Cloudflare Stock Flares Up on Solid EPS Beat and Raised Guidance

Key Points

• Cloudflare is a content delivery network (CDN) provider connected to over 12,500 networks. It can reach 95% of the world's population in under 50 milliseconds and has major customers, including Amazon.com, Netflix, and Uber.
• Cloudflare beat both Q2 top and bottom line estimates and issued upside Q3 and full year 2024 estimates.
• Cloudflare stock trades at more than 80x adjusted 2025 earnings estimates, but a 30% YoY growth rate may provide more upside.

Content delivery network (CDN) service provider Cloudflare, Inc. NYSE: NET reported a solid Q2 2024 earnings report, resulting in a 6% gain the following day. This is impressive, considering the Nasdaq composite index fell nearly 418 points that day. Cloudflare is a one-stop shop for millions of websites offering a global network and comprehensive platform of services ranging from robust cybersecurity to optimized performance for streaming and website loading speeds and reliability. Cloudflare aims to make the internet safer, faster, and more reliable for businesses and end users worldwide.

Cloudflare operates in the computer and technology sector, competing with CDNs like Akamai Technologies Inc. NASDAQ: AKAM, Zscaler Inc. NASDAQ: ZS, and Fastly Inc. NYSE: FSLY.

What is a Content Delivery Network and What Does It Do?

A CDN is a network of servers that stores and delivers content instantly, securely, and efficiently to end users. The servers store website content like videos, HTML files, and images, which are readily and instantly accessible when requested. Due to its redundancy and low latency, load times are reduced, resulting in an optimized experience. Cloudflare's CDN network spans over 300 cities in over 100 countries, connecting more than 12,500 networks, reaching over 95% of the world's population in under 50 milliseconds. The result is faster website loading, streaming content, safety from malicious cybersecurity attacks, and better browsing for users.

Cloudflare is More than Just a CDN

Cloudflare provides value-added services in addition to its CDN. It claims itself to be the world’s first connectivity cloud. It’s integrated with all networks with built-in intelligence on a unified and simplified interface. It provides firewalls, TLS encryption, image optimization, and caching to expedite loading speeds with direct connections to nearly every service, cloud provider, and major enterprise. Cloudflare’s network blocks 158 billion cyber threats daily. Cloudflare is used by some of the largest hyper scalers, service providers, and internet giants, including Netflix Inc. NASDAQ: NFLX, Amazon.Com Inc. NASDAQ: AMZN, International Business Machines Co. NYSE: IBM, and Uber Technologies. Inc. NYSE: UBER.

NET Stock Attempting a Descending Triangle Breakout

The daily candlestick chart for NET illustrates a descending triangle breakout pattern. A descending triangle is a bearish pattern comprised of a descending upper trendline, which started at $87.18, falling to the flat-bottom lower trendline support at $74.37. NET attempted to break out of the triangle twice, but each time failed as shares fell back under the descending trendline as lower highs continued to form. The Q2 2024 earnings beat caused a gap above the upper trendline resistance and is attempting to break out for the third time. The daily relative strength index (RSI) is attempting to bounce through the 50-band. Pullback support levels are at $76.52, $74.37, $71.77, and $68.95.

Growth Continues to Accelerate

Cloudflare reported Q2 2024 EPS of 20 cents, beating consensus estimates by 6 cents. GAAP gross profit was $312 million or 77.8% gross margin. Net income was a GAAP net loss of $15.1 million compared to a loss of $94.5 million in the year-ago period. Non-GAAP net income was $69.5 million, up from $33.7 million last year.

Revenues surged 30% YoY to $401 million, beating $394.11 million consensus analyst estimates. Operating cash flow was $74.8 million or 19% of revenue, and cash flow of $38.3 million was 10% of revenue. Cloudflare closed the quarter with $1.757 billion in cash and cash equivalents.

Cloudflare Issues Upside Guidance  

The current landscape of enterprises buying IT services and products has turned darker amidst macroeconomic uncertainty. Companies have stated that deals are being scrutinized more as the sales cycle gets elongated. This backdrop is what makes Cloudflare’s upside guidance impressive and may further justify its stock price trading at over 80x non-GAAP 2025 operating profits.

Cloudflare provided upside guidance for both Q3 and full year 2024. For Q3 2024, Cloudflare forecasts EPS of 18 cents versus 15 cents consensus estimates. Revenues are expected between $423 million to $424 million versus $422.74 million consensus estimates. Non-GAAP income from operations is expected between $50 to $51 million.

The company expects full-year 2024 EPS between 70 cents and 71 cents versus 61 cents in consensus estimates. Revenues are expected between $1.657 billion and $1.659 billion, versus $1.65 billion in consensus analyst estimates. Non-GAAP income from operations is expected between $196 million and $198 million.

Cloudflare Co-Founder and CEO Matt Price commented, “We had a strong second quarter, crossing $1.6 billion in annualized revenue and growing 30% year-over-year. The world is still complicated, but our team remained focused on execution and delivered terrific results, including a double-digit year-over-year improvement in sales productivity.”

Cloudflare analyst ratings and price targets are at MarketBeat. There are 25 analyst ratings on NET stock, comprised of 10 Buys, 12 Holds, and three Sells. The stock has a 15.8% upside to the consensus price target of $92.08.