NET - Cloudflare: Buy The Dip To Ride For Long-Term Upside (Rating Upgrade)

2024-05-31 23:37:06 ET

Summary

• Cloudflare reported strong Q1 FY24 earnings with revenue and earnings growth of 30% and 118% YoY, respectively, with large customers spending $100K contributing 67% of Total Revenue.
• The company is penetrating the enterprise customer segment and has a growing product attach rate among customer cohorts as it acquires new customers and deepens adoption among existing ones.
• The company is using a combination of product innovation, forging a partnership with CrowdStrike and expanding its sales team to capture market share in the coming years, while expanding its profitability.
• Although there could be short-term volatility driven by an uncertain global geopolitical environment, I believe that the risk-reward looks attractive to initiate a position, making it a “buy”.

Introduction & Investment Thesis

Cloudflare ( NET ) is a web security and network protection services company that has underperformed the S&P 500 and Nasdaq 100 YTD. I initiated a “hold” rating on the stock on March 4, and my investment thesis was predicated on my belief that the valuation reflected no incremental upside despite the company’s improving fundamentals....

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