Cloudflare (NET): attractive, but with caution

Cloudflare $NET is a key player in Content Delivery Networks (CDN) and Internet security. The company maintains its position in the market with innovative services and an extensive network of data centers that improve performance and reduce latency. Still, the stock's current valuation requires careful analysis.

Cloudflare's strengths

1. Extensive global network

- Data centers in 330 cities accelerate data transfer and increase the performance of applications, including those using AI, which can be a significant catalyst for growth.

2. Consistent revenue growth

- $NET revenues have grown steadily despite economic uncertainties:

- 1. Q1 and Q2 2024: year-on-year growth of 30 %.

- 3. Quarter 2024: annual growth of 28 %.

- Share of Fortune 500 customers increased to 35 %.

3. Improving profitability

- Net loss decreased to USD 15 million (from USD 23 million in the previous quarter).

- Retrieved from 11% of revenue to free cash flow in Q3 2024 is a sign of advancing financial discipline.

4. Opportunities through AI and larger contracts

- $NET is benefiting from the demand for real-time data processing and the shift of enterprises to AI solutions.

- Improving sales strategy and targeting larger enterprise clients can increase contract value.

Challenges and risks

1. High valuations

- Shares of $NET trade at 23 times earnings, which is well above the market average and requires consistent revenue and margin growth.

2. Slowing sales cycle

- Management has seen a lengthening of sales cycles, signaling customer caution in investing.

3. Revenue growth under pressure

- Expected revenue growth of 26% in 2025 may not be sufficient to justify current valuations.

4. Strong competition

- Amazon CloudFront and other CDN providers are putting pressure on Cloudflare's market share.

Recommendations

$NET remains an attractive company due to its innovation, growing revenue and AI-related opportunities. However, the stock's current valuation reflects considerable optimism, which requires perfect execution of a growth strategy.

For investors:

- If you already hold the stock, it's worth holding, especially if you have a long-term horizon.

- For new investments, it may be advisable to wait for valuations to fall before entering a position.

Conclusion. has strong upside potential, but the current stock price reflects an ideal scenario. Patience may pay off in this case.