Stock Story -
What Happened: Shares of internet security and content delivery network Cloudflare (NYSE:NET) jumped 11.9% in the pre-market session after the company reported a "beat and raise" quarter. It was encouraging to see Cloudflare narrowly top analysts' revenue expectations this quarter. Operating income beat by a convincing amount, showing that the topline growth is much more profitable than expected.
The company called out some indicators of the growing usage of its platform. These include a 20% growth in developers to 2.4M. On the AI front, the company's GPUs are now live in 167 cities, mostly driven by developers using some of its AI features.
Moving on, the company raised its full-year revenue guidance, which is always a good sign.
Overall, this was a strong quarter for Cloudflare.
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What is the market telling us: Cloudflare's shares are very volatile and over the last year have had 21 moves greater than 5%. But moves this big are very rare even for Cloudflare and that is indicating to us that this news had a significant impact on the market's perception of the business.
The biggest move we wrote about over the last year was 6 months ago, when the stock gained 28.7% on the news that the company reported fourth-quarter results that topped analysts' expectations for revenue, billings, and remaining performance obligations (RPO- leading indicator of revenue growth). The strong performance benefitted from the largest new logo customer win from the US Department of Commerce, with an expected total contract value of over $30 million.
In addition, the company recorded the largest customer renewal, with a total contract value of $60 million. Contributing to the strong performance, the company observed improvements in "pipeline closed rates, sales force productivity, and average deal size."
Looking ahead, Cloudflare's full-year guidance revealed the company is able to maintain a strong level of growth, with sales guidance for the next quarter and the full year roughly in line with expectations. And with free cash flow now in positive territory, the growth is sustainable.
Zooming out, this was a very solid quarter, showing that the company is staying on track.
Lastly, the company announced a leadership change with Mark Anderson to replace Marc Boroditsky as President of Revenue. Before assuming the current role, Mark Anderson helped build Palo Alto Networks' sales organization and possesses vast expertise in B2B sales software leadership. He contributed to Cloudflare as a board member and expressed interest in actively participating in Cloudflare's operations after his tenure as CEO at Alteryx.
Cloudflare is up 1.5% since the beginning of the year, but at $80.59 per share it is still trading 25.3% below its 52-week high of $107.92 from February 2024. Investors who bought $1,000 worth of Cloudflare's shares at the IPO in September 2019 would now be looking at an investment worth $4,476.
