by Ian Harvey
October 14, 2020
Cloudflare stock soared on Monday after the launching of its new cloud-based platform Cloudflare One; promising to secure and connect companies and remote working teams anywhere and on any device. As well, the Street has a bullish outlook on the stock. More upward momentum is expected.
Stock Options Made Easy “Cut-to-the-Chase Members,” are now up potential profits of 517.5% on a call trade that was executed on August 24; this will expire on October 16.
The San Francisco-based company shares are soaring after the announcement of Cloudflare One, a network-as-a-service solution for cloud-based security, performance, and control through a single user interface.
The company said that Cloudflare One replaces a patchwork of appliances and WAN technologies with a single network that provides cloud-based security, performance, and control through one user interface.
The company also said that it has integrated the Cloudflare One platform with all major providers of identity management and device-security solutions. Microsoft Active Directory, Google Workspace, Okta and Ping Identity are some of the notable providers of Cloudflare One.
Why The Continued Momentum…..
CEO Matthew Prince said the pandemic has caused many companies to accelerate their digital transformation plans and Cloudflare is providing the services they need to manage their digital assets. They offer the tools companies need for privacy, cybersecurity, compliance and more.
Cloudflare is a web security, content delivery network (infrastructure that moves data across the internet), and web- and application-developer platform. But unlike many other technology firms, Cloudflare usually brings new services to market for individual developers and small businesses -- often releasing new products (or some features of products) for free.
Cloudflare has loaded up its funnel of potential paying users with this approach, and it boasted having over 3 million free and paying customers at the end of June 2020. Cloudflare said its large customers (those that pay at least $100,000 a year to Cloudflare) increased 65% year-over-year to 637, but its strategy of releasing new tools for small and free users gets it early access to future leaders in the tech world before they become household names.
Now, with Cloudflare One, which is available as of today, the company said, will be launching new features and products throughout the course of the week.
"It's going to be a busy week, but we're just getting started," said Cloudflare Matthew Prince.
A Look At The Recommendation…..
……that was executed by “Cut-to-the-Chase Members” on Monday, August 24, 2020.
**** OPTION TRADE: Buy NET OCT 16 2020 40.000 CALLS at approximately $3.20.
“The web infrastructure and security stock Cloudflare Inc (NYSE: NET) shares are down double-digit percentages since reporting on its second quarter -- but up nearly 120% so far in 2020, it was bound to take a breather sooner or later. But let's not take away from the internet infrastructure firm's accomplishments amid the pandemic.
Cloudflare, which develops web-based and edge network security and content delivery services, added 7,000 paying customers during the second quarter, bringing the total count up to over 96,000. Among those new users of its platform, large customers that pay at least $100,000 a year increased 65% from last year. With the operations of businesses large and small undergoing massive disruption and security attacks a constant concern during Q2, Cloudflare's software-based infrastructure was in high demand. Building on the 49% increase in 2019, Q2 2020 sales soared 48% during the spring months to $99.7 million.
Also of note, Cloudflare's adjusted net losses narrowed dramatically to just $9.6 million, compared to losses of $18.6 million last year. And though it was a difficult period, gross profit margin on services rendered remained high at nearly 76%. While this technologist is all about growth now and profits later (the outlook for Q3 called for year-over-year growth of 39%), those high-margin software services will eventually translate into a lucrative bottom-line.
Cloudflare Inc is a United States-based company engaged in the software business. It has built a cloud platform that delivers a range of network services to businesses. The product offerings of the company include Argo Smart Routing, Load Balancing, Web Optimizations, Cloudflare Access, and Cloudflare Spectrum among others.
Cloudflare had its initial public offering in September, and the company's stock now trades up roughly 69% from the closing price on the day of its market debut.
Cloudflare last released its quarterly earnings data on Thursday, August 6th.
Cloudflare’s 2Q revenues jumped 48% to $99.7 million year-over-year and beat analysts’ expectations of $94.1 million thanks to strong growth in its paying customer base. The cloud networking and security solution provider’s paying user base increased 24% mainly driven by elevated demand for cloud-based solutions amid the coronavirus-led work-from-home wave.
Cloudflare posted a 2Q loss of $0.03 per share which was also narrower than the Street estimates of $0.06 and lower than the year-ago quarter’s loss of $0.22.
The company’s co-founder and CEO, Matthew Prince said, "We delivered a strong second quarter, with revenue growth up 48% year-over-year, and added a record number of both large and paying customers." He further added, "It has been incredible to see the rate of innovation that has continued, and even accelerated, as we work remotely.”
