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Is Cloudflare Stock Losing Steam?
Stock Analysis & Ideas

Is Cloudflare Stock Losing Steam?

Cloudflare (NET) stock took a pause after a strong rally (more than 182% growth in one year). Notably, shares of this web infrastructure and security company closed about 8% lower on Tuesday, while it has declined over 13% in the last five trading days. 

TipRanks’ Stock Investors tool indicates that investors who hold portfolios on TipRanks currently have a Very Positive outlook on Cloudflare stock. However, about 1.0% of those investors have lowered their exposure in the last seven days. (See Cloudflare stock charts on TipRanks)

Investors’ worry is natural as the recent run-up in Cloudflare stock has driven its valuation higher. It’s worth noting that Cloudflare’s NTM (next 12-month) EV/Sales multiple stands at 47.4, significantly higher than its historical average. Another area of concern is the competitive landscape. 

Citing Microsoft (MSFT) and Amazon (AMZN), Timothy Horan of Oppenheimer stated that competition is growing for Cloudflare. 

Specifically, Cloudflare’s recent launch of R2 storage for developers intensifies its competition with Amazon’s AWS. Matthew Prince, Cloudflare’s CEO, stated that “since AWS launched S3, cloud storage has attracted, and then locked in, developers with exorbitant egress fees (a charge to move data out of the cloud).” He added, “Our aim is to make R2 Storage the least expensive, most reliable option for storing data, with no egress charges.”

Horan downgraded Cloudflare stock to Hold from Buy and expects a pause in its ascent. However, he remains optimistic about the long-term prospects of the company. 

Another analyst who remains upbeat on Cloudflare’s long-term potential is Needham’s Alex Henderson, who expects it to become a “Big Company.”

Cloudflare announced its entry into the email security market with free offerings. In response to this, Henderson stated that “by starting out free, they get a very low-cost beta program and substantial real-world testing completed before they start selling to Enterprise customers. Over time, Cloudflare builds in new capabilities and premium services which can be monetized.”

He added that Cloudflare’s ability to add new capabilities and successfully migrate customers to newer services is one of the reasons why it “will become a major company” in the long term. Henderson has a Buy rating on Cloudflare with a price target of $140 (23.8% upside potential). 

Cloudflare’s innovation has been a key enabler of its growth and has consistently expanded its capabilities and total addressable market. Therefore, I maintain a bullish view on Cloudflare stock.

Cloudflare continues to grow its large accounts (customers with $100,000 annual revenue) while it projects its addressable market to reach $100 billion over the next three years. 

On TipRanks, Cloudflare stock has an analyst rating consensus of Moderate Buy, based on 7 Buys and 4 Holds. The average Cloudflare price target of $128.78 implies 13.9% upside potential to current levels.

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

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.

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