What Happened:
Shares of internet security and content delivery network Cloudflare (NYSE:NET) jumped 5.93% in the morning session after analyst John DiFucci of Guggenheim upgraded the stock's rating from Sell to Neutral (Hold). The analyst said that he expected the company to meet its second-quarter sales target of $305M to $306M, but warned that its revenue for the rest of the year may fall short unless the economic conditions improve. Additionally, the company held an Investor Day yesterday, where management focused on the platform's evolution and value proposition for customers. There was also time spent on the sales organization and plans to further strengthen and optimize it. Lastly, management reiterated confidence in the company's previous long-term targets for 20%+ operating and 25% free cash flow margins.
What is the market telling us:
Cloudflare's shares are very volatile and over the last year have had 76 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business. The previous big move was 8 days ago, when the company dropped 21.9% on the news that the company reported first-quarter revenue that narrowly missed analysts' forecasts, but its earnings per share and free cash flow came in above expectations. In addition, sales guidance for the next quarter fell short of the consensus estimates, and the full-year guidance was lowered, with management citing a weaker macro environment and longer sales cycles where potential customers may be scrutinizing their spend more.
Cloudflare is up 1.7% since the beginning of the year, but at $43.78 per share it is still trading 44.3% below its 52-week high of $78.61 from August 2022. Investors who bought $1,000 worth of Cloudflare's shares at the IPO in September 2019 would now be looking at an investment worth $2,430.
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