Cloudflare soars after beating on revenue and raising annual forecast

Key Points
  • Sales cycles are getting shorter, Cloudflare CEO Matthew Prince told analysts.
  • The company raised its full-year guidance and beat on second-quarter revenue.
Cloudflare Co-Founder and CEO Matthew Prince speaks on stage at TechCrunch Disrupt Berlin on December 12, 2019 in Berlin, Germany.
Noam Galai | Getty Images Entertainment | Getty Images

Cloudflare shares jumped more than 27% on Friday, after the content distribution network and security provider announced second-quarter results and full-year guidance that exceeded analysts' predictions. It was the stock's best day since its 2019 New York Stock Exchange debut.

Revenue climbed 54% from a year earlier to $234.5 million, maintaining its growth rate from three months earlier, despite a slowdown in other parts of the technology industry. Analysts were expecting revenue of $227.3 million, according to Refinitiv.

The company said it added a record number of customers paying over $100,000 per year, and management bumped up its forecast for 2022, calling for about 48% growth.

"In Q1, our pipeline generation slowed, sales cycles extended, and customers took longer to pay their bills," Cloudflare CEO Matthew Prince told analysts on the earnings call. "We watched those metrics closely throughout Q2 and saw them all at least stabilized. They're not where we throw a parade yet, but the metrics are trending in the right direction."

The results led several analysts to lift their price targets on the stock. RBC analysts boosted their target and wrote in a note to clients that while no company is recession-proof, Cloudflare is better equipped than others to withstand economic pressure.

Cloudflare is one of several cloud software companies showing some increased appeal to investors, who rotated out of the sector during the first half of the year. Along with Cloudflare, Paylocity and ZoomInfo are also up more than 25% so far in August.

Analysts polled by FactSet now have an average target price of about $92 per share. That's well below Cloudflare's record of $217.25 from November, but up from the current price of around $73.

Not all analysts are so bullish. Citigroup analysts maintained their hold rating and said the stock is "far more demanding on valuation levels relative to our profitable hyper-growth names" like CrowdStrike, Atlassian and Datadog.

Even as revenue climbed, Cloudflare's net loss ballooned to almost $64 million from $35 million in the year-ago quarter. Prince said the company has changed its "go-to-market message" during the downturn and is focused on helping customers save money and consolidate "spend from multiple point solution vendors behind Cloudflare's broad platform."

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