Cloudflare results, my thoughts
Cloudflare is becoming a high confidence company for me. I’ll tell you some of the reasons that it has become my second largest position. Here are some results from the most recent quarter, as announced in November. It was an amazing quarter. Read it and pay attention! :
First of all , they have had three separate “Announcement Weeks” in the past two months or so, in each of which they announced a dozen or so sparkling new products or enhancements. It was quite amazing. You might want to read stocknovices post: https://discussion.fool.com/cloudflare39s-crushing-it-34646557.a…
Then their quarterly results:
Revenue, up 54%, and accelerating from 48% sequentially and from 48% a year ago.
Remaining Performance Obligations, or RPO was up 25% SEQUENTIALLY(!!!) and up 81% yoy. (This is subscription revenue backlog).
Adj operating loss was 4% of revenue, improved from a loss of 24% a year ago.
Adj net loss was less than a third of the loss from a year ago
Adj EPS was -2 cents, improved from -16 cents
Operating cash flow was $2 million, up from a LOSS of $17.8 million a year ago.
Free cash flow was negative 16% of revenue, improved from negative 45% a year ago.
They have over a billion in cash.
Conference Call notes, paraphrased and shortened in places
About half of our new revenue in the quarter came from new logos and about half from expanding relationships with our existing customers.
None of our customers account for more than 5% of revenue. And our top 20 customers remain well under 20% of total revenue.
We’ve been able to hire great people. In Q3, we had over 60,000 applications and extended offers only 0.4%. We are able to attact and retain the best.
Seeing so many businesses struggling with the shift to remote work, in the spring we had decided to make Teams free through Sept 1st. We had thousands of companies ranging from small businesses to Fortune 500 corporations take us up on our offer. Over the course of Q3, we began conversations with all of them to transition from the free offer to becoming paying customers. We are happy with how that went. 75% of these customers have already transitioned from free to paid accounts. For some, who are still struggling because of COVID, we allowed them to continue with the free offering until they can get their feet back under them. Teams is a very high margin product for us, so this doesn’t cost us much.
I think we’re just scratching the surface on use cases. Most use cases today focus on performance. Over time, I expect those use cases will pale in comparison to what is a much bigger opportunity, helping customers manage the challenges of compliance. As governments around the world increasingly insist on data localization and data residency, sending all your users data back to AWS feeds for processing will become unacceptable.
Their CEO said, “Sometimes you hit on all cylinders. We had one of those quarters”.
Saul here: My feeling is that this is an awesome company that is moving successfully into many areas and doesn’t have all its eggs in one basket. I am amazed with it.