM revenue in exchange for 44% TTM revenue growth. That is positive cheap by current standards.\nCloudflare is asking you to pay 76x TTM revenue in exchange for 51% TTM revenue growth.\nNow don't get us wrong. Cloudflare is a better business. And we like how their management team rolls, all humblebrag-aw-shucks-what-me? whilst quietly stating that their aim is to be the dominant development environment and runtime forInternet 3.0(we paraphrase a little, but yes, that is what their grand plan is, and it might work). But it's notthatmuch better a business.\nBack to FSLY numbers. Remember how NET eats capex and leaks money into working capital? Well, same at FSLY.\nFirst, let's compare their capital expenditures using that slow-burn TTM method.\nThe company has TTM capex standing at 12% of TTM revenue, and is chalking up revenue growth of +44% on a TTM basis. Cloudflare, Inc is spending 18% of TTM revenue on its capex, again on a TTM basis; in exchange for +51% TTM revenue growth. So as a snapshot, FSLY is actually more efficient with its capex. The counter to that is, NET is building a big book of long-term business - as evidenced by its chunky RPO number - and that's what the additional capex is for. This is an interesting-if-true point to make. As in, it might be true and if so, it's a good use of their checkbook. But it has yet to translate into sufficient additional revenue growth vs. the competition to truly justify the expenditure on fundamental grounds.\nNext, margins. FSLY's gross margins are terrible, in the mid-50s%. It resembles Twilio (TWLO) in this regard, a big pay-away to telcos before you even get started. It's the biggest determinant of weak TTM EBITDA margins - which stand at negative 11% vs positive 3% at NET. And whilst those EBITDA margins at NET have been moving up, at FSLY, they have been moving down.\nTurning to cash flow - we've talked about capex already, now let's look at that boring-but-important point, change in working capital. (Remember this is simple. To do this well, pretty much all you have to do is collect cash from customers faster than you pay it to suppliers). If working capital management is bad at NET, and it is, then it is terrible at FSLY. TTM unlevered pre-tax free cash flow margins of negative 33%. This thing just eats money. And again, it has just $166m of net cash on hand vs. a TTM pre-tax pre-debt service cash burn of $104m as of the end of Q1. That means the company is very likely to raise money, via equity or debt placement. And off the back of a weak stock price that's likely to cause more pain in the stock.\nOK. You get the picture. NET is growing a little bit faster and spending more capex to do it; but its gross margins are much better so it has more money to burn in the first place. It appears to be building a big book of forward business in a way that FSLY is not, but right now, that is jam tomorrow, not revenue or earnings today. NET needs to raise capital soon in our view, and FSLY needs to raise capital sooner. So, on fundamentals, NET is a better pick, no question. But the valuation, yikes!\nNET and FSLY Stock Prices\nSince the Cloudflare IPO in 2019, NET has way outperformed FSLY and indeed the Nasdaq (shown here by way of the proxy ETF, Invesco QQQ Trust (QQQ).\nAs we state above, that NET has outperformed FSLY is justified to us on fundamentals. It's a better business with higher growth and more visibility of future growth. But right now, as earnings approaches for each of the stocks (FSLY reports on August 4th, NET on August 5th), which is the better bet for long-term investors? In short ...\nIs Cloudflare or Fastly Stock The Better Buy?\nThis isn't such a simple answer in our view. Allow us to ramble somewhat, and bear in mind, all we are talking about here is our own plans for our own money. You must, of course, do your own work and factor in your own risk appetite, time horizon, etc. But here's our approach.\nCloudflare Stock\nAs delighted as we are with the run-up in our NET holdings, and as much as we do in fact think that NET can deliver on some of those Internet 3.0 promises, the price is punchy indeed. So we rate NET at Neutral, meaning we ourselves aren't buying the stock at this point. We have a nice paper gain in long-term accounts and we've cashed a series of gains in short-term accounts along the way. But neither are we selling, because as extended as that stock price is, we think that the stock can move higher, maybe much higher, over the coming years. We think that 5-10 years out, $120/share for NET has every chance of looking like peanuts. We have about the right level of allocation now in those long-term accounts and so we are doing nothing there. If Q2 earnings are anything other than blowout, there is every chance the stock takes a dive and, if it does, we expect to play short-term once again, over and above our long-term holdings. (We keep totally separate accounts for long- and short-term holdings so we never get confused about what game we are playing).\nFastly Stock\nAs much as everybody gottoo excited about FSLY last year, so, we think, has everybody gotten too miserable this year. We have a modest allocation to FSLY in long-term accounts because ultimately we don't think the company will form part of the fabric of Internet 3.0, at least not as an independent. We don't see sufficient force of management personality, sufficiently broad product vision, nor the surround sound of Twitterati talking the thing up. Wedothink thepersistent rumors of FSLY being acquiredhave every chance of playing out and so at any given moment, we see a 20-30% or better premium available should Cisco (CSCO) or another strategic come calling. So, again, long-term holdings, we're doing nothing. We're tempted to add a little right now but with earnings so close, why take the risk? Once again our approach here is to wait for earnings. We are likely to trade it short term on any unjustified stock cratering - and indeed if the fundamentals are improving, as we have a funny feeling they will - look at the below-the-radar improvements in deferred revenue above in the last two quarters for instance - we may well add to our long-term positions at that point. For now, doing nothing before earnings, so, again, Neutral. In each case, a one-word rating doesn't really convey our plans here which is why we lay them out in such wordy detail - now you can shoot them down in flames when doing your own work!","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":5439397,"gmtCreate":1628200592619,"gmtModify":1663231985634,"authorId":3583487187442003,"author":{"id":3583487187442003,"authorId":3583487187442003,"name":"Kalpana","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":1,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":899280519,"type":1,"supId":0,"prevId":0,"content":"?","text":"?","html":"?"}],"langContent":"EN"},{"id":899214352,"gmtCreate":1628199582676,"gmtModify":1703502863466,"author":{"id":"3570776252336545","authorId":"3570776252336545","authorIdStr":"3570776252336545","name":"KelvinChan","avatar":"https://static.tigerbbs.com/322f5dea7567e161ddef26aec462d83d","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3570776252336545"},"htmlText":"Like for likes please!","listText":"Like for likes please!","text":"Like for likes please!","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":4,"commentSize":2,"repostSize":0,"link":"https://ttm.financial/post/899214352","repostId":1197602353,"repostType":4,"repost":{"id":"1197602353","pubTimestamp":1628173558,"share":"https://ttm.financial/m/news/1197602353?lang=&edition=fundamental","pubTime":"2021-08-05 22:25","market":"us","language":"en","title":"Cloudflare Vs. Fastly Stock: Which Is The Better Buy?","url":"https://stock-news.laohu8.com/highlight/detail?id=1197602353","media":"seekingalpha","summary":"Summary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up rec","content":"Summary\n<ul>\n <li>Cloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.</li>\n <li>Fastly is a less good business with, in our view, less potential. Its stock price has cratered of late, as growth has slowed and cash flow worsened.</li>\n <li>Both stocks are shortly to report their Q2 earnings. We think earnings reaction risk is to the downside on Cloudflare, to the upside on Fastly.</li>\n <li>Ultimately, we believe Cloudflare offers more upside for long-term investors, but we own both names in staff personal accounts and intend to add to both on any post-earnings weakness.</li>\n <li>We would also flag that both companies look to us like they may raise capital soon - if, in the form of new equity, that can hit both stocks.</li>\n</ul>\nPing Times May Be Similar But Time To Live Likely Differs\nSince consumer traffic started in earnest to course through the public Internet in the 1990s, content acceleration became important. The initial leader of this market, Akamai (AKAM), grew up in the dot-com era and remains a very solid business today. AKAM's original business model was simple and remains the foundation for content delivery network plays today; buy servers, rent space in telecom companies' datacenters, rent capacity on telecom networks, bill content owners for accelerated delivery of said content. As you can see, the business model is likely to be less cash generative than the now-commonplace cloud application software player, because, one, your gross margin gets hit with the telco pay-aways, and, two, your capex bill is heavy as you have to keep buying server kit. So scaling such a business - meaning, achieve a rate of growth in cash flow faster than the rate of growth in revenue - isn't so easy.\nThe two hot names in content acceleration today are Cloudflare (NET) and Fastly (FSLY). We've covered both of them on multiple occasions here on Seeking Alpha - you can read our past notes on Cloudflare, Inchereand our prior work on Fastlyhere. In addition, we own both stocks in staff personal accounts. We have a much greater allocation to NET than we do to FSLY (in a ratio of approximately 2:1). We have enjoyed an easy ride up on NET with even some poorly-timed averaging-up buys being forgiven by the Trading Gods, whereas we have been battling FSLY to average down our in-costs in the expectation of future gain and our valor has yet to be rewarded. In staff long-term accounts, we presently show a big paper gain on NET and a modest paper loss on FSLY. Along the way, we have also enjoyed separate short-term account gains in NET by buying dips and selling peaks to realize rapid cash gains. (We cover both stocks and our own trades blow by blow in our real-time, real-money Seeking Alpha Marketplace service,Cestrian Fundamentals).\nWhilst Cloudflare and Fastly core services have plenty of overlap, their business models and management styles are very different and this informs our approach to owning the names and our expectations going forward. Allow us to walk you through our views here.\nHow Is Cloudflare Different From Fastly?\nWell, first let's take a look at the similarities. Both offer content acceleration services to content owners, and both offer you something called edge computing, which is in essence the ability to place not just your content (movies, audio, etc.) on a machine near the user (as in, physically and logically near the user on the network - not in a data center thousands of miles away) but also an entire web application or parts thereof. To our investor eye, Cloudflare appears to have more product ambition; taking advantage of its edge network positioning, the company has launched a number of security services, for instance - the goal being to act as a single Internet on-ramp for its customers, a kind of Zscaler (ZS) embedded in the suite offer. If you want to deep-dive into product by product comparison on these two names - and if you do, take a tin hat, for opinions run high - take a look at a couple of engineers-turned-stock-people who cover both stocks in their work.\nNow, putting aside for the moment our own investor view that NET has a superior span of product and indeed more extensive product ambition - let's turn to the numbers.\n<img src=\"https://static.tigerbbs.com/4b54705844ce46a8f48f7d986cd113f4\" tg-width=\"640\" tg-height=\"587\" width=\"100%\" height=\"auto\"><img src=\"https://static.tigerbbs.com/ea25982971170997ab631a0e0e0af99f\" tg-width=\"640\" tg-height=\"220\" width=\"100%\" height=\"auto\">Source: Company SEC filings, YCharts.com, Cestrian Analysis\nLot of numbers there. Here are the highlights and lowlights as we see them.\nThe good:\n<ul>\n <li>Revenue growth holding steady in the 50% range, gross margin holding steady in the 77% range.</li>\n <li>Remaining performance obligation (RPO) growth of 88% vs. prior year in Q1 2021. RPO is the total order book value, some of which is prepaid, most of which is not. RPO represents just over 90% of TTM recognized revenue so it is material vs. the recognized base, and it is growing faster than the recognized base. So, best guess, NET revenues can accelerate still further.</li>\n <li>Accounting profit in the guise of EBITDA (which we define as operating income, add back depreciation &amp; amortization, add back stock-based compensation) has gone from very negative in 2019 to modestly positive in 2021 - we look at the TTM measure which is slow to respond up or down, it gives you a smoothed-out view of the direction of travel.</li>\n</ul>\nThe bad:\n<ul>\n <li>Actual money-profit in the guise of unlevered pre-tax free cash flow, has gone from horribly negative in 2019 to, er, only very negative in 2021, which in and of itself is good, but, did we mention, cash flow was very negative on a TTM basis to the end of the March 2021 quarter. This is the whole nag with this business model - can they actually become cash flow positive, after capex, after change in working capital? Akamai is, but then it has nothing like the growth ambitions of these names.</li>\n <li>Only $643m of net cash in the bank at the 31 March point. Given the cash burn, we would not be at all surprised to see the company raise money via an equity or debt placement and, if equity, we would expect a material hit to the stock price on a short-term basis at least. (We are watching closely for this and hope to buy any major dip that comes along).</li>\n</ul>\nThe visually challenged:\n<ul>\n <li>Huge capital expenditure (\"capex\") bill. Capex as you know is simply money that you spend on stuff that makes a noise when you drop it. Capex at NET, and for that matter FSLY, is mainly computing hardware. We expect significant capex here. But capex as a % of revenue is yet to show a consistent falling pattern - andonlyif we start to see some yield improvements here, some growth without much capex, can we conclude that scale benefits are beginning to flow. Right now the jury is out, and this is a big deal fundamentally.</li>\n <li>Terrible working capital management. This sounds complicated but isn't. If that \"change in working capital\" line was mainly positive, it would mean that in essence, the company collects money from its customers faster than it pays its suppliers. If mainly negative, it pays suppliers faster than it collects cash from its customers. You can see from the numbers that the latter is true. So here we have a business which, already bleeding money into the capex line, further leaks cash into working capital. This again is a big deal fundamentally. Best case, it says the business lacks the management discipline to tell suppliers to wait whilst it chases up customers. Worst case, it means the business is merely a commodity provider of services which can easily be found elsewhere, and they don't chase their customers lest they churn. Now we don'tthinkthat latter point is true; we think NET has a differentiated and sticky set of services - and if that's right, it means management just needs to get religion on cash management. They don't have it today.</li>\n</ul>\nAs we shall see in a moment, Cloudflare's stock price flatters its fundamentals. It's not as good a business as its stock trajectory implies.\nFSLY Financials\nFastly, an early huge winner in the immediate response to the Covid crisis, now looks all beaten up if you look at its stock price, to which we shall turn in a moment. But if NET is not as good a business as its stock price implies, FSLY is not as bad a business asitsstock price implies. As investors, we must respect price before all else, everything else is just an input. But fundamentals do sometimes matter - very often you can see value building in the fundamentals that isn't reflected in the stock price, or indeed value waning that is yet to be reflected. Which means that sometimes, just sometimes, you can get ahead of the price game by reading the numbers. (If you read our Cloudflare notes linked above, you can see us making just that argument - hidden value - which did then come to fruition in the stock price).\nLet's take a look at Fastly's numbers.\n<img src=\"https://static.tigerbbs.com/c3aa249a8140f7dea48136c586415d87\" tg-width=\"640\" tg-height=\"621\" width=\"100%\" height=\"auto\">Source: Company SEC filings,YCharts.com, Cestrian Analysis\nOK, another lot of numbers. Less numbers though, because the company doesn't disclose its remaining performance obligation in its SEC reports. This is likely because there isn't much of it - they make much of the fact that billing (and by implication contracting) is usage-based and in arrears, so we wouldn't expect a great deal of revenue visibility here.\nTurning to the reported revenue - the deceleration is material, as you can see, and coupled with the lack of visibility, this is what we think is hurting the stock right now. Today's market is positively growth-addled and if your growth is coming down, well, your stock is going to get a beating. That said, it looks to us like folks' expectations just got all ahead of themselves. Look at the TTM revenue line - remember, this is a slow-burn indicator, gives you a smoothed-out look at how things are going. TTM revenue growth peaked at 47% in Q3 2020, and in Q1 2021, it stood at 44%, which isn't really very different if you zoom out far enough. It's just that early Covid Q2 2020 +62% vs Q2 2019 growth rate that got everybody overexcited.\nSkipping around a little here, the valuation stands at 16.5x TTM revenue in exchange for 44% TTM revenue growth. That is positive cheap by current standards.\n<img src=\"https://static.tigerbbs.com/5469d429652493191eb4cdcf2efee55e\" tg-width=\"238\" tg-height=\"247\" width=\"100%\" height=\"auto\">Cloudflare is asking you to pay 76x TTM revenue in exchange for 51% TTM revenue growth.\n<img src=\"https://static.tigerbbs.com/d1e47eab4ff42f7649937ad13cab0413\" tg-width=\"235\" tg-height=\"250\" width=\"100%\" height=\"auto\">Now don't get us wrong. Cloudflare is a better business. And we like how their management team rolls, all humblebrag-aw-shucks-what-me? whilst quietly stating that their aim is to be the dominant development environment and runtime forInternet 3.0(we paraphrase a little, but yes, that is what their grand plan is, and it might work). But it's notthatmuch better a business.\nBack to FSLY numbers. Remember how NET eats capex and leaks money into working capital? Well, same at FSLY.\nFirst, let's compare their capital expenditures using that slow-burn TTM method.\n<img src=\"https://static.tigerbbs.com/e8e760e2b8fb4ed434bfb9dec30b547b\" tg-width=\"640\" tg-height=\"89\" width=\"100%\" height=\"auto\"><img src=\"https://static.tigerbbs.com/04bb88b1b8d8d2722a84dfc263eefaec\" tg-width=\"640\" tg-height=\"91\" width=\"100%\" height=\"auto\">The company has TTM capex standing at 12% of TTM revenue, and is chalking up revenue growth of +44% on a TTM basis. Cloudflare, Inc is spending 18% of TTM revenue on its capex, again on a TTM basis; in exchange for +51% TTM revenue growth. So as a snapshot, FSLY is actually more efficient with its capex. The counter to that is, NET is building a big book of long-term business - as evidenced by its chunky RPO number - and that's what the additional capex is for. This is an interesting-if-true point to make. As in, it might be true and if so, it's a good use of their checkbook. But it has yet to translate into sufficient additional revenue growth vs. the competition to truly justify the expenditure on fundamental grounds.