And Cloudflare stood out too

For anyone who skimmed through my long end of the month, there were three companies who seemed to me to be standouts. If you didn’t get to read it closely, here’s what I wrote about Cloudflare.


Cloudflare announced December quarter results on Nov 9th. The numbers have been discussed extensively on the board so I won’t repeat them, but I will give you my impressions and thoughts. Here they are:

My quick summary: This company had been delivering revenue growth in the high 40% to mid 50% range for many quarters sequentially. In addition they innovate and come out with new products and improvements at a pace that neither I, nor anyone else, has ever seen before. Quarterly revenue growth this quarter slipped to 42%, but they finally showed that they can make a profit and collect FCF, and management was incredibly positive in their presentation. For example (all quotes may be paraphrased):

“We expect to be free cash flow positive in 2023, and in the years after that.”

“We still see a clear path to NRR over 130% … and we won’t be satisfied until we get there.”

“In 2022, we had over 400,000 people apply for about 1,300 positions. That has allowed us to continue to hire incredible talent while remaining disciplined in overall compensation”.

“As our products become more complicated and we are selling to larger and larger customers, it’s increasingly clear that we need to step up our game in S&M…”

“Marc Boroditsky joined us last quarter to lead our sales organization. Last week, he briefed us on his first 100 days. My initial reaction, if I’m honest, was embarrassment over some of the basic things we should have been doing better. But my second reaction was excitement, as there are so many opportunities for us to improve.

“I’m aware that these efforts can take time. That’s why we’re not relying on any improvement in S&M efficiency, or any rebound in the economy, as we formulate our guidance.”

I should point out that they had record operating income, operating cash flow, and free cash flow.

Market Response – Cloudflare initially rose about 10% after announcing results, but have settled back with the market and are now up only 2% since announcing results, BUT they are up 31% ytd (in just two months), the most of any of my companies

My ReactionManagement came to the realization that they have over-focussed on R&D without enough focus on actually marketing and selling all those wonderful new products, and they have started to correct that oversight. That sounds extremely positive to me. They haven’t included any improvement from the new S&M, or from macro improvement, to their guidance, so I would guess they will beat their annual guidance considerably. I added to my position, and Cloudflare is back up to 16% and in 3rd place in my portfolio.

Perspective – Cloudflare’s November 2021 high share price was around $221, about 3.7 times the current price of $59.20, while current trailing revenue is about 1.49 times trailing revenue back then, so you are getting about 5.5 times as much revenue per dollar of stock price now as you were getting then, and the company now is profitable and cash flow positive, as well.

I hope that this was helpful as well!


To amplify Saul’s point, I got this very fine (and free) analysis of Cloudflare’s Q4 report from Peter Offringa in my email today.

I was especially glad to see him highlight the “stacking S curve” mention on the call. It was the one thing I wrote down as I listened to the webcast.

When Cloudflare’s CEO describes their product/market strategy as one of “Stacking S Curves”, the market’s reaction often ranges from skepticism to indifference. Yet, that appears to be exactly what the company is doing. If we recognize that several different product vectors are ramping up their individual S-Curves of revenue growth, then it’s possible to see the path to $5B in revenue over 5 years.

There is much, much more to read in his piece, but it details why I added to my NET position after the call, making it now my largest holding at 16.5% of my portfolio.

“Stacking S curves” are a challenge for a board like this one. You can almost write the posts now: “Wow! This is truly hypergrowth. Nothing can stop them!” and then, once everyone is comfortable comes the “OMG, look at how it’s decelerating! I’m out!” Rinse, repeat.

This is a LTBH for me. And, really, subscribe to Peter’s newsletter: Software Stack Investing.



On a recent ‘All In’ podcaste on YouTube, I heard again the reasoning of why it’s better to move from selling to SMBs and then to Enterprise rather than the building something for Enterprises and trying to strip it down so SMBs can afford it.

Although I particularly appreciated Peter Offringa offering his take on why moving from selling to SMBs to the Enterprise Market, more specifically, took Cloudflare founders making some really tough and at the time counter intuitive choices.

Among the tough choices Peter wrote about, among those made at Cloudflare early on and the most significant for me due to this allowing for the greatest amount of future leveraging of the platform, is ‘composability’ among the products.

Peter Offringa mentioned in the article, referenced in the prior post here, says it better than he has in the past, IMO.

Composability. The Cloudflare technology team created a highly distributed development platform (Workers) upon which all products are built. This platform is exposed as a product for external developers to use as well. Because of this approach, Cloudflare incurs the overhead of maintaining a development platform, versus just writing the code, compiling and deploying it directly onto their servers. The latter approach would be much easier, but the former has the added benefit of composability. As the Cloudflare engineering team builds new services within the Cloudflare development platform, these then provide building blocks for future product offerings (both internally and externally). This composability accelerates product development, as new offerings can be bootstrapped with the building blocks from prior releases. Many of Cloudflare’s newer products make use of other services as primitives. As an example, R2 leverages Durable Objects under the hood. It also has the side benefit of customization, allowing customers to personalize, enhance or supplement any aspect of a product.

Here is a slide from Peter’s recent presentation at the London Business School.

And in it how composability is paying off when moving from SMB to Enterprise sales.

Thanks Peter,