Ben, with respect you are responding to criticism from two years ago, i.e. “never wanting to make a profit” - none of your charts address the concern raised by every post in this thread (and by the market) - tepid growth, CRWD is growing at a higher rate at almost triple the revenue, and until a few days ago NET was being valued at the same multiple, ZS growing at a higher rate at 1.5x revenue, and is still at a lower multiple today than NET, etc.
why not graph revenue growth rate versus quarterly revenue? at this point in the company’s growth cycle, none of the stocks you list are graded in the market based on net income, cash flow, or margins, and you shouldn’t either - it’s misguided
notice that no one in this thread has said NET is a bad company - the opinion is that it’s not priced to be a good investment going forward - still overpriced at today’s print
edit to add: to bnh’s point about being in a worse macro/higher interest rate environment - do you think we will go back to the easier money days of the late 2010s/early 2020s? if not, then we should be judging growth trends based on today, and as stated above, other companies at larger revenue bases are still growing as fast or faster than NET - which is a bad sign given NET’s still premium valuation
When I’m looking at the numbers side by side with other SaaS, I’m seeing Cloudflare is clearly at the very bottom of any metric measuring cash flow by a large amount. I’m also seeing them at the bottom end of revenue growth, and showing negative EBITDA.
I wanted to add one more software company to the list for comparison which is AppLovin (APP) specifically because they have the same market cap as Cloudflare and coincidentally the same share price ~$75.
AppLovin has a product most people don’t like - ad tech on free to play phone games. Almost everyone would say Cloudflare has a more innovative and interesting product that is better for the world. But doing a side by side comparison, this shows the difference of a company which optimizes for profit versus one that optimizes for goodwill.
APP market cap: 25B
NET market cap: 25B
APP revenue last Q: 953M (+36%)
NET revenue last Q: 379M (+30%)
APP EBITDA last Q: 389M
NET EBITDA last Q: -28M
APP Net income last Q: 172M
NET Net income last Q: -78M
I’d personally rather be in the company that has a product nobody likes but puts up vastly better numbers over a company which has a much better narrative but is not producing numbers that their narrative would imply.
Public comps is a nice site for comparing software companies side by side because of the bar graphs. As you can see, Cloudflare does not look good in these comparisons,
So, what comes next? Well, management told us, in order to seize the opportunity of future AI revenue and AI FCF, they are going to increase their network Capex spend to 10-12% of revenue in FY24 - I guess mainly in order to increase the computation power to maximize AI model inference capabilities in their one-of-a-kind worldwide distributed edge network.
Something that concerned me from the Morgan Stanley technology conference they presented at was this passage from the CFO,
And now you – we started already years ago and Matthew at the foresight to think about this a couple of years ago to leave slots open – PCI slots open in our server. So we just block them now with GPU capacity. So that was the flexibility, the capability that he started to luckily or not foresee a while back. We buy a mix of capacity, hardly at the bleeding edge. That’s why it’s affordable and has high availability.
We don’t need [ H100 ] cards at this point. And we provide – and we procure them today, still mostly NVIDIA, but more and more from a broader set of suppliers.
So they are just putting whatever run of the mill graphics cards in their PCI slot for their servers?
How is that going to be competitive for AI going years out, when these cards get slower as time goes on. They say they don’t need H100’s “at this point”, but that implies they will need them at some point?
Isn’t that going to raise OpEx even more when they have to replace the old graphics cards? I don’t think H100 is equipped to fit in a PCI slot either, from what I understand the H100 is large physical machine that weighs 70 pounds. This doesn’t sound like bleeding edge at all to me, and even they say it’s not.
Lastly, they used to give stats about the number of apps being developed with Workers. Nine months ago it was,
We reached 10 million active workers applications in Q2, up 250% since December and 490% year-over-year
Now in this last quarter they say,
We crossed over 2 million active developers building applications on Cloudflare Workers
So they aren’t using the same metrics at all for the comparisons! Also, how does it make any sense at all, that nine months ago with they had 10M applications with a 490% yoy growth rate, but at the current time there are 2M developers?
Each developer is producing 5+ applications in Workers? Sounds like they may be counting services within an application as completely different applications.
They’ve stop giving apples to apples comparisons on their Workers platform. That indicates to me something is wrong with adoption here of the Workers AI platform.
I think there is a lot of “talking past each other” in this thread. @Aphalite is 100% right. What is this company worth?
For EPS, analysts are expecting about 62 cents this year and 79 cents next year. Put aside for a minute that they’re probably low on every company and lets just compare that apples to apples with some other expensive stocks.
NET – 2 yr fwd PE of 95
CRWD – 2 yr fwd PE of 63
NVDA – 2 yr fwd PE of 30
TTD – 2 yr fwd PE of 51
You can rightly point out that Samsara has a 2 yr fwd PE of 177…so to own it (which I do but only a tiny position) analysts have to be wrong by like 100% or more on their 22 cents calendar 2025 expectation. I believe they are and it can/might come in at close to 50 cents. That’s where this comes back to NET and how much profit they can wring out.
So maybe the focus should be on what NET’s margins are now and how much they might improve. Because to @stocknovice’s point, the revenue growth has slowed to a point where that’s their only really lever to crush analysts’ expectations. For that 2 yr fwd 95 PE to end up being more reasonable, you have to believe their margin expansion will be much, much faster than expected.
Saw this thread on twitter today, cloudflare enterprise sales team tried to increase prices on a customer 40x (from 3k annual to 120k) - seems the sales team is getting desperate and resorting to used car salesmen tactics:
We have around 4 million monthly active users. We had been happy Cloudflare customers since 2018 on the “Business” plan which has some neat features and costs $250/month for “unlimited” traffic.
In April, we received this email from Cloudflare: … We scheduled a call with their “Business Development” department. Turns out the meeting was with their Sales team, and they didn’t have any “serious issues” to report at all. They asked us whether we would like to consider Enterprise. We politely declined, a bit confused as to the tone of the email.
We sent them info about our domains and tried to get more information from them about the issue and who from our team we should get involved, but they refused to give us anything apart from a date for a call.
They said we had 24h to sign their contract because they had to “get back to Trust & Safety". We asked to pay monthly. They said we need to sign a yearly commitment and pay the full year up front. It felt like extortion. Pay us $120k until tomorrow or we destