Cloudflare Stock: a Short-term Winner or Long-term Opportunity?

Network-based cloud computing is beginning to become a critical piece of infrastructure for businesses as they run operations on a global scale. However, security vulnerabilities are a concern, which is why solutions are being developed.

Cloudflare (NYSE: NET) is a cloud-based service company that provides network security and protects operations of an abundance of internet applications. Not only are front-end resources protected but also the back-end, which enables security that is unparalleled for global operations.

Cloudflare Stock has skyrocketed as of lately, easily surpassing over 100% growth year-to-date. After the recent surge, some investors began wondering if it’s become overvalued as the stock has started to flatten out. However, other investors are beginning to see a compelling long-term opportunity. Here’s what investors need to know about Cloudflare stock.

Cloudflare dominates revenue in most recent quarter

In the second quarter of this year, Cloudflare reported compelling revenue growth of 53% year-over-year which resulted in $152 million in revenue. Cloudflare also managed to grow its customer base to over 126,000 paying customers, 1,088 of which are large customers with annualized revenue of greater than $100,000.

For comparison, in the second quarter of 2020, Cloudflare had only 637 large customers. The growth is certainly not slowing down. To diversify the revenue portfolio, Cloudflare has looked towards international clients, which quickly resulted in 48% of revenue coming from customers outside of the U.S.

Cloudflare’s Infrastructure continues to attract large clients

As with any business, it’s important to recognize the importance of the product or service. In Cloudflare’s case, its infrastructure is necessary for an abundance of businesses.

Cloudflare works with a variety of clients ranging from smaller businesses to the top Fortune corporations. This is so they can diversify their revenue streams to survive against competition or heavy economic difficulties.

As of June 30, 2021, 19% of the Fortune 1,000 companies were utilizing Cloudflare’s infrastructure to run their business. It wouldn’t be surprising to see this metric continue to move upwards as it’s hard to compete with Cloudflare’s capabilities. Without these services that Cloudflare offers, many businesses would struggle to secure their online resources as cloud-based operations are a complexity.

The sheer amount of cyberattacks on vulnerable data centers is exponentially increasing as businesses flock towards cloud-based data systems. However, this is heavily minimized with Cloudflare’s service. With just Cloudflare’s services alone, an average of 87 billion cyber-attack attempts or threats is blocked per day. This is all due to Cloudflare’s heavy encryption and security abilities.

Cloudflare Stock: a Short-term Winner or Long-term Opportunity?
Cloudflare, an American web infrastructure and website security company

Wallstreet analyst sees Cloudflare beating Q3 estimates

Amongst the valuations on Wallstreet, Cloudflare has actually outperformed currently trading 37% higher than the average target price. Truist analyst Josh Fishbein recently raised Truist’s valuation of Cloudflare stock to $185, which is on par with the current trading price.

The analyst expects Cloudflare to beat Q3 revenue expectations and raise the Q4 guidance. The analyst added that Cloudflare is well positioned to benefit from the digitalisation of the economy, in particular the companies solutions such as Teams that enforce Secure web gateways and enforcing access controls.

Another Wallstreet analyst, Shaul Eyal from Cowen holds the street high valuation of $200 on Cloudflare stock. Eyal also expects solid results in Q3, especially in the companies cybersecurity coverage group. Furthermore, the analyst added that the companies information asset protection and compliance will be behind the revenue growth. The analysts target currently represents an upside of 8.1% on Cloudflare stock.

Final Thoughts – Cloudflare Stock Forecast

While there are many data stocks out there, the network security industry remains extremely new. Cloudflare aims to grow at a fast rate over the next few years as they provide a critical component to all businesses that have valuable assets online.

Some people have suggested that Cloudflare is going after Amazon Web Services (AWS) customers. However, even if they aren’t able to take customers from AWS, there’s more than enough room for both companies to succeed in this growing industry. Overall, given the growth we can see with the fundamentals of Cloudflare from revenues, customers, and more, the growth story could just be beginning.

The information above is strictly for informational purposes only and is not financial advice nor does it constitute a recommendation. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.

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