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The company projects second-quarter revenues in the band of $393.5-$394.5 million. The Zacks Consensus Estimate for the top line is pegged at $394.1 million, which indicates a year-over-year improvement of 27.7%.
Cloudflare expects non-GAAP earnings per share of 14 cents for the to-be-reported quarter. The consensus mark for earnings has remained unchanged at 14 cents per share over the past 60 days, implying an improvement of 40% from the year-ago quarter’s 10 cents.
Image Source: Zacks Investment Research
The web infrastructure and website security solution provider’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 37.7%.
Our proven model does not conclusively predict an earnings beat for Cloudflare this time. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat, which is not the case here. You can see the complete list of today’s Zacks #1 Rank stocks here.
NET has an Earnings ESP of 0.00% and a Zacks Rank #3 at present. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
Factors Shaping Upcoming Results
Cloudflare’s second-quarter performance is likely to have gained from organizations transitioning from traditional firewall and VPN-based cybersecurity solutions to the zero-trust approach. The company’s performance is expected to have benefited from the growing hybrid working trend, which needs organizations to secure networks beyond on-premise.
The top line is expected to have gained from accelerated global expansion outside the United States. It is worth mentioning that the company generated approximately 48% of its first-quarter 2024 revenues outside the United States.
A diversified clientele is likely to have boosted Cloudflare’s second-quarter top line. NET added around 7,347 new paying customers in the first quarter of 2024, bringing the total count to approximately 197,138.
The company also added 122 new large customers (annual billings of more than $100,000), taking the total count to 2,878 at the end of the first quarter. This rise in the customer base has prevailed for the past 11 quarters. This is expected to have continued in the to-be-reported quarter as well, backed by the increasing demand for NET’s cloud-based offerings amid the continuing digitalizing trend.
Cloudflare’s recurring subscription-based business model has been providing relative stability to its top line amid the ongoing macroeconomic uncertainties and geopolitical issues. However, NET’s high exposure to small and medium businesses is likely to have weighed on its performance in the to-be-reported quarter.
Price Performance & Valuation
Year to date, shares of Cloudflare have declined 6.2%, underperforming the Zacks Internet – Software industry’s growth of 6.4%. However, the NET stock has outperformed when compared with its peers, including Fastly (FSLY - Free Report) , Zscaler (ZS - Free Report) and Akamai Technologies (AKAM - Free Report) , which have registered a decline of 53.8%, 18.1%, and 18%, respectively, YTD.
YTD Price Performance
Image Source: Zacks Investment Research
Now, let’s look at the value Cloudflare offers investors at the current levels. NET is trading at a premium with a forward 12-month P/S of 13.93X compared with the industry’s 2.43X, reflecting a stretched valuation.
Valuation
Image Source: Zacks Investment Research
Investment Consideration
Cloudflare is a leading provider of network security and performance solutions, leveraging its robust global infrastructure to deliver fast, reliable and secure internet services. With the growing importance of cybersecurity and the shift to digital business models, Cloudflare is well-positioned to benefit from increasing demand for its services.
NET’s innovative product offerings, strong customer base and expanding market opportunities in areas like Zero Trust security and edge computing drive its growth potential. Despite market volatility, Cloudflare's strategic vision and continuous technological advancements make it a compelling long-term investment opportunity.
However, Cloudflare’s near-term prospects might be hurt by softening IT spending as enterprises postpone large tech investments due to macroeconomic uncertainties and geopolitical issues. During its last earnings call, Cloudflare noted that macro headwinds forced companies to reduce cloud spending, hurting its revenue growth. This makes the company's near-term prospects appear cautious.
Conclusion
While Cloudflare's strong market position is encouraging, significant volatility and high valuation warrant caution. The company's slowing sales growth rates and macroeconomic uncertainties pose near-term risks.
Therefore, we believe investors should wait for a better entry point for Cloudflare, which currently carries a Zacks Rank #3 (Hold), given the modest growth prospects and a stretched valuation in the near term.
Image: Bigstock
Should You Buy, Sell or Hold Cloudflare (NET) Ahead of Q2 Earnings?
Cloudflare, Inc. (NET - Free Report) is scheduled to report second-quarter 2024 results on Aug 1 after market close.