Ahead of its earnings, on August 4, RBC Capital analyst Matthew Hedberg raised the price target on the stock to $48 (16.1% upside potential) from $29 and maintained a Buy rating. Hedberg had anticipated a strong 2Q result and stated that “the company is well positioned post-COVID given its cloud-based platform that benefits from greater use of internet and remote work.”
On average, research analysts anticipate that Cloudflare Inc will post -0.34 earnings per share for the current year.
NET recently raised its guidance after its Q2 2020 results blew estimates out of the water. The strong showing was driven by elevated demand from both new customer acquisitions and growth within the installed base.
During the quarter, the number of free and paying customers grew 40% year-over-year, and paying customers increased by 7,000, with the figure now landing at over 96,000. Additionally, the amount of customers spending over $100,000 annually rose 65% year-over-year. Importantly, visibility improved substantially in the quarter, which was part of the reason NET ramped up hiring.
Even though management said the global growth of internet traffic plateaued in the quarter, the frequency of cyber-attacks continues to rise. This means “the company's mitigation activity also continued to grow.” analyst Shaul Eyal, of Oppenheimer noted, “For example, for the same cohort of customers, NET blocked 37% more cyber-attacks per day in Q2 than in Q1, and if new customers are included, the growth in mitigated attacks was 63%.”
On top of this, NET’s Workers product, which was launched three years ago, is gaining traction, and “today ~10% of traffic flowing through the company's network is powered by Workers, and ~20% of new large customer deals include Workers.” Eyal commented, “NET recently announced a number of new Workers features, which should further fuel demand for this offering.”
Summing it all up, Eyal stated, “Cloudflare is the leader in its space, and the company says that client conversations during the COVID-19 disruption place NET squarely on clients' must-have lists. We expect NET to remain in growth mode, delivering strong revenue acceleration, for several quarters to come.”
Cloudflare had its target price increased by Morgan Stanley from $34.00 to $42.00 in a report issued 14th August. Morgan Stanley currently has an equal weight rating on the stock.
“We raise our PT to $42 from $34 as higher topline and margin estimates yield a CY30 FCF estimate of $748M (vs $711M prior). We now apply a 44x EV/FCF multiple to our CY30 FCF estimate (38x prior), implying a 1.7x EV/F/G (1.4x prior) which is in-line with the large-cap software median,” said Keith Weiss, equity analyst at Morgan Stanley.
“A $42 price target implies 24.8x CY21 EV/Sales and 0.68x growth-adjusted, a premium to the overall SaaS group at 0.54x growth-adj justified by a large TAM of $30B+, an effective sales motion spanning both SMB and enterprise customers, and importantly durable growth with growth prospects on the horizon around edge compute and yet-to-be-monetized remote access VPN (Cloudflare for Teams). Additionally, valuation is more balanced when looking at SaaS peers growing >30% CAGR (median 22x CY21 EV/Sales),” the analyst added.
“Attractive Long-Term Opportunity. Cloudflare’s purpose-built cloud solutions address the complex security and website performance needs of a broad customer base. Penetration into an attractive $30 billion+ TAM depends on the strength of security products and a swiftly expanding solution portfolio, including Workers for the emerging edge computing opportunity and Access/Cloudflare for Teams for remote access,” Morgan Stanley’s Keith Weiss added.
Several other analysts commented on the stock.....
Oppenheimer lifted their target price on Cloudflare to $55 from $35 and gave the company an “outperform” rating.
JPMorgan Chase & Co. increased their target price on shares of Cloudflare to $52 from $30 and gave the stock an “overweight” rating.
Jefferies Financial Group upgraded shares of Cloudflare from a “hold” rating to a “buy” rating and boosted their price target to $50 from $27.
At last, Needham & Company LLC increased their price objective to $50 from $47 and gave the stock a “buy” rating.
Twelve analysts forecast the average price in 12 months at $47.25 with a high forecast of $55.00 and a low forecast of $34.00. The average price target represents a 21.62% increase from the last price of $38.85. From those 12, ten analysts rated ‘Buy’, two analysts rated ‘Hold’ and none rated ‘Sell’.
Cloudflare has big potential in the web security and general cloud computing and edge network industry.
NET’s 50 day simple moving average is $38.58 and its two-hundred day simple moving average is $28.18. The firm has a market capitalization of $11.90 billion and a PE ratio of -59.88. Cloudflare Inc has a 12 month low of $14.50 and a 12 month high of $45.28. The company has a debt-to-equity ratio of 0.44, a quick ratio of 9.38 and a current ratio of 9.38.
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Cloudflare is generating strong revenue growth. Sales increases have ranged from 44% to 51% over the last seven quarters.
The stock has made a solid recovery since a brief retreat in early September.
For those taking the leap into self-employment and starting small businesses, Cloudflare could be a key technology ally -- and a great way to invest in the continued expansion of the self-employment movement.
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