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Cloudflare (NET) stock forecast: Where next for the US web security firm?

By Rob Griffin

Edited by Jekaterina Drozdovica

10:06, 11 February 2022

KONSKIE, POLAND - November 24, 2019: Cloudflare Inc logo displayed on mobile phone
Cloudflare (NET) stock forecast: Where next for the US web security firm? – Photo: Shutterstock

Cloudflare (NET), the US-based web performance and security business, has declared it is on a mission to help build a better internet.  

This is clearly an ambitious goal. However, its success in developing networks with improved security, speed and reliability has enabled it to grow rapidly.

The company is now the fifth-largest IT security player in the world with a $36bn market capitalisation and more than 132,000 paying customers. Yet what future lies ahead for the company and what factors are shaping the Cloudflare share price forecast in 2022?

We take a look at Cloudflare’s most recent results, examine its share price performance and ask industry experts for their opinion on its prospects.

The business case

The origins of the company can be traced back to 2004 when Matthew Prince and Lee Holloway started investigating how email spam ends up in our inboxes.

They built a system that discovered how spammers harvested email addresses. It then morphed into a way of tracking threats faced by web administrators.

Today, Cloudflare is a global cloud services provider that delivers a broad range of services to businesses of all sizes and in all geographies.

The company is focused on improving the web performance of clients, while reducing the amount of spam and cyber-attacks they receive.

Headquartered in San Francisco, it also has offices across the US, as well as in Lisbon, London,  Munich, Beijing, Singapore and Sydney. 
 

Stock price performance

Since going public in September 2019, Cloudflare’s stock price has risen 665% from $15 to $114.81, at the market’s close on 9 February 2022. 

Over the past year, it has increased 26%. However, performance hasn’t been so great over shorter time periods, having fallen 8.5% from $123.43 six months ago.

Cloudflare stock, 2019-2022

Year to date, NET stock is down 10% from its $126.95 level at the start of January. Analysts have largely attributed the falls to the stock market rotating away from growth companies.

Latest results

Cloudflare’s most recent results, for the third quarter of 2021, revealed total revenue was 51% up year-over-year to $172.3m.

It also enjoyed substantial customer growth. Approximately 170 large customers were added in the period, bringing the total number to 1,260.

The company’s results showed non-GAAP net income of $1.4m, compared with a non-GAAP net loss of $5.8m in the third quarter of 2020. 

However, the GAAP net loss was $107.3m, compared with $26.5m in the previous year’s corresponding quarter, according to the statement.

Cloudflare also predicted total revenue of $648m for the full year 2021, with a non-GAAP loss from operations down to $9.5m.

In a broker note issued in response to the results, Sterling Auty, an analyst at JP Morgan, noted how investors were awarding its shares an unprecedented valuation. 

“The growth in the quarter was good and looks poised to continue next quarter, but at this valuation we believe investors’ expectations will want even more in the next couple of quarters,” he wrote.

Profitability ahead of schedule

In comments attached to the results statement, Matthew Prince, co-founder and chief executive, described it as a “landmark third quarter” for the business.

“Our strong growth and efficiency also propelled us to reach profitability this quarter, achieving that milestone a year ahead of our original timeline,” he said.

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He also insisted the company was “laser focused” on investing profits back into the business, fuelling its innovation machine, and supporting organisations plugging into its network.

“We want to give them one less thing to worry about so they can focus on running their businesses,” he added.

Cloudflare stock analysis: What the experts say

In a broker note issued in early February 2022, seen by Capital.com, JP Morgan’s Auty said the stock had seen “a tremendous amount of volatility during the software bear market” that began last November.

He also suggested its valuation still stood at a significant premium to the overall Software as a Service universe.

“Billings last quarter grew 55%, indicating the potential for acceleration, and it will be interesting to see how management guides for both revenue growth and margins in 2022,” he wrote.