\nNext, margins. FSLY's gross margins are terrible, in the mid-50s%. It resembles Twilio (TWLO) in this regard, a big pay-away to telcos before you even get started. It's the biggest determinant of weak TTM EBITDA margins - which stand at negative 11% vs positive 3% at NET. And whilst those EBITDA margins at NET have been moving up, at FSLY, they have been moving down.\nTurning to cash flow - we've talked about capex already, now let's look at that boring-but-important point, change in working capital. (Remember this is simple. To do this well, pretty much all you have to do is collect cash from customers faster than you pay it to suppliers). If working capital management is bad at NET, and it is, then it is terrible at FSLY. TTM unlevered pre-tax free cash flow margins of negative 33%. This thing just eats money. And again, it has just $166m of net cash on hand vs. a TTM pre-tax pre-debt service cash burn of $104m as of the end of Q1. That means the company is very likely to raise money, via equity or debt placement. And off the back of a weak stock price that's likely to cause more pain in the stock.\nOK. You get the picture. NET is growing a little bit faster and spending more capex to do it; but its gross margins are much better so it has more money to burn in the first place. It appears to be building a big book of forward business in a way that FSLY is not, but right now, that is jam tomorrow, not revenue or earnings today. NET needs to raise capital soon in our view, and FSLY needs to raise capital sooner. So, on fundamentals, NET is a better pick, no question. But the valuation, yikes!\nNET and FSLY Stock Prices\nSince the Cloudflare IPO in 2019, NET has way outperformed FSLY and indeed the Nasdaq (shown here by way of the proxy ETF, Invesco QQQ Trust (QQQ).\n<img src=\"https://static.tigerbbs.com/89d1f9e65c0e2e7398b5ec7b053631ec\" tg-width=\"640\" tg-height=\"378\" width=\"100%\" height=\"auto\">As we state above, that NET has outperformed FSLY is justified to us on fundamentals. It's a better business with higher growth and more visibility of future growth. But right now, as earnings approaches for each of the stocks (FSLY reports on August 4th, NET on August 5th), which is the better bet for long-term investors? In short ...\nIs Cloudflare or Fastly Stock The Better Buy?\nThis isn't such a simple answer in our view. Allow us to ramble somewhat, and bear in mind, all we are talking about here is our own plans for our own money. You must, of course, do your own work and factor in your own risk appetite, time horizon, etc. But here's our approach.\nCloudflare Stock\nAs delighted as we are with the run-up in our NET holdings, and as much as we do in fact think that NET can deliver on some of those Internet 3.0 promises, the price is punchy indeed. So we rate NET at Neutral, meaning we ourselves aren't buying the stock at this point. We have a nice paper gain in long-term accounts and we've cashed a series of gains in short-term accounts along the way. But neither are we selling, because as extended as that stock price is, we think that the stock can move higher, maybe much higher, over the coming years. We think that 5-10 years out, $120/share for NET has every chance of looking like peanuts. We have about the right level of allocation now in those long-term accounts and so we are doing nothing there. If Q2 earnings are anything other than blowout, there is every chance the stock takes a dive and, if it does, we expect to play short-term once again, over and above our long-term holdings. (We keep totally separate accounts for long- and short-term holdings so we never get confused about what game we are playing).\nFastly Stock\nAs much as everybody gottoo excited about FSLY last year, so, we think, has everybody gotten too miserable this year. We have a modest allocation to FSLY in long-term accounts because ultimately we don't think the company will form part of the fabric of Internet 3.0, at least not as an independent. We don't see sufficient force of management personality, sufficiently broad product vision, nor the surround sound of Twitterati talking the thing up. Wedothink thepersistent rumors of FSLY being acquiredhave every chance of playing out and so at any given moment, we see a 20-30% or better premium available should Cisco (CSCO) or another strategic come calling. So, again, long-term holdings, we're doing nothing. We're tempted to add a little right now but with earnings so close, why take the risk? Once again our approach here is to wait for earnings. We are likely to trade it short term on any unjustified stock cratering - and indeed if the fundamentals are improving, as we have a funny feeling they will - look at the below-the-radar improvements in deferred revenue above in the last two quarters for instance - we may well add to our long-term positions at that point. For now, doing nothing before earnings, so, again, Neutral. In each case, a one-word rating doesn't really convey our plans here which is why we lay them out in such wordy detail - now you can shoot them down in flames when doing your own work!","source":"seekingalpha","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 Vs. Fastly Stock: Which Is The Better Buy?</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 Vs. Fastly Stock: Which Is The Better Buy?\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-08-05 22:25 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.\nFastly is a less good business with, in our view, less potential. ...\n\n<a href=\"https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy\">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.","FSLY":"Fastly, Inc."},"source_url":"https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1197602353","content_text":"Summary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.\nFastly is a less good business with, in our view, less potential. Its stock price has cratered of late, as growth has slowed and cash flow worsened.\nBoth stocks are shortly to report their Q2 earnings. We think earnings reaction risk is to the downside on Cloudflare, to the upside on Fastly.\nUltimately, we believe Cloudflare offers more upside for long-term investors, but we own both names in staff personal accounts and intend to add to both on any post-earnings weakness.\nWe would also flag that both companies look to us like they may raise capital soon - if, in the form of new equity, that can hit both stocks.\n\nPing Times May Be Similar But Time To Live Likely Differs\nSince consumer traffic started in earnest to course through the public Internet in the 1990s, content acceleration became important. The initial leader of this market, Akamai (AKAM), grew up in the dot-com era and remains a very solid business today. AKAM's original business model was simple and remains the foundation for content delivery network plays today; buy servers, rent space in telecom companies' datacenters, rent capacity on telecom networks, bill content owners for accelerated delivery of said content. As you can see, the business model is likely to be less cash generative than the now-commonplace cloud application software player, because, one, your gross margin gets hit with the telco pay-aways, and, two, your capex bill is heavy as you have to keep buying server kit. So scaling such a business - meaning, achieve a rate of growth in cash flow faster than the rate of growth in revenue - isn't so easy.\nThe two hot names in content acceleration today are Cloudflare (NET) and Fastly (FSLY). We've covered both of them on multiple occasions here on Seeking Alpha - you can read our past notes on Cloudflare, Inchereand our prior work on Fastlyhere. In addition, we own both stocks in staff personal accounts. We have a much greater allocation to NET than we do to FSLY (in a ratio of approximately 2:1). We have enjoyed an easy ride up on NET with even some poorly-timed averaging-up buys being forgiven by the Trading Gods, whereas we have been battling FSLY to average down our in-costs in the expectation of future gain and our valor has yet to be rewarded. In staff long-term accounts, we presently show a big paper gain on NET and a modest paper loss on FSLY. Along the way, we have also enjoyed separate short-term account gains in NET by buying dips and selling peaks to realize rapid cash gains. (We cover both stocks and our own trades blow by blow in our real-time, real-money Seeking Alpha Marketplace service,Cestrian Fundamentals).\nWhilst Cloudflare and Fastly core services have plenty of overlap, their business models and management styles are very different and this informs our approach to owning the names and our expectations going forward. Allow us to walk you through our views here.\nHow Is Cloudflare Different From Fastly?\nWell, first let's take a look at the similarities. Both offer content acceleration services to content owners, and both offer you something called edge computing, which is in essence the ability to place not just your content (movies, audio, etc.) on a machine near the user (as in, physically and logically near the user on the network - not in a data center thousands of miles away) but also an entire web application or parts thereof. To our investor eye, Cloudflare appears to have more product ambition; taking advantage of its edge network positioning, the company has launched a number of security services, for instance - the goal being to act as a single Internet on-ramp for its customers, a kind of Zscaler (ZS) embedded in the suite offer. If you want to deep-dive into product by product comparison on these two names - and if you do, take a tin hat, for opinions run high - take a look at a couple of engineers-turned-stock-people who cover both stocks in their work.