Cloudflare has followed the market’s trajectory closely, rising in tandem with the S&P 500 over the past six months. The stock has climbed by 8.6% to $202.38 per share while the index has gained 12.9%.
Is now the time to buy NET? Find out in our full research report, it’s free for active Edge members.
Why Is Cloudflare a Good Business?
With a massive network spanning more than 310 cities in over 120 countries, Cloudflare (NYSE:NET) provides a global network that delivers security, performance and reliability services to protect websites, applications, and corporate networks.
1. Billings Surge, Boosting Cash On Hand
Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.
Cloudflare’s billings punched in at $624.4 million in Q3, and over the last four quarters, its year-on-year growth averaged 34.2%. This performance was fantastic, indicating robust customer demand. The high level of cash collected from customers also enhances liquidity and provides a solid foundation for future investments and growth. 
2. Projected Revenue Growth Is Remarkable
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite, though some deceleration is natural as businesses become larger.
Over the next 12 months, sell-side analysts expect Cloudflare’s revenue to rise by 27.5%. While this projection is slightly below its 29% annualized growth rate for the past two years, it is eye-popping and indicates the market is forecasting success for its products and services.
3. Customer Acquisition Costs Are Recovered in Record Time
The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.
Cloudflare is very efficient at acquiring new customers, and its CAC payback period checked in at 26.9 months this quarter. The company’s rapid recovery of its customer acquisition costs indicates it has a highly differentiated product offering and a strong brand reputation. These dynamics give Cloudflare more resources to pursue new product initiatives while maintaining the flexibility to increase its sales and marketing investments. 
Final Judgment
These are just a few reasons why we think Cloudflare is a high-quality business, but at $202.38 per share (or 27.5× forward price-to-sales), is now the right time to buy the stock? See for yourself in our in-depth research report, it’s free for active Edge members.
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