Cloudflare: Will the Ascent Continue?

The ongoing technology trends, including enterprise digital transformation and 5G adoption, among others, provided a strong base for growth for the cloud-computing and cybersecurity companies, including Cloudflare (NET)

Thanks to favorable industry trends, Cloudflare stock has risen about 89% in six months. Furthermore, it has grown by nearly 243% in one year. (See Cloudflare stock charts on TipRanks)

Despite the recent run, investors maintain a positive outlook on Cloudflare stock. TipRanks’ Stock Investors tool indicates that investors currently have a Very Positive outlook on Cloudflare stock, with 4.8% of investors who hold portfolios on TipRanks increasing their exposure over the past month.

Furthermore, TipRanks’ Hedge Fund Trading Activity tool shows that hedge fund managers increased their cumulative holdings in NET by 1.1 million shares in the last quarter.

The optimism over Cloudflare stems from the company’s robust financial performance, growing TAM (total addressable market), and increase in large customer base. I have a Bullish outlook on Cloudflare stock.

It’s worth noting that Cloudflare’s total revenue has a CAGR (compound annual growth rate) of 50% since 2016. Moreover, its total revenue increased 53% year-over-year during the last reported quarter. The company’s large customers (with annualized revenue of over $100,000) have grown at a CAGR of 68% since 2019. Furthermore, Cloudflare added 140 large customers during the last reported quarter, bringing the total count to 1,088. 

Besides for solid customer growth, its retention rate remains high, with increased revenue from existing customers. Meanwhile, Cloudflare’s focus on innovation and product expansion has driven its TAM (total addressable market) to $72 billion in 2020, from $32 billion in 2018. Moreover, the company expects its TAM to reach $100 billion by 2024, which is encouraging. 

Joseph Bonner of Argus Research highlighted the strength of Cloudflare’s products and solutions and termed them “unique.” Bonner has a Buy rating on Cloudflare with a price target of $140 (2.2% upside potential)

Overall, On TipRanks, NET stock has an analyst rating consensus of Moderate Buy, based on 8 Buys and 3 Holds. The average Cloudflare price target of $128.90 implies 5.9% downside potential to current levels. 

Disclosure: On the date of publication, Amit Singh had no position in any of the companies discussed in this article.

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