Despite a recent drop, NET stock is still sparkling
Heavyweight of advanced computing Cloudflare (NYSE:REPORT) the stock has been down since November 18, the day NET stock hit an all-time high of $ 221.64 intraday. Part of the reason was the phishing attack and the theft of $ 120 million in cryptocurrency suffered through BadgerDAO, a decentralized finance platform (DeFi).
Badger cited, it was “the result of a maliciously injected snippet provided by Cloudflare workers. Cloudflare Workers is an interface for running scripts that run on and modify web traffic as it passes through Cloudflare proxies.
Over the past month, NET stock has fallen 32% and is now trading around $ 140. Yet despite the recent drop, stocks have risen nearly 83% year-to-date.
Cloudflare is one of the most successful since its initial public offering in September 2019. In the content distribution networks sector, it dominated the market with a share of almost 40%. Among its competitors are Akamai Technologies (NASDAQ:AKAM), that of Amazon (NASDAQ:AMZN) CloudFront, Boot CDN, Quickly (NYSE:FSLY), Meta-platforms (NASDAQ:FB) and Zscaler (NASDAQ:ZS), among others.
Wall Street continues to highlight Cloudflare’s long-term growth potential. However, the NET stock may not be able to immediately recover from its recent losses.
How the quarterly results came in
Founded in 2009, San Francisco-based Cloudflare provides advanced cloud-based global computing and web security systems. Its customers rely on the company to improve the performance and reliability of Internet applications.
Management issued Q3 financial results in early November, which posted better than expected revenues and profits. Revenue of $ 172.3 million meant growth of 51% from a year ago.
Non-GAAP net income of $ 1.4 million resulted in diluted earnings of zero per share. In the prior year quarter, the non-GAAP net loss and loss per share were -5.8 million and -2 cents, respectively. Cash and available-for-sale securities ended the quarter at $ 1.8 billion.
“Our strong growth and efficiency also propelled us to profitability this quarter, reaching this milestone a year ahead of our initial schedule,” said CEO Matthew Prince. “We’re laser-focused on reinvesting profits into our business, continuing to fuel our innovation machine and supporting even more global organizations as they connect to our network platform. “
Analysts have noted the growth in the number of large customers, that is, those who generate more than $ 100,000 in revenue per year. With the 170 additional business customers during the quarter, the total number of large customers rose to more than 1,250, up 71% from the previous year. Looking ahead, management has raised the revenue forecast for fiscal 2021 compared to the forecast for the previous quarter of $ 629 – $ 633 between $ 647 million and $ 648 million.
Add NET stocks to portfolios
Among 17 analysts interrogates, the Cloudflare stock currently has a “buy” rating. Additionally, the consensus of 14 analysts for a 12-month median price target stands at $ 220, implying a potential upside of 50% from current levels. The 12-month median price estimate is between $ 144 and $ 250.
NET shares are trading 69x behind Sales and 49.8 times the book value. These measures imply that the stock is trading at high valuations, despite the recent pullback. In comparison, its peers Akamai Technologies, Fastly, and Zscaler are currently trading at 5.53x, 13.47x, and 55.39x, respectively, of sales value.
the content delivery network The market is expected to grow at a compound annual growth rate of over 30% from 2021 to 2026, reaching “a market size of $ 73,008 billion by 2026, up from $ 11.473 billion in 2019,” according to a recent report.
Cloudflare is a strong company with significant long-term growth prospects in the CDN space. However, it is not yet profitable. And as the Federal Reserve prepares to raise interest rates, high-growth stocks should take a break.
Therefore, long-term investors, who do not yet own NET shares, should consider waiting for a better entry point. A further decline to the $ 120 level would improve the margin of safety.
Alternatively, interested readers might consider purchasing an exchange-traded fund that offers exposure to NET stocks as an equity. Examples include the Defiance Next Generation Big Data ETF (NYSEARCA:BIG), the NASDAQ First Trust Cyber Security ETF (NASDAQ:CIBR), the ETF Simplifying Volt Cloud and Cyber Security Disruption (NYSEARCA:VCLO), and the ETF Wedbush ETFMG on global cloud technology (NYSEARCA:Ive).
The bottom line
Cloudflare has experienced significant growth through innovative products and the acquisition of new customers. It offers basic versions of new services free of charge to increase the number of customers. Management then presents improved versions of these new products to subscribers.
Today the company has more than 132,000 paying customers worldwide. In addition to launching new services, Cloudflare recently announcement he will acquire Zaraz, a startup whose offering can quickly accelerate website speed and performance.
Yet despite additional growth prospects as part of the digital transition, the NET share price already reflects much of this future optimism. As a result, Cloudflare’s share price could continue to be under pressure in the coming weeks.
As legendary investor Warren Buffett suggests, “Just buy something for less than it’s worth.
ohAt the date of publication, Tezcan Gecgil had (directly or indirectly) no position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to the InvestorPlace.com Publication guidelines.
Tezcan Gecgil, Ph.D., has worked in investment management for over two decades in the US and UK. In addition to having completed graduate studies in the field, she has also passed all three levels of the Chartered Market Technician (CMT) exam. His passion is for options trading based on the technical analysis of fundamentally sound companies. She especially enjoys setting up weekly covered calls to generate income.