Is Cloudflare a buy?

It’s time to talk about a popular cloud name. Here is the breakdown on $NET, otherwise known as Cloudflare.


Current Price: $80.28

52/Wk High: $84.36

52/Wk Low: $15.05


Market Cap: $23.8 billion


Read below for the breakdown!


Cloudflare is a major software and IT services cloud company that owns and operates a significant cloud platform used to deliver a vast array of services to many different businesses.


According to the company’s website, Cloudflare serves 20 million HTTP requests per second on average and serves data in over 100 different countries and 200 cities around the world.


When it comes to Cloudflare’s customer list the company has worked with the likes of Doordash, Shopify, Thomson Reuters, and Zendesk.


Taking a look at Cloudflare’s earnings the numbers have been improving over the course of the last five quarters. Cloudflare reported a Q3 beat with an EPS of $-0.02 versus the EPS consensus estimate of $-0.05.


Cloudflare also saw plenty of growth under the hood, with third-quarter revenues totaling $114.2 million, representing 54% year over year growth. Management also reported a gross profit of $87.2 million, equating to a gross margin of 76.3%.


Unfortunately, Cloudflare did run an operating loss of $21.3 million, representing roughly 18.6% of revenues. On the flip side, the loss has improved from the previous year’s Q3 loss of $41.1 million.


Finally, Cloudflare reported a net loss of $26.5 million, much better than the Q3 2019 loss of $40.9 million. On the bright side, the company added roughly 100 net large enterprise customers throughout the third quarter.


When it comes to Q4 guidance management expects total revenues of $117.5 million to $118.5 million and a non-GAAP loss from operations of $10 million to $9 million.


For the full year, Cloudfare management expects total revenues of $422.5 million to $423.5 million and a non-GAAP loss from operations of $38 million to $37 million.


“Our third quarter represented many significant milestones including surpassing $100M in revenue, crossing 100,000 paying customers, and releasing more than a dozen new products and features,” CEO Matthew Prince said (cloudflare.net).


Shifting into the balance sheet the numbers are quite solid.


Total Debt: $375 million


Total Liabilities: $545 million


Total Assets: $1.371 billion


Cash & Short Term Inv: $1.055 billion


When it comes to the valuation the stock itself is quite pricy.


Price to Sales: 61.06x

Price to Book: 28.72x


Taking a look at management performance and effectiveness there is room for improvement.


Return on Equity: -14.49%


Return on Assets: -10.27%


Return on Invested Capital: -11.33%


Given the numbers the analysts remain neutral on Cloudflare, with the mean price target sitting at $70.23/share, representing a -12.17% downside.


It is also important to note that Cloudflare’s high price target is $87.00/share, representing an 8.80% gain, while the low price target is $44.00/share, representing a -44.97% loss.


When it comes to the technicals it seems Cloudflare stock could be flashing an opportunity. According to the six-month charts, the MACD is within a moderately strong upward momentum trend within a range of 5.79 down to 5.31.


The six-month charts are also indicating an RSI of 67.52 and CCI of 99.86, both of which are on the high end but not to far gone. On another note, Cloudflare stock currently trades just a few points off its highs but is pulling back.


In short, Cloudflare is another attractive cloud play that I believe will be a winner in the long run. In the short term the stock is quite expensive, and waiting for a pullback is likely the safe decision.


EAT - SLEEP - PROFIT


Disclaimer: This is not direct financial advice, simply an opinion based on independent research.