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Cloudflare (NYSE:NET) Q4: Strong Sales, Stock Soars


Jabin Bastian /
2022/02/10 4:27 pm EST
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Internet security and content delivery network Cloudflare (NYSE:NET) beat analyst expectations in Q4 FY2021 quarter, with revenue up 53.7% year on year to $193.5 million. On top of that, guidance for next quarter's revenue was surprisingly good, being $205.5 million at the midpoint, 4.49% above what analysts were expecting. Cloudflare made a GAAP loss of $77.5 million, down on its loss of $34 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) Q4 FY2021 Highlights:

  • Revenue: $193.5 million vs analyst estimates of $184.8 million (4.72% beat)
  • EPS (non-GAAP): $0.00, in line with analyst estimates
  • Revenue guidance for Q1 2022 is $205.5 million at the midpoint, above analyst estimates of $196.6 million
  • Management's revenue guidance for upcoming financial year 2022 is $929 million at the midpoint, beating analyst estimates by 4.28% and predicting 41.5% growth (vs 51.1% in FY2021)
  • Free cash flow of $8.63 million, up from negative free cash flow of $39.7 million in previous quarter
  • Gross Margin (GAAP): 78%, up from 76.9% same quarter last year

“We had a most excellent 2021, capping off the year with fourth quarter revenue growth up 54% year-over-year. The full year represented a 52% year-over-year increase in revenue growth and a 71% year-over-year increase in large customer growth. It was also the fifth straight year we achieved 50 percent, or greater, compounded growth,” 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 $125.9 million, to $193.5 million.

Cloudflare Total Revenue

This was another standout quarter with the revenue up a splendid 53.7% year on year. On top of that, revenue increased $21.2 million quarter on quarter, a solid improvement on the $19.9 million increase in Q3 2021, and happily, a slight re-acceleration of growth.

Guidance for the next quarter indicates Cloudflare is expecting revenue to grow 48.8% year on year to $205.5 million, in line with the 51.2% year-over-year increase in revenue the company had recorded in the same quarter last year. For the upcoming financial year management expects revenue to be $929 million at the midpoint, growing 41.5% compared to 51.1% increase in FY2021.

There are others doing even better than Cloudflare. Founded by ex-Google engineers, a small company making software for banks has been growing revenue 90% year on year and is already up more than 150% since the IPO last December. You can find it on our platform for free.

Profitability

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 78% in Q4.

Cloudflare Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.78 left to spend on developing new products, marketing & sales and the general administrative overhead. This is 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. It is good to see that the gross margin is staying stable which indicates that Cloudflare is doing a good job controlling costs and is not under pressure from competition to lower prices.

Key Takeaways from Cloudflare's Q4 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 $36.9 billion and more than $1.82 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 glad that the revenue guidance for the next quarter exceeded analysts' expectations. Overall, we think this was still a really good quarter, that should leave shareholders feeling very positive. The company is up 6.46% on the results and currently trades at $123.37 per share.

Cloudflare may have had a good quarter, so should you invest 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.