\nNow, putting aside for the moment our own investor view that NET has a superior span of product and indeed more extensive product ambition - let's turn to the numbers.\nSource: Company SEC filings, YCharts.com, Cestrian Analysis\nLot of numbers there. Here are the highlights and lowlights as we see them.\nThe good:\n\nRevenue growth holding steady in the 50% range, gross margin holding steady in the 77% range.\nRemaining performance obligation (RPO) growth of 88% vs. prior year in Q1 2021. RPO is the total order book value, some of which is prepaid, most of which is not. RPO represents just over 90% of TTM recognized revenue so it is material vs. the recognized base, and it is growing faster than the recognized base. So, best guess, NET revenues can accelerate still further.\nAccounting profit in the guise of EBITDA (which we define as operating income, add back depreciation & amortization, add back stock-based compensation) has gone from very negative in 2019 to modestly positive in 2021 - we look at the TTM measure which is slow to respond up or down, it gives you a smoothed-out view of the direction of travel.\n\nThe bad:\n\nActual money-profit in the guise of unlevered pre-tax free cash flow, has gone from horribly negative in 2019 to, er, only very negative in 2021, which in and of itself is good, but, did we mention, cash flow was very negative on a TTM basis to the end of the March 2021 quarter. This is the whole nag with this business model - can they actually become cash flow positive, after capex, after change in working capital? Akamai is, but then it has nothing like the growth ambitions of these names.\nOnly $643m of net cash in the bank at the 31 March point. Given the cash burn, we would not be at all surprised to see the company raise money via an equity or debt placement and, if equity, we would expect a material hit to the stock price on a short-term basis at least. (We are watching closely for this and hope to buy any major dip that comes along).\n\nThe visually challenged:\n\nHuge capital expenditure (\"capex\") bill. Capex as you know is simply money that you spend on stuff that makes a noise when you drop it. Capex at NET, and for that matter FSLY, is mainly computing hardware. We expect significant capex here. But capex as a % of revenue is yet to show a consistent falling pattern - andonlyif we start to see some yield improvements here, some growth without much capex, can we conclude that scale benefits are beginning to flow. Right now the jury is out, and this is a big deal fundamentally.\nTerrible working capital management. This sounds complicated but isn't. If that \"change in working capital\" line was mainly positive, it would mean that in essence, the company collects money from its customers faster than it pays its suppliers. If mainly negative, it pays suppliers faster than it collects cash from its customers. You can see from the numbers that the latter is true. So here we have a business which, already bleeding money into the capex line, further leaks cash into working capital. This again is a big deal fundamentally. Best case, it says the business lacks the management discipline to tell suppliers to wait whilst it chases up customers. Worst case, it means the business is merely a commodity provider of services which can easily be found elsewhere, and they don't chase their customers lest they churn. Now we don'tthinkthat latter point is true; we think NET has a differentiated and sticky set of services - and if that's right, it means management just needs to get religion on cash management. They don't have it today.\n\nAs we shall see in a moment, Cloudflare's stock price flatters its fundamentals. It's not as good a business as its stock trajectory implies.\nFSLY Financials\nFastly, an early huge winner in the immediate response to the Covid crisis, now looks all beaten up if you look at its stock price, to which we shall turn in a moment. But if NET is not as good a business as its stock price implies, FSLY is not as bad a business asitsstock price implies. As investors, we must respect price before all else, everything else is just an input. But fundamentals do sometimes matter - very often you can see value building in the fundamentals that isn't reflected in the stock price, or indeed value waning that is yet to be reflected. Which means that sometimes, just sometimes, you can get ahead of the price game by reading the numbers. (If you read our Cloudflare notes linked above, you can see us making just that argument - hidden value - which did then come to fruition in the stock price).\nLet's take a look at Fastly's numbers.\nSource: Company SEC filings,YCharts.com, Cestrian Analysis\nOK, another lot of numbers. Less numbers though, because the company doesn't disclose its remaining performance obligation in its SEC reports. This is likely because there isn't much of it - they make much of the fact that billing (and by implication contracting) is usage-based and in arrears, so we wouldn't expect a great deal of revenue visibility here.\nTurning to the reported revenue - the deceleration is material, as you can see, and coupled with the lack of visibility, this is what we think is hurting the stock right now. Today's market is positively growth-addled and if your growth is coming down, well, your stock is going to get a beating. That said, it looks to us like folks' expectations just got all ahead of themselves. Look at the TTM revenue line - remember, this is a slow-burn indicator, gives you a smoothed-out look at how things are going. TTM revenue growth peaked at 47% in Q3 2020, and in Q1 2021, it stood at 44%, which isn't really very different if you zoom out far enough. It's just that early Covid Q2 2020 +62% vs Q2 2019 growth rate that got everybody overexcited.\nSkipping around a little here, the valuation stands at 16.5x TTM revenue in exchange for 44% TTM revenue growth. That is positive cheap by current standards.\nCloudflare is asking you to pay 76x TTM revenue in exchange for 51% TTM revenue growth.\nNow don't get us wrong. Cloudflare is a better business. And we like how their management team rolls, all humblebrag-aw-shucks-what-me? whilst quietly stating that their aim is to be the dominant development environment and runtime forInternet 3.0(we paraphrase a little, but yes, that is what their grand plan is, and it might work). But it's notthatmuch better a business.\nBack to FSLY numbers. Remember how NET eats capex and leaks money into working capital? Well, same at FSLY.\nFirst, let's compare their capital expenditures using that slow-burn TTM method.\nThe company has TTM capex standing at 12% of TTM revenue, and is chalking up revenue growth of +44% on a TTM basis. Cloudflare, Inc is spending 18% of TTM revenue on its capex, again on a TTM basis; in exchange for +51% TTM revenue growth. So as a snapshot, FSLY is actually more efficient with its capex. The counter to that is, NET is building a big book of long-term business - as evidenced by its chunky RPO number - and that's what the additional capex is for. This is an interesting-if-true point to make. As in, it might be true and if so, it's a good use of their checkbook. But it has yet to translate into sufficient additional revenue growth vs. the competition to truly justify the expenditure on fundamental grounds.\nNext, margins. FSLY's gross margins are terrible, in the mid-50s%. It resembles Twilio (TWLO) in this regard, a big pay-away to telcos before you even get started. It's the biggest determinant of weak TTM EBITDA margins - which stand at negative 11% vs positive 3% at NET. And whilst those EBITDA margins at NET have been moving up, at FSLY, they have been moving down.\nTurning to cash flow - we've talked about capex already, now let's look at that boring-but-important point, change in working capital. (Remember this is simple. To do this well, pretty much all you have to do is collect cash from customers faster than you pay it to suppliers). If working capital management is bad at NET, and it is, then it is terrible at FSLY. TTM unlevered pre-tax free cash flow margins of negative 33%. This thing just eats money. And again, it has just $166m of net cash on hand vs. a TTM pre-tax pre-debt service cash burn of $104m as of the end of Q1. That means the company is very likely to raise money, via equity or debt placement. And off the back of a weak stock price that's likely to cause more pain in the stock.\nOK. You get the picture. NET is growing a little bit faster and spending more capex to do it; but its gross margins are much better so it has more money to burn in the first place. It appears to be building a big book of forward business in a way that FSLY is not, but right now, that is jam tomorrow, not revenue or earnings today. NET needs to raise capital soon in our view, and FSLY needs to raise capital sooner. So, on fundamentals, NET is a better pick, no question. But the valuation, yikes!\nNET and FSLY Stock Prices\nSince the Cloudflare IPO in 2019, NET has way outperformed FSLY and indeed the Nasdaq (shown here by way of the proxy ETF, Invesco QQQ Trust (QQQ).\nAs we state above, that NET has outperformed FSLY is justified to us on fundamentals. It's a better business with higher growth and more visibility of future growth. But right now, as earnings approaches for each of the stocks (FSLY reports on August 4th, NET on August 5th), which is the better bet for long-term investors? In short ...\nIs Cloudflare or Fastly Stock The Better Buy?\nThis isn't such a simple answer in our view. Allow us to ramble somewhat, and bear in mind, all we are talking about here is our own plans for our own money. You must, of course, do your own work and factor in your own risk appetite, time horizon, etc. But here's our approach.