Cloudflare (NYSE:NET) Q2 Sales Beat Estimates, Stock Jumps 22.3%

Kayode Omotosho /
2022/08/04 4:27 pm EDT

Internet security and content delivery network Cloudflare (NYSE:NET) reported Q2 FY2022 results that beat analyst expectations, with revenue up 53.8% year on year to $234.5 million. Guidance for next quarter's revenue was $250.5 million at the midpoint, which is 1.43% above the analyst consensus. Cloudflare made a GAAP loss of $63.5 million, down on its loss of $35.5 million, in the same quarter last year.

Is now the time to buy Cloudflare? Access our full analysis of the earnings results here, it's free.

Cloudflare (NET) Q2 FY2022 Highlights:

  • Revenue: $234.5 million vs analyst estimates of $227.3 million (3.15% beat)
  • EPS (non-GAAP): $0 vs analyst estimates of -$0.01 ($0.01 beat)
  • Revenue guidance for Q3 2022 is $250.5 million at the midpoint, above analyst estimates of $246.9 million
  • The company lifted revenue guidance for the full year, from $957 million to $970 million at the midpoint, a 1.35% increase
  • Free cash flow was negative $4.41 million, compared to negative free cash flow of $64.4 million in previous quarter
  • Gross Margin (GAAP): 76.2%, down from 77% same quarter last year

“We delivered another strong quarter, with revenue growth up 54% year-over-year, driven by strength in our large customers, and a record number of large customer additions. Large customers now represent 60% of our revenue, and they are leaning forward to hear how Cloudflare can save them money and reduce IT complexity, all while increasing their security, performance, and reliability," said Matthew Prince, co-founder & CEO of Cloudflare.

Founded by two grad students of Harvard Business School, Cloudflare (NYSE:NET) is a software as a service platform that helps improve security, reliability and loading times of internet applications and websites.

The amount of content on the internet is exploding, whether it is music, movies and or e-commerce stores. Consumer demand for this content creates network congestion, much like a digital traffic jam which drives demand for specialized content delivery networks (CDN) services that alleviate potential network bottlenecks.

Sales Growth

As you can see below, Cloudflare's revenue growth has been exceptional over the last year, growing from quarterly revenue of $152.4 million, to $234.5 million.

Cloudflare Total Revenue

This was another standout quarter with the revenue up a splendid 53.8% year on year. On top of that, revenue increased $22.3 million quarter on quarter, a very strong improvement on the $18.5 million increase in Q1 2022, and a sign of acceleration of growth, which is very nice to see indeed.

Guidance for the next quarter indicates Cloudflare is expecting revenue to grow 45.3% year on year to $250.5 million, slowing down from the 50.9% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 38.3% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.


What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Cloudflare's gross profit margin, an important metric measuring how much money there is left after paying for servers, licenses, technical support and other necessary running expenses was at 76.2% in Q2.

Cloudflare Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.76 left to spend on developing new products, marketing & sales and the general administrative overhead. Despite the recent drop, this is still a good gross margin that allows companies like Cloudflare to fund large investments in product and sales during periods of rapid growth and be profitable when they reach maturity.

Key Takeaways from Cloudflare's Q2 Results

Since it has still been burning cash over the last twelve months it is worth keeping an eye on Cloudflare’s balance sheet, but we note that with a market capitalization of $19 billion and more than $1.64 billion in cash, the company has the capacity to continue to prioritise growth over profitability.

We were impressed by the exceptional revenue growth Cloudflare delivered this quarter. And we were also excited to see that cash burn decreased. On the other hand, there was a deterioration in gross margin. Overall, this quarter's results seemed positive and shareholders can feel optimistic. The company is up 22.3% on the results and currently trades at $71.51 per share.

Should you invest in Cloudflare right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 70% year on year and best-in-class SaaS metrics it should definitely be on your radar.

The author has no position in any of the stocks mentioned.