Shares of Cloudflare (NYSE:NET) plunged about 25% in after-hours trading yesterday despite the company’s strong first-quarter results. The stock declined as the content delivery network services provider failed to impress investors with its guidance.
Adjusted earnings of $0.08 per share surpassed analysts’ expectations of $0.03 and increased from $0.01 per share in last year’s quarter. Meanwhile, revenues climbed 37% to $290.2 million but marginally missed the consensus estimate of $290.8 million.
The growth in revenues was driven by the addition of 140 large customers during the quarter, taking the total to 2,156. Moreover, new pipeline growth remained strong in the reported quarter.
In terms of other metrics, the company witnessed an operating cash flow of $36.4 million and a free cash flow of $13.9 million in the first quarter. Both compared favorably with the prior-year quarter, when Cloudflare reported negative balances.
Dull Outlook
Looking forward, management now expects revenue for the second quarter to be in the range of $305 million to $306 million, while the consensus estimate is $320 million. EPS is expected to be between $0.07 and $0.08.
In addition, the company lowered its outlook for the full year 2023. Currently, management expects total revenue to be around $1.28 billion, compared with the prior outlook of $1.33 billion to $1.34 billion. Analysts estimate the company will post $1.34 billion in revenue. Further, EPS is anticipated to be between $0.34 and $0.35.
Cloudflare CFO Thomas Seifert said, “Increasing macroeconomic uncertainty over the course of the first quarter resulted in a material lengthening of sales cycles and a significant backend-weighting of linearity.”
Furthermore, Seifert anticipates that these challenges will persist until the end of this year, negating the advantages of its new pipeline generation and consistently high win and renewal rates.
Is NET a Good Stock to Buy?
Wall Street analysts are cautiously optimistic about NET stock and have a Moderate Buy consensus rating, which is based on 10 Buys, 10 Holds, and two Sells. The average price target of $66.24 implies 11.2% upside potential. The stock has gained 38.5% so far in 2023.