\nCloudflare Stock\nAs delighted as we are with the run-up in our NET holdings, and as much as we do in fact think that NET can deliver on some of those Internet 3.0 promises, the price is punchy indeed. So we rate NET at Neutral, meaning we ourselves aren't buying the stock at this point. We have a nice paper gain in long-term accounts and we've cashed a series of gains in short-term accounts along the way. But neither are we selling, because as extended as that stock price is, we think that the stock can move higher, maybe much higher, over the coming years. We think that 5-10 years out, $120/share for NET has every chance of looking like peanuts. We have about the right level of allocation now in those long-term accounts and so we are doing nothing there. If Q2 earnings are anything other than blowout, there is every chance the stock takes a dive and, if it does, we expect to play short-term once again, over and above our long-term holdings. (We keep totally separate accounts for long- and short-term holdings so we never get confused about what game we are playing).\nFastly Stock\nAs much as everybody gottoo excited about FSLY last year, so, we think, has everybody gotten too miserable this year. We have a modest allocation to FSLY in long-term accounts because ultimately we don't think the company will form part of the fabric of Internet 3.0, at least not as an independent. We don't see sufficient force of management personality, sufficiently broad product vision, nor the surround sound of Twitterati talking the thing up. Wedothink thepersistent rumors of FSLY being acquiredhave every chance of playing out and so at any given moment, we see a 20-30% or better premium available should Cisco (CSCO) or another strategic come calling. So, again, long-term holdings, we're doing nothing. We're tempted to add a little right now but with earnings so close, why take the risk? Once again our approach here is to wait for earnings. We are likely to trade it short term on any unjustified stock cratering - and indeed if the fundamentals are improving, as we have a funny feeling they will - look at the below-the-radar improvements in deferred revenue above in the last two quarters for instance - we may well add to our long-term positions at that point. For now, doing nothing before earnings, so, again, Neutral. In each case, a one-word rating doesn't really convey our plans here which is why we lay them out in such wordy detail - now you can shoot them down in flames when doing your own work!","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":5439356,"gmtCreate":1628200158656,"gmtModify":1663231986432,"authorId":3581539047362830,"author":{"id":3581539047362830,"authorId":3581539047362830,"name":"Sunny0809","avatar":"https://static.tigerbbs.com/3ffb7aab0292fd1f17dfb9f99bc5eb03","vip":1,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":899214352,"type":1,"supId":0,"prevId":0,"content":"?","text":"?","html":"?"},{"id":5439311,"gmtCreate":1628199600077,"gmtModify":1663231985552,"authorId":3570776252336545,"author":{"id":3570776252336545,"authorId":3570776252336545,"name":"KelvinChan","avatar":"https://static.tigerbbs.com/322f5dea7567e161ddef26aec462d83d","vip":1,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":899214352,"type":1,"supId":0,"prevId":0,"content":"Good","text":"Good","html":"Good"}],"langContent":"EN"},{"id":899211748,"gmtCreate":1628198742484,"gmtModify":1703502857152,"author":{"id":"3586346704088441","authorId":"3586346704088441","authorIdStr":"3586346704088441","name":"EuGin","avatar":"https://static.tigerbbs.com/0befeb5f0d75efc917aa9316ebf9701a","vip":1,"crmLevel":3,"crmLevelSwitch":0,"idStr":"3586346704088441"},"htmlText":"Like for likes please!","listText":"Like for likes please!","text":"Like for likes please!","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":1,"repostSize":0,"link":"https://ttm.financial/post/899211748","repostId":1197602353,"repostType":4,"repost":{"id":"1197602353","pubTimestamp":1628173558,"share":"https://ttm.financial/m/news/1197602353?lang=&edition=fundamental","pubTime":"2021-08-05 22:25","market":"us","language":"en","title":"Cloudflare Vs. Fastly Stock: Which Is The Better Buy?","url":"https://stock-news.laohu8.com/highlight/detail?id=1197602353","media":"seekingalpha","summary":"Summary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up rec","content":"Summary\n<ul>\n <li>Cloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.</li>\n <li>Fastly is a less good business with, in our view, less potential. Its stock price has cratered of late, as growth has slowed and cash flow worsened.</li>\n <li>Both stocks are shortly to report their Q2 earnings. We think earnings reaction risk is to the downside on Cloudflare, to the upside on Fastly.</li>\n <li>Ultimately, we believe Cloudflare offers more upside for long-term investors, but we own both names in staff personal accounts and intend to add to both on any post-earnings weakness.</li>\n <li>We would also flag that both companies look to us like they may raise capital soon - if, in the form of new equity, that can hit both stocks.</li>\n</ul>\nPing Times May Be Similar But Time To Live Likely Differs\nSince consumer traffic started in earnest to course through the public Internet in the 1990s, content acceleration became important. The initial leader of this market, Akamai (AKAM), grew up in the dot-com era and remains a very solid business today. AKAM's original business model was simple and remains the foundation for content delivery network plays today; buy servers, rent space in telecom companies' datacenters, rent capacity on telecom networks, bill content owners for accelerated delivery of said content. As you can see, the business model is likely to be less cash generative than the now-commonplace cloud application software player, because, one, your gross margin gets hit with the telco pay-aways, and, two, your capex bill is heavy as you have to keep buying server kit. So scaling such a business - meaning, achieve a rate of growth in cash flow faster than the rate of growth in revenue - isn't so easy.\nThe two hot names in content acceleration today are Cloudflare (NET) and Fastly (FSLY). We've covered both of them on multiple occasions here on Seeking Alpha - you can read our past notes on Cloudflare, Inchereand our prior work on Fastlyhere. In addition, we own both stocks in staff personal accounts. We have a much greater allocation to NET than we do to FSLY (in a ratio of approximately 2:1). We have enjoyed an easy ride up on NET with even some poorly-timed averaging-up buys being forgiven by the Trading Gods, whereas we have been battling FSLY to average down our in-costs in the expectation of future gain and our valor has yet to be rewarded. In staff long-term accounts, we presently show a big paper gain on NET and a modest paper loss on FSLY. Along the way, we have also enjoyed separate short-term account gains in NET by buying dips and selling peaks to realize rapid cash gains. (We cover both stocks and our own trades blow by blow in our real-time, real-money Seeking Alpha Marketplace service,Cestrian Fundamentals).\nWhilst Cloudflare and Fastly core services have plenty of overlap, their business models and management styles are very different and this informs our approach to owning the names and our expectations going forward. Allow us to walk you through our views here.\nHow Is Cloudflare Different From Fastly?\nWell, first let's take a look at the similarities. Both offer content acceleration services to content owners, and both offer you something called edge computing, which is in essence the ability to place not just your content (movies, audio, etc.) on a machine near the user (as in, physically and logically near the user on the network - not in a data center thousands of miles away) but also an entire web application or parts thereof. To our investor eye, Cloudflare appears to have more product ambition; taking advantage of its edge network positioning, the company has launched a number of security services, for instance - the goal being to act as a single Internet on-ramp for its customers, a kind of Zscaler (ZS) embedded in the suite offer. If you want to deep-dive into product by product comparison on these two names - and if you do, take a tin hat, for opinions run high - take a look at a couple of engineers-turned-stock-people who cover both stocks in their work.\nNow, putting aside for the moment our own investor view that NET has a superior span of product and indeed more extensive product ambition - let's turn to the numbers.\n<img src=\"https://static.tigerbbs.com/4b54705844ce46a8f48f7d986cd113f4\" tg-width=\"640\" tg-height=\"587\" width=\"100%\" height=\"auto\"><img src=\"https://static.tigerbbs.com/ea25982971170997ab631a0e0e0af99f\" tg-width=\"640\" tg-height=\"220\" width=\"100%\" height=\"auto\">Source: Company SEC filings, YCharts.com, Cestrian Analysis\nLot of numbers there. Here are the highlights and lowlights as we see them.\nThe good:\n<ul>\n <li>Revenue growth holding steady in the 50% range, gross margin holding steady in the 77% range.</li>\n <li>Remaining performance obligation (RPO) growth of 88% vs. prior year in Q1 2021. RPO is the total order book value, some of which is prepaid, most of which is not. RPO represents just over 90% of TTM recognized revenue so it is material vs. the recognized base, and it is growing faster than the recognized base. So, best guess, NET revenues can accelerate still further.</li>\n <li>Accounting profit in the guise of EBITDA (which we define as operating income, add back depreciation &amp; amortization, add back stock-based compensation) has gone from very negative in 2019 to modestly positive in 2021 - we look at the TTM measure which is slow to respond up or down, it gives you a smoothed-out view of the direction of travel.