Cloudflare NET Q4 2023 Earnings

Cloudflare NET Q4 2023 Earnings after market close on 2/8/24

So far 3 relevant documents to look at; all found at Cloudflare Investor Relations website (if you get your financial data from other sources I would encourage you to stop and Use The Source, Luke! Always Always Investor Relations)

Here we are:

https://cloudflare.net/financials/quarterly-results/default.aspx

  1. Press Release: highlights
  2. Earnings Supplemental: my main doc I review
  3. Earnings transcript
  4. 10Q/K: Not yet there as of this note

Let’s review some highlights

Three months ago on 11/2/2023 they told us that they would deliver revenue up to $353M, guiding for a 5.2% QoQ growth and 28% YoY growth. The initial reaction priced the stock at about $65 and throughout the Q led it up to $90 just before earnings. Congrats and Hello to all the Longs!

After market close on 2/8/24 they delivered $362.5M in revenue, beating the guidance by 2.7%, resulting in QoQ 8% growth, and YoY 32% revenue growth, bravo !

(For the Full Year 2023 the revenue came in at $1297M, a 33% YoY revenue growth. )

Adjusted Gross Profit margin for Q4 was 79%, steady as usual

Stock Based Compensation cost was $77.3M, 21% of revenue, an average of the last few quarters.

Net Operating Cash Flow came it at 24% of revenue, $85.4M, an uptick from previous Qs

Cash Flows from Operations over the last 8 Quarters, notice uptick in Deferred Revenue in the last Q

Free Cash Flow was $50.7M, 14% of revenue

Looks like CapEx total was about 10% or rev

One of my worries is that FCF is lower than SBC; but slowly improving (compare to Monday SBC at 11% of revenue and FCF 27%)

Remaining Performance Obligation (RPO) jumped up to $1245M, a 15% growth from previous Q and 37% YoY. AS a refresher: RPO is a metric for Deferred Revenue plus Backlog (included unbilled revenue) and is a metric for revenue potential but not yet realized, it’s better to just look at Revenue but RPO can give us a glimpse into future revenue (but not always)

The one set of metrics that matter to me is Customer growth

Here we see they have a total of 189791 paying customers, they added 7764 customers in the last Q. and 27705 in the last year (17% growth YoY, matching previous year)

Customers with $100K+ ARR increased at the similar rate as last two quarters, they added 198 and ended Q4 with 2756

They finally disclosed mega large customers at Q4.

$500K+ customers are at 346, 56% increase from last year of 222

$1M+ customers 118, 39% increase from last year of 85

And 3 customers pay $20M+

Headcount increased by 153 employees, ending at 3682

Cloudflare now has $1673M in Cash, bravo !

Onto Earnings call transcript (18 pages, and I encourage you to listened to it as well, if you don’t have much time then listen at least to Q&A part of the call)

Prepared Remarks highlights I find instructive

  • We had an exceptionally strong quarter
  • strength in our largest customers with a record number of net new customers spending more than both $0.5 million a year and $1 million a year on an annualized basis.
  • signed our largest new logo with an expected total contract value over $30 million
  • and our largest customer renewal with a total contract value of $60 million.
  • blew away our previous record for new ACV booked in a quarter. In Q4, new ACV booked grew nearly 40% year-over-year
  • Go To Market machinery great, hired Mark Anderson
  • We were awarded a three-year contract with a ceiling value of $33 million for the U.S. Department of Commerce
  • A leading technology company expanded their relationship with Cloudflare, signing a three-year $6.6 million contract for Cloudflare’s Zero Trust suite to protect access for 10,000 employees and contractors
  • A Fortune 500 hospitality company expanded their relationship with Cloudflare, signing a five-year $4.3 million contract for 20,000 Zero Trust seats.
  • A Fortune 500 technology company signed a two-year $6 million contract for advanced application security.
  • A sophisticated tech company with one of the most technical and daring engineering teams signed a two-year $646,000 contract.
  • A large US commercial airline expanded their relationship with Cloudflare, signing a two-year $857,000 contract to procure Zero Trust seats.
  • local government authority in the UK signed a five-year $2.1 million contract for 4,700 Zero Trust seats

(NOTE: the theme here seems to be: our Zero Trust products are winning customers)

AI theme

  • As of the end of 2023, we deployed GPUs in 120 cities globally, meaningfully ahead of our target of 100 cities.
  • By the end of 2024, we plan to have inference-tuned GPUs deployed in nearly every city that makes up Cloudflare’s global network and within milliseconds of nearly every device connected to the Internet worldwide.
  • From our launch in September to the month of December, the average number of daily Workers AI requests increased 9x.
  • We are also extremely encouraged by the interest in Vectorize our vector database

Overall: It feels like we’re once again firing on all cylinders

I am skipping Questions and Answers Part for now after I re-listen and re-read the ER call transcript

Overall things are going great for me as an investor in Cloudflare

Initial Price reaction was a bit crazy, stock went up to $116 and then sharp down to $98 this morning. It’s just Randomness to me

Disclosure: I hold 18% of our Baconski Family Portfolio in Cloudflare

Thanks,

Baconski

Cheers !

Congrats to Mark Anderson

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