2024-06-03 10:48:59 ET
Summary
- Cloudflare reported reasonable Q1 results, but cautious commentary, disappointing guidance, and poor results from peers have contributed to a significant decline in the share price.
- While the ongoing growth deterioration is concerning, there is little to suggest that there are serious company specific issues.
- Temporary weakness provides a reasonably attractive entry point into a high-quality company with a long growth runway.
- Cloudflare's growing portfolio of solutions and go-to-market changes should lead to a growth reacceleration once the demand environment improves.
Cloudflare ( NET ) reported reasonable Q1 results, but its commentary on the earnings call was cautious, and guidance likely disappointed investors who were expecting a growth acceleration in 2024. None of this should have been surprising, though.
The last time I wrote about Cloudflare, I suggested that higher interest rates and elevated geopolitical risk were likely to weigh on customer spending going forward, undermining expectations of a growth re-acceleration. I also suggested that Cloudflare's valuation was too high, particularly given the current interest rate environment. The stock is down approximately 20% since then, and it is now being more widely recognized that most SaaS companies will continue to face headwinds in 2024....
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Cloudflare: Pullback Presents An Opportunity