Auty also pointed out that NET had taken the opportunity a couple of times since becoming public to increase its investment to capture growth. However, he said the view of this could have changed in light of the impending interest-rate increases.

“We are seeing a greater sensitivity for investors to see a balance between growth and profit improvement,” he explained.

Looking ahead, Auty said he expected a lot of focus on the uptake of Cloudflare’s edge computing platform when it delivers its fourth quarter figures.

Danni Hewson, financial analyst at AJ Bell, acknowledged it has been a tough few months for the stock but argued there are reasons for positivity.

“Looking at its valuation today it still looks pretty toppy, which is likely to sound alarm bells for many investors as the market adapts to new fiscal policy.”
by   – Danni Hewson, financial analyst at AJ Bell
“Cloudflare’s share price has fallen almost 50% since it hit its record high in November last year as investors traded out of growth stocks,” she told Capital.com. 
 
“Looking at its valuation today it still looks pretty toppy, which is likely to sound alarm bells for many investors as the market adapts to new fiscal policy.” 
 
However, Hewson believes the sector has potential. “This is a business that will continue to benefit from increased concern about cyber security and the need for businesses to keep their workforce secure whether they’re in the office or operating from their kitchen tables,” she said.
 
One question mark hanging over the company is how well its customer base has fared as it dealt with Covid-19 issues and cost pressures.  

Hewson noted that even though most customers were SMEs, it is the large companies that are responsible for more than half of its revenue.

“Any decline in user numbers shouldn’t weigh too heavily, and the expectation is that user numbers will actually continue to rise,” she added.

Cloudflare (NET) stock forecast: 2022-2030

Is Cloudflare stock a buy, sell or hold? The combined views of 23 Wall Street analysts compiled by MarketBeat gave a consensus 12-month  NET stock price target of $151.08. This would represent a 32% upside over the current level as of the time of writing (10 February). 

The most optimistic analyst suggested the stock could rise 118% to $250 over this period, while the most cautious analyst warned it could fall 21% to $91.

The consensus recommendation was ‘hold’, with 10 analysts having this view. Twelve had it down as a ‘buy’, while one said it was a ‘sell’.

Over the previous 90 days, Cloudflare’s stock has had one upgrade and one downgrade by analysts.

CHART

The NET stock was an “awesome long-term investment” that could rise 58% to $181.65 over the coming year to February 2023, according to the algorithmic forecasting of WalletInvestor as of the time of writing (10 February).

The site gave a positive Cloudflare stock prediction, forecasting the stock to reach $258 by February 2024 and then climb to $329.74 over the following year to February 2025.

Meanwhile, the site’s Cloudflare five-year stock forecast saw the stock hit $462.64 by February 2027. This would represent a 303% rise over the current $114.81 level, at the market close on 9 February 2022.

As far as the longer-term outlook is concerned around a Cloudflare stock prediction for 2030, there are too many variables for an accurate prediction. While it is a thriving sector, competition is increasing, which may have an effect.

Note that price predictions can be wrong. Forecasts shouldn’t be used as a substitute for your own research. Always conduct your own due diligence before investing. And never invest or trade money you cannot afford to lose.

FAQs

Will Cloudflare stock go up or down?

The combined views of 23 Wall Street analysts compiled by MarketBeat gave a consensus 12-month  NET stock price target of $151.08. This would represent a 32% upside over the current level as of the time of writing (10 February) with the price targets ranging from a high of $250 and a low of $91. 

Note that analyst predictions can be wrong. Forecasts shouldn’t be used as a substitute for your own research. Always conduct your own due diligence before investing. And never invest or trade money you cannot afford to lose.

Is Cloudflare a good stock to buy?

Whether NET is a suitable investment depends on your own investment objectives – and the opinion based on your own research. Remember, it’s important to reach your own conclusion of the company’s prospects and likelihood of achieving analysts’ targets.

Markets in this article

NET
Cloudflare
78.76 USD
0.38 +0.490%

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