The company projects second-quarter revenues in the band of $393.5-$394.5 million. The Zacks Consensus Estimate for the top line is pegged at $394.1 million, which indicates a year-over-year improvement of 27.7%.
Cloudflare expects non-GAAP earnings per share of 14 cents for the to-be-reported quarter. The consensus mark for earnings has remained unchanged at 14 cents per share over the past 60 days, implying an improvement of 40% from the year-ago quarter’s 10 cents.
Image Source: Zacks Investment Research
The web infrastructure and website security solution provider’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 37.7%.
Cloudflare, Inc. Price and EPS Surprise
Cloudflare, Inc. price-eps-surprise | Cloudflare, Inc. Quote
Earnings Whispers
Our proven model does not conclusively predict an earnings beat for Cloudflare this time. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat, which is not the case here. You can see the complete list of today’s Zacks #1 Rank stocks here.
NET has an Earnings ESP of 0.00% and a Zacks Rank #3 at present. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
Factors Shaping Upcoming Results
Cloudflare’s second-quarter performance is likely to have gained from organizations transitioning from traditional firewall and VPN-based cybersecurity solutions to the zero-trust approach. The company’s performance is expected to have benefited from the growing hybrid working trend, which needs organizations to secure networks beyond on-premise.
The top line is expected to have gained from accelerated global expansion outside the United States. It is worth mentioning that the company generated approximately 48% of its first-quarter 2024 revenues outside the United States.
A diversified clientele is likely to have boosted Cloudflare’s second-quarter top line. NET added around 7,347 new paying customers in the first quarter of 2024, bringing the total count to approximately 197,138.
The company also added 122 new large customers (annual billings of more than $100,000), taking the total count to 2,878 at the end of the first quarter. This rise in the customer base has prevailed for the past 11 quarters. This is expected to have continued in the to-be-reported quarter as well, backed by the increasing demand for NET’s cloud-based offerings amid the continuing digitalizing trend.
Cloudflare’s recurring subscription-based business model has been providing relative stability to its top line amid the ongoing macroeconomic uncertainties and geopolitical issues. However, NET’s high exposure to small and medium businesses is likely to have weighed on its performance in the to-be-reported quarter.
Price Performance & Valuation
Year to date, shares of Cloudflare have declined 6.2%, underperforming the Zacks Internet – Software industry’s growth of 6.4%. However, the NET stock has outperformed when compared with its peers, including Fastly (FSLY - Free Report) , Zscaler (ZS - Free Report) and Akamai Technologies (AKAM - Free Report) , which have registered a decline of 53.8%, 18.1%, and 18%, respectively, YTD.
YTD Price Performance
Image Source: Zacks Investment Research
Now, let’s look at the value Cloudflare offers investors at the current levels. NET is trading at a premium with a forward 12-month P/S of 13.93X compared with the industry’s 2.43X, reflecting a stretched valuation.
Valuation
Image Source: Zacks Investment Research
Investment Consideration
Cloudflare is a leading provider of network security and performance solutions, leveraging its robust global infrastructure to deliver fast, reliable and secure internet services. With the growing importance of cybersecurity and the shift to digital business models, Cloudflare is well-positioned to benefit from increasing demand for its services.
NET’s innovative product offerings, strong customer base and expanding market opportunities in areas like Zero Trust security and edge computing drive its growth potential. Despite market volatility, Cloudflare's strategic vision and continuous technological advancements make it a compelling long-term investment opportunity.
However, Cloudflare’s near-term prospects might be hurt by softening IT spending as enterprises postpone large tech investments due to macroeconomic uncertainties and geopolitical issues. During its last earnings call, Cloudflare noted that macro headwinds forced companies to reduce cloud spending, hurting its revenue growth. This makes the company's near-term prospects appear cautious.
Conclusion
While Cloudflare's strong market position is encouraging, significant volatility and high valuation warrant caution. The company's slowing sales growth rates and macroeconomic uncertainties pose near-term risks.
Therefore, we believe investors should wait for a better entry point for Cloudflare, which currently carries a Zacks Rank #3 (Hold), given the modest growth prospects and a stretched valuation in the near term.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.