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Cloudflare Q1 - Take A Look Below The Waterline

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Cloudflare Q1 - Take A Look Below The Waterline
Photo by Ankhesenamun / Unsplash

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RPO, Your Glimpse Into The Future

by Alex King

Summary:

  • Cloudflare delivered a slight beat on the revenue line in its Q1, reported yesterday after the close.
  • Growth sits at 30% YoY, or 32% on a TTM vs prior year basis. The guide for next quarter is a slowdown to 28% (implying TTM growth of 30%).
  • EBITDA margins dipped a point, which is unusual, but on the other hand TTM unlevered pretax FCF hit breakeven for the first time ever.
  • The balance sheet remains safe.
  • Read on for our ratings, financial and technical analysis, and price targets.

Backgrounder For Normalfolk

Cloudflare, if you don't live and breathe proxy servers, is a business of increasing structural importance to the Internet. The company provides network edge services; this means they buy server hardware and lease telecom capacity, put the hardware at the edge of the public network (physically and topologically close to customers), and use that proximity to (i) serve German Shepherd videos faster than other platforms (ii) allow developers to write and deploy applications near the enterprise for low latency and also (iii) deploy a 'zero-trust' security perimeter around enterprise assets in the manner of ZScaler. This may sound boring to you, but when Cloudflare trips on its own shoelaces, which is not often, your choice of German Shepherd / enterprise application / security hurdle is likely to also hit the deck. Which is unacceptable, clearly. So customers pay Cloudflare a lot of money to keep the lights on. The heavier the compute load in the cloud, the more Cloudflare's services are important. There are competitors, yes - Amazon and Fastly can send those cat videos probably just as fast - and ZScaler likely has better pureplay security tools - but taken as a whole, the success of this company is of increasing importance to a whole lot of customers.

This is perhaps why a relatively small business - enterprise value just shy of $25bn at present - has a stock which increasingly trades very nicely to technicals. When you see key technical levels respected as a stock goes about its business, and in particular when you see the options market behave in a way to swipe money off of folks in a too-perfect manner? That's the hallmark of an institutionally owned and traded stock.

Cloudflare printed perfectly solid numbers yesterday, but the stock dumped pronto. The price held at a key technical level. Let's dive into the implications of that. First, the headline numbers.

Headline Numbers

Fundamental Analysis, Valuation, Rating, Price Targets

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