On Tuesday, Cloudflare Inc . (NYSE:NET) maintained its Neutral rating and a $95.00 price target from Citi. The firm's analyst noted that Cloudflare's Pool-of-Funds (PoF) deals are encouraging significant purchases and improving the company's visibility among large enterprises.
Despite the positive momentum, the PoF's mixed financial and operational effects, such as billings, revenues, and deceleration of the dollar-based net retention rate (DBNRR), have led to discussions with investor relations to better understand the model's mechanics and future implications.
The analyst further explained that while the PoF deals have created some inconsistent metrics, they believe that the calendar year 2024 (CY24) is likely to mark the low point for these metrics, with revenue headwinds from PoF deals expected to diminish through the calendar year 2025 (CY25). The growth and volume of PoF deals are anticipated to continue to increase, with remaining performance obligations (RPO) serving as a key indicator in the short term.
The report also mentions that the growing momentum from PoF deals is promising for Cloudflare's aspirations to achieve $5 billion in revenues. This, coupled with a more focused enterprise go-to-market strategy, is expected to contribute to higher operating margin (OPM) and free cash flow margin (FCFM) profitability.
These factors are considered crucial for the company's shares to maintain their premium valuation. The analyst concludes that, while there are headwinds, the overall trajectory for Cloudflare is positive, especially as PoF revenues are projected to stabilize and improve in the coming years.
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