</li>\n</ul>\nThe bad:\n<ul>\n <li>Actual money-profit in the guise of unlevered pre-tax free cash flow, has gone from horribly negative in 2019 to, er, only very negative in 2021, which in and of itself is good, but, did we mention, cash flow was very negative on a TTM basis to the end of the March 2021 quarter. This is the whole nag with this business model - can they actually become cash flow positive, after capex, after change in working capital? Akamai is, but then it has nothing like the growth ambitions of these names.</li>\n <li>Only $643m of net cash in the bank at the 31 March point. Given the cash burn, we would not be at all surprised to see the company raise money via an equity or debt placement and, if equity, we would expect a material hit to the stock price on a short-term basis at least. (We are watching closely for this and hope to buy any major dip that comes along).</li>\n</ul>\nThe visually challenged:\n<ul>\n <li>Huge capital expenditure (\"capex\") bill. Capex as you know is simply money that you spend on stuff that makes a noise when you drop it. Capex at NET, and for that matter FSLY, is mainly computing hardware. We expect significant capex here. But capex as a % of revenue is yet to show a consistent falling pattern - andonlyif we start to see some yield improvements here, some growth without much capex, can we conclude that scale benefits are beginning to flow. Right now the jury is out, and this is a big deal fundamentally.</li>\n <li>Terrible working capital management. This sounds complicated but isn't. If that \"change in working capital\" line was mainly positive, it would mean that in essence, the company collects money from its customers faster than it pays its suppliers. If mainly negative, it pays suppliers faster than it collects cash from its customers. You can see from the numbers that the latter is true. So here we have a business which, already bleeding money into the capex line, further leaks cash into working capital. This again is a big deal fundamentally. Best case, it says the business lacks the management discipline to tell suppliers to wait whilst it chases up customers. Worst case, it means the business is merely a commodity provider of services which can easily be found elsewhere, and they don't chase their customers lest they churn. Now we don'tthinkthat latter point is true; we think NET has a differentiated and sticky set of services - and if that's right, it means management just needs to get religion on cash management. They don't have it today.</li>\n</ul>\nAs we shall see in a moment, Cloudflare's stock price flatters its fundamentals. It's not as good a business as its stock trajectory implies.\nFSLY Financials\nFastly, an early huge winner in the immediate response to the Covid crisis, now looks all beaten up if you look at its stock price, to which we shall turn in a moment. But if NET is not as good a business as its stock price implies, FSLY is not as bad a business asitsstock price implies. As investors, we must respect price before all else, everything else is just an input. But fundamentals do sometimes matter - very often you can see value building in the fundamentals that isn't reflected in the stock price, or indeed value waning that is yet to be reflected. Which means that sometimes, just sometimes, you can get ahead of the price game by reading the numbers. (If you read our Cloudflare notes linked above, you can see us making just that argument - hidden value - which did then come to fruition in the stock price).\nLet's take a look at Fastly's numbers.\n<img src=\"https://static.tigerbbs.com/c3aa249a8140f7dea48136c586415d87\" tg-width=\"640\" tg-height=\"621\" width=\"100%\" height=\"auto\">Source: Company SEC filings,YCharts.com, Cestrian Analysis\nOK, another lot of numbers. Less numbers though, because the company doesn't disclose its remaining performance obligation in its SEC reports. This is likely because there isn't much of it - they make much of the fact that billing (and by implication contracting) is usage-based and in arrears, so we wouldn't expect a great deal of revenue visibility here.\nTurning to the reported revenue - the deceleration is material, as you can see, and coupled with the lack of visibility, this is what we think is hurting the stock right now. Today's market is positively growth-addled and if your growth is coming down, well, your stock is going to get a beating. That said, it looks to us like folks' expectations just got all ahead of themselves. Look at the TTM revenue line - remember, this is a slow-burn indicator, gives you a smoothed-out look at how things are going. TTM revenue growth peaked at 47% in Q3 2020, and in Q1 2021, it stood at 44%, which isn't really very different if you zoom out far enough. It's just that early Covid Q2 2020 +62% vs Q2 2019 growth rate that got everybody overexcited.\nSkipping around a little here, the valuation stands at 16.5x TTM revenue in exchange for 44% TTM revenue growth. That is positive cheap by current standards.\n<img src=\"https://static.tigerbbs.com/5469d429652493191eb4cdcf2efee55e\" tg-width=\"238\" tg-height=\"247\" width=\"100%\" height=\"auto\">Cloudflare is asking you to pay 76x TTM revenue in exchange for 51% TTM revenue growth.\n<img src=\"https://static.tigerbbs.com/d1e47eab4ff42f7649937ad13cab0413\" tg-width=\"235\" tg-height=\"250\" width=\"100%\" height=\"auto\">Now don't get us wrong. Cloudflare is a better business. And we like how their management team rolls, all humblebrag-aw-shucks-what-me? whilst quietly stating that their aim is to be the dominant development environment and runtime forInternet 3.0(we paraphrase a little, but yes, that is what their grand plan is, and it might work). But it's notthatmuch better a business.\nBack to FSLY numbers. Remember how NET eats capex and leaks money into working capital? Well, same at FSLY.\nFirst, let's compare their capital expenditures using that slow-burn TTM method.\n<img src=\"https://static.tigerbbs.com/e8e760e2b8fb4ed434bfb9dec30b547b\" tg-width=\"640\" tg-height=\"89\" width=\"100%\" height=\"auto\"><img src=\"https://static.tigerbbs.com/04bb88b1b8d8d2722a84dfc263eefaec\" tg-width=\"640\" tg-height=\"91\" width=\"100%\" height=\"auto\">The company has TTM capex standing at 12% of TTM revenue, and is chalking up revenue growth of +44% on a TTM basis. Cloudflare, Inc is spending 18% of TTM revenue on its capex, again on a TTM basis; in exchange for +51% TTM revenue growth. So as a snapshot, FSLY is actually more efficient with its capex. The counter to that is, NET is building a big book of long-term business - as evidenced by its chunky RPO number - and that's what the additional capex is for. This is an interesting-if-true point to make. As in, it might be true and if so, it's a good use of their checkbook. But it has yet to translate into sufficient additional revenue growth vs. the competition to truly justify the expenditure on fundamental grounds.\nNext, margins. FSLY's gross margins are terrible, in the mid-50s%. It resembles Twilio (TWLO) in this regard, a big pay-away to telcos before you even get started. It's the biggest determinant of weak TTM EBITDA margins - which stand at negative 11% vs positive 3% at NET. And whilst those EBITDA margins at NET have been moving up, at FSLY, they have been moving down.\nTurning to cash flow - we've talked about capex already, now let's look at that boring-but-important point, change in working capital. (Remember this is simple. To do this well, pretty much all you have to do is collect cash from customers faster than you pay it to suppliers). If working capital management is bad at NET, and it is, then it is terrible at FSLY. TTM unlevered pre-tax free cash flow margins of negative 33%. This thing just eats money. And again, it has just $166m of net cash on hand vs. a TTM pre-tax pre-debt service cash burn of $104m as of the end of Q1. That means the company is very likely to raise money, via equity or debt placement. And off the back of a weak stock price that's likely to cause more pain in the stock.\nOK. You get the picture. NET is growing a little bit faster and spending more capex to do it; but its gross margins are much better so it has more money to burn in the first place. It appears to be building a big book of forward business in a way that FSLY is not, but right now, that is jam tomorrow, not revenue or earnings today. NET needs to raise capital soon in our view, and FSLY needs to raise capital sooner. So, on fundamentals, NET is a better pick, no question. But the valuation, yikes!\nNET and FSLY Stock Prices\nSince the Cloudflare IPO in 2019, NET has way outperformed FSLY and indeed the Nasdaq (shown here by way of the proxy ETF, Invesco QQQ Trust (QQQ).\n<img src=\"https://static.tigerbbs.com/89d1f9e65c0e2e7398b5ec7b053631ec\" tg-width=\"640\" tg-height=\"378\" width=\"100%\" height=\"auto\">As we state above, that NET has outperformed FSLY is justified to us on fundamentals. It's a better business with higher growth and more visibility of future growth. But right now, as earnings approaches for each of the stocks (FSLY reports on August 4th, NET on August 5th), which is the better bet for long-term investors? In short ...\nIs Cloudflare or Fastly Stock The Better Buy?\nThis isn't such a simple answer in our view. Allow us to ramble somewhat, and bear in mind, all we are talking about here is our own plans for our own money. You must, of course, do your own work and factor in your own risk appetite, time horizon, etc. But here's our approach.