NET shares are currently trading at astronomical levels, so wait for the drop
Cloudflare (NYSE:REPORT) continues to move forward with determination after a spectacular third quarter. Again he delivered more than 50% quarterly turnover growth compared to the period of the previous year. As a result, its share price is now trading at astronomical levels. Nonetheless, with its strong business model and incredible outlook, this company is hard to ignore. Therefore, investors should accumulate NET shares in the dips.
Cloudflare’s growth story has been nothing short of impressive. It has grown its revenue rapidly with incredible net retention rates over the past few quarters. The company has focused on creating a highly scalable and robust network for its users to continue to grow on both lines.
Bulls believe his remarkable customer acquisition validates his strong value proposition. On the flip side, the bears would point out that NET stocks are trading at nosebleed valuations – they’re about 100 times forward selling.
However, the truth lies somewhere in the middle, which makes it imperative to examine at this point.
Cloudflare Achieves Stellar Third Quarter Results
Cloudflare finished another impressive third quarter. His revenue of $ 172 million increased by 51% from the period of the previous year. What’s more, they also rose more than 13% on a sequential basis and far exceeded analysts’ estimates of $ 6.65 million. In addition, Cloudflare broke even on a non-GAAP basis and its results exceeded analysts’ estimates by approximately four cents.
Cloudflare has been extremely successful as a Software as a Service (SaaS) company, delivering cutting edge measurables. They are leading the pack among their peer group, with nearly 77% gross margins. For investors, the scalability of Cloudflare is extremely important because profitability has eluded from the start.
The company added 170 large customers during the third trimester. Large clients are those who generate more than $ 100,000 in annual recurring revenue. Large customers have grown over 126% since the first quarter. And, there was a healthy 16% sequential increase from the second to the third trimester.
Plus, sales aren’t slowing down anytime soon. Cloudflare guidance metrics predict $ 184 million to $ 185 million for the fourth quarter, which is a 47% year-over-year increase. The company expects to hit breakeven per share again. Cloudflare has grown its paying customer base with each passing quarter, especially its large customer base.
A new collaboration, product and distinction
There have been some positive developments for Cloudflare over the past couple of months. Perhaps the most remarkable is his collaboration with top search engine companies including Microsoft (NASDAQ:MSFT) and Yandex (NASDAQ:YNDX).
The goal is to help businesses dramatically improve search performance and reduce inefficiencies in delivering timely online experiences. According to Mathew Prince, CEO of Cloudflare: “From the beginning, we have worked to help our customers give them the speed, reliability and security they need to do business.
The company will also offer an all-new email security suite that integrates effectively with its other solutions. In addition, Cloudflare beat its competitors and obtained the designation of “Leader” of Forrester’s New Wave for Edge Development Platforms. Cloudflare has outstripped industry mainstays such as Quickly (NASDAQ:FSLY) and Microsoft in each category during the selection process.
The senior officers of the company have a formidable vision to advance the company in its objectives. However, the valuation of the NET stock remains a concern, and it is essentially a gamble for long-term investors.
Net result on NET stock
Cloudflare never ceases to amaze as he has cordoned off another stellar quarter. Both revenues and profits are up by a good margin, and the forecast points to an even stronger fourth quarter.
In addition, he has added several important new clients, which will significantly increase his recurring revenue. Yet the NET stock is trading at a high valuation which is too high to ignore.
Therefore, it is better to wait for short-term declines in the stock to invest in it for the foreseeable future.
As of the publication date, Muslim Farooque does not have (directly or indirectly) any position on any of the titles mentioned in this article. The opinions expressed in this article are those of the author, subject to the publication guidelines of InvestorPlace.com.
Muslim Farooque is a passionate investor and an optimist at heart. A long-time player and passionate about technology, he has a particular affinity for analyzing technology stocks. Muslim holds a Bachelor of Science in Applied Accounting from Oxford Brookes University.