\nCloudflare Stock\nAs delighted as we are with the run-up in our NET holdings, and as much as we do in fact think that NET can deliver on some of those Internet 3.0 promises, the price is punchy indeed. So we rate NET at Neutral, meaning we ourselves aren't buying the stock at this point. We have a nice paper gain in long-term accounts and we've cashed a series of gains in short-term accounts along the way. But neither are we selling, because as extended as that stock price is, we think that the stock can move higher, maybe much higher, over the coming years. We think that 5-10 years out, $120/share for NET has every chance of looking like peanuts. We have about the right level of allocation now in those long-term accounts and so we are doing nothing there. If Q2 earnings are anything other than blowout, there is every chance the stock takes a dive and, if it does, we expect to play short-term once again, over and above our long-term holdings. (We keep totally separate accounts for long- and short-term holdings so we never get confused about what game we are playing).\nFastly Stock\nAs much as everybody gottoo excited about FSLY last year, so, we think, has everybody gotten too miserable this year. We have a modest allocation to FSLY in long-term accounts because ultimately we don't think the company will form part of the fabric of Internet 3.0, at least not as an independent. We don't see sufficient force of management personality, sufficiently broad product vision, nor the surround sound of Twitterati talking the thing up. Wedothink thepersistent rumors of FSLY being acquiredhave every chance of playing out and so at any given moment, we see a 20-30% or better premium available should Cisco (CSCO) or another strategic come calling. So, again, long-term holdings, we're doing nothing. We're tempted to add a little right now but with earnings so close, why take the risk? Once again our approach here is to wait for earnings. We are likely to trade it short term on any unjustified stock cratering - and indeed if the fundamentals are improving, as we have a funny feeling they will - look at the below-the-radar improvements in deferred revenue above in the last two quarters for instance - we may well add to our long-term positions at that point. For now, doing nothing before earnings, so, again, Neutral. In each case, a one-word rating doesn't really convey our plans here which is why we lay them out in such wordy detail - now you can shoot them down in flames when doing your own work!","source":"seekingalpha","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 Vs. Fastly Stock: Which Is The Better Buy?</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 Vs. Fastly Stock: Which Is The Better Buy?\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-08-05 22:25 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy>seekingalpha</a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\nSummary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.\nFastly is a less good business with, in our view, less potential. ...\n\n<a href=\"https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy\">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.","FSLY":"Fastly, Inc."},"source_url":"https://seekingalpha.com/article/4444881-cloudflare-vs-fastly-stock-better-buy","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"1197602353","content_text":"Summary\n\nCloudflare is a good business with great potential, and its stock price has rocketed up recently reflecting that potential.\nFastly is a less good business with, in our view, less potential. Its stock price has cratered of late, as growth has slowed and cash flow worsened.\nBoth stocks are shortly to report their Q2 earnings. We think earnings reaction risk is to the downside on Cloudflare, to the upside on Fastly.\nUltimately, we believe Cloudflare offers more upside for long-term investors, but we own both names in staff personal accounts and intend to add to both on any post-earnings weakness.\nWe would also flag that both companies look to us like they may raise capital soon - if, in the form of new equity, that can hit both stocks.\n\nPing Times May Be Similar But Time To Live Likely Differs\nSince consumer traffic started in earnest to course through the public Internet in the 1990s, content acceleration became important. The initial leader of this market, Akamai (AKAM), grew up in the dot-com era and remains a very solid business today. AKAM's original business model was simple and remains the foundation for content delivery network plays today; buy servers, rent space in telecom companies' datacenters, rent capacity on telecom networks, bill content owners for accelerated delivery of said content. As you can see, the business model is likely to be less cash generative than the now-commonplace cloud application software player, because, one, your gross margin gets hit with the telco pay-aways, and, two, your capex bill is heavy as you have to keep buying server kit. So scaling such a business - meaning, achieve a rate of growth in cash flow faster than the rate of growth in revenue - isn't so easy.\nThe two hot names in content acceleration today are Cloudflare (NET) and Fastly (FSLY). We've covered both of them on multiple occasions here on Seeking Alpha - you can read our past notes on Cloudflare, Inchereand our prior work on Fastlyhere. In addition, we own both stocks in staff personal accounts. We have a much greater allocation to NET than we do to FSLY (in a ratio of approximately 2:1). We have enjoyed an easy ride up on NET with even some poorly-timed averaging-up buys being forgiven by the Trading Gods, whereas we have been battling FSLY to average down our in-costs in the expectation of future gain and our valor has yet to be rewarded. In staff long-term accounts, we presently show a big paper gain on NET and a modest paper loss on FSLY. Along the way, we have also enjoyed separate short-term account gains in NET by buying dips and selling peaks to realize rapid cash gains. (We cover both stocks and our own trades blow by blow in our real-time, real-money Seeking Alpha Marketplace service,Cestrian Fundamentals).\nWhilst Cloudflare and Fastly core services have plenty of overlap, their business models and management styles are very different and this informs our approach to owning the names and our expectations going forward. Allow us to walk you through our views here.\nHow Is Cloudflare Different From Fastly?\nWell, first let's take a look at the similarities. Both offer content acceleration services to content owners, and both offer you something called edge computing, which is in essence the ability to place not just your content (movies, audio, etc.) on a machine near the user (as in, physically and logically near the user on the network - not in a data center thousands of miles away) but also an entire web application or parts thereof. To our investor eye, Cloudflare appears to have more product ambition; taking advantage of its edge network positioning, the company has launched a number of security services, for instance - the goal being to act as a single Internet on-ramp for its customers, a kind of Zscaler (ZS) embedded in the suite offer. If you want to deep-dive into product by product comparison on these two names - and if you do, take a tin hat, for opinions run high - take a look at a couple of engineers-turned-stock-people who cover both stocks in their work.\nNow, putting aside for the moment our own investor view that NET has a superior span of product and indeed more extensive product ambition - let's turn to the numbers.\nSource: Company SEC filings, YCharts.com, Cestrian Analysis\nLot of numbers there. Here are the highlights and lowlights as we see them.\nThe good:\n\nRevenue growth holding steady in the 50% range, gross margin holding steady in the 77% range.\nRemaining performance obligation (RPO) growth of 88% vs. prior year in Q1 2021. RPO is the total order book value, some of which is prepaid, most of which is not. RPO represents just over 90% of TTM recognized revenue so it is material vs. the recognized base, and it is growing faster than the recognized base. So, best guess, NET revenues can accelerate still further.\nAccounting profit in the guise of EBITDA (which we define as operating income, add back depreciation & amortization, add back stock-based compensation) has gone from very negative in 2019 to modestly positive in 2021 - we look at the TTM measure which is slow to respond up or down, it gives you a smoothed-out view of the direction of travel.\n\nThe bad:\n\nActual money-profit in the guise of unlevered pre-tax free cash flow, has gone from horribly negative in 2019 to, er, only very negative in 2021, which in and of itself is good, but, did we mention, cash flow was very negative on a TTM basis to the end of the March 2021 quarter. This is the whole nag with this business model - can they actually become cash flow positive, after capex, after change in working capital? Akamai is, but then it has nothing like the growth ambitions of these names.\nOnly $643m of net cash in the bank at the 31 March point. Given the cash burn, we would not be at all surprised to see the company raise money via an equity or debt placement and, if equity, we would expect a material hit to the stock price on a short-term basis at least. (We are watching closely for this and hope to buy any major dip that comes along).\n\nThe visually challenged:\n\nHuge capital expenditure (\"capex\") bill. Capex as you know is simply money that you spend on stuff that makes a noise when you drop it. Capex at NET, and for that matter FSLY, is mainly computing hardware. We expect significant capex here. But capex as a % of revenue is yet to show a consistent falling pattern - andonlyif we start to see some yield improvements here, some growth without much capex, can we conclude that scale benefits are beginning to flow. Right now the jury is out, and this is a big deal fundamentally.\nTerrible working capital management. This sounds complicated but isn't. If that \"change in working capital\" line was mainly positive, it would mean that in essence, the company collects money from its customers faster than it pays its suppliers. If mainly negative, it pays suppliers faster than it collects cash from its customers. You can see from the numbers that the latter is true. So here we have a business which, already bleeding money into the capex line, further leaks cash into working capital. This again is a big deal fundamentally. Best case, it says the business lacks the management discipline to tell suppliers to wait whilst it chases up customers. Worst case, it means the business is merely a commodity provider of services which can easily be found elsewhere, and they don't chase their customers lest they churn. Now we don'tthinkthat latter point is true; we think NET has a differentiated and sticky set of services - and if that's right, it means management just needs to get religion on cash management. They don't have it today.\n\nAs we shall see in a moment, Cloudflare's stock price flatters its fundamentals. It's not as good a business as its stock trajectory implies.\nFSLY Financials\nFastly, an early huge winner in the immediate response to the Covid crisis, now looks all beaten up if you look at its stock price, to which we shall turn in a moment. But if NET is not as good a business as its stock price implies, FSLY is not as bad a business asitsstock price implies. As investors, we must respect price before all else, everything else is just an input. But fundamentals do sometimes matter - very often you can see value building in the fundamentals that isn't reflected in the stock price, or indeed value waning that is yet to be reflected. Which means that sometimes, just sometimes, you can get ahead of the price game by reading the numbers. (If you read our Cloudflare notes linked above, you can see us making just that argument - hidden value - which did then come to fruition in the stock price).\nLet's take a look at Fastly's numbers.\nSource: Company SEC filings,YCharts.com, Cestrian Analysis\nOK, another lot of numbers. Less numbers though, because the company doesn't disclose its remaining performance obligation in its SEC reports. This is likely because there isn't much of it - they make much of the fact that billing (and by implication contracting) is usage-based and in arrears, so we wouldn't expect a great deal of revenue visibility here.\nTurning to the reported revenue - the deceleration is material, as you can see, and coupled with the lack of visibility, this is what we think is hurting the stock right now. Today's market is positively growth-addled and if your growth is coming down, well, your stock is going to get a beating. That said, it looks to us like folks' expectations just got all ahead of themselves. Look at the TTM revenue line - remember, this is a slow-burn indicator, gives you a smoothed-out look at how things are going. TTM revenue growth peaked at 47% in Q3 2020, and in Q1 2021, it stood at 44%, which isn't really very different if you zoom out far enough. It's just that early Covid Q2 2020 +62% vs Q2 2019 growth rate that got everybody overexcited.\nSkipping around a little here, the valuation stands at 16.5x TTM revenue in exchange for 44% TTM revenue growth. That is positive cheap by current standards.\nCloudflare is asking you to pay 76x TTM revenue in exchange for 51% TTM revenue growth.\nNow don't get us wrong. Cloudflare is a better business. And we like how their management team rolls, all humblebrag-aw-shucks-what-me? whilst quietly stating that their aim is to be the dominant development environment and runtime forInternet 3.0(we paraphrase a little, but yes, that is what their grand plan is, and it might work). But it's notthatmuch better a business.\nBack to FSLY numbers. Remember how NET eats capex and leaks money into working capital? Well, same at FSLY.\nFirst, let's compare their capital expenditures using that slow-burn TTM method.\nThe company has TTM capex standing at 12% of TTM revenue, and is chalking up revenue growth of +44% on a TTM basis. Cloudflare, Inc is spending 18% of TTM revenue on its capex, again on a TTM basis; in exchange for +51% TTM revenue growth. So as a snapshot, FSLY is actually more efficient with its capex. The counter to that is, NET is building a big book of long-term business - as evidenced by its chunky RPO number - and that's what the additional capex is for. This is an interesting-if-true point to make. As in, it might be true and if so, it's a good use of their checkbook. But it has yet to translate into sufficient additional revenue growth vs. the competition to truly justify the expenditure on fundamental grounds.\nNext, margins. FSLY's gross margins are terrible, in the mid-50s%. It resembles Twilio (TWLO) in this regard, a big pay-away to telcos before you even get started. It's the biggest determinant of weak TTM EBITDA margins - which stand at negative 11% vs positive 3% at NET. And whilst those EBITDA margins at NET have been moving up, at FSLY, they have been moving down.\nTurning to cash flow - we've talked about capex already, now let's look at that boring-but-important point, change in working capital. (Remember this is simple. To do this well, pretty much all you have to do is collect cash from customers faster than you pay it to suppliers). If working capital management is bad at NET, and it is, then it is terrible at FSLY. TTM unlevered pre-tax free cash flow margins of negative 33%. This thing just eats money. And again, it has just $166m of net cash on hand vs. a TTM pre-tax pre-debt service cash burn of $104m as of the end of Q1. That means the company is very likely to raise money, via equity or debt placement. And off the back of a weak stock price that's likely to cause more pain in the stock.\nOK. You get the picture. NET is growing a little bit faster and spending more capex to do it; but its gross margins are much better so it has more money to burn in the first place. It appears to be building a big book of forward business in a way that FSLY is not, but right now, that is jam tomorrow, not revenue or earnings today. NET needs to raise capital soon in our view, and FSLY needs to raise capital sooner. So, on fundamentals, NET is a better pick, no question. But the valuation, yikes!\nNET and FSLY Stock Prices\nSince the Cloudflare IPO in 2019, NET has way outperformed FSLY and indeed the Nasdaq (shown here by way of the proxy ETF, Invesco QQQ Trust (QQQ).\nAs we state above, that NET has outperformed FSLY is justified to us on fundamentals. It's a better business with higher growth and more visibility of future growth. But right now, as earnings approaches for each of the stocks (FSLY reports on August 4th, NET on August 5th), which is the better bet for long-term investors? In short ...\nIs Cloudflare or Fastly Stock The Better Buy?\nThis isn't such a simple answer in our view. Allow us to ramble somewhat, and bear in mind, all we are talking about here is our own plans for our own money. You must, of course, do your own work and factor in your own risk appetite, time horizon, etc. But here's our approach.\nCloudflare Stock\nAs delighted as we are with the run-up in our NET holdings, and as much as we do in fact think that NET can deliver on some of those Internet 3.0 promises, the price is punchy indeed. So we rate NET at Neutral, meaning we ourselves aren't buying the stock at this point. We have a nice paper gain in long-term accounts and we've cashed a series of gains in short-term accounts along the way. But neither are we selling, because as extended as that stock price is, we think that the stock can move higher, maybe much higher, over the coming years. We think that 5-10 years out, $120/share for NET has every chance of looking like peanuts. We have about the right level of allocation now in those long-term accounts and so we are doing nothing there. If Q2 earnings are anything other than blowout, there is every chance the stock takes a dive and, if it does, we expect to play short-term once again, over and above our long-term holdings. (We keep totally separate accounts for long- and short-term holdings so we never get confused about what game we are playing).\nFastly Stock\nAs much as everybody gottoo excited about FSLY last year, so, we think, has everybody gotten too miserable this year. We have a modest allocation to FSLY in long-term accounts because ultimately we don't think the company will form part of the fabric of Internet 3.0, at least not as an independent. We don't see sufficient force of management personality, sufficiently broad product vision, nor the surround sound of Twitterati talking the thing up. Wedothink thepersistent rumors of FSLY being acquiredhave every chance of playing out and so at any given moment, we see a 20-30% or better premium available should Cisco (CSCO) or another strategic come calling. So, again, long-term holdings, we're doing nothing. We're tempted to add a little right now but with earnings so close, why take the risk? Once again our approach here is to wait for earnings. We are likely to trade it short term on any unjustified stock cratering - and indeed if the fundamentals are improving, as we have a funny feeling they will - look at the below-the-radar improvements in deferred revenue above in the last two quarters for instance - we may well add to our long-term positions at that point. For now, doing nothing before earnings, so, again, Neutral. In each case, a one-word rating doesn't really convey our plans here which is why we lay them out in such wordy detail - now you can shoot them down in flames when doing your own work!","news_type":1},"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":5439319,"gmtCreate":1628199712579,"gmtModify":1663231985830,"authorId":3569839276167842,"author":{"id":3569839276167842,"authorId":3569839276167842,"name":"knn","avatar":"https://static.tigerbbs.com/f65a45bca8e472abcabb8f3a9ee2e9b0","vip":1,"crmLevel":5,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":899211748,"type":1,"supId":0,"prevId":0,"content":"comment","text":"comment","html":"comment"}],"langContent":"EN"}],"hasMoreComments":true,"newsSizeData":{"likeSize":470,"commentSize":58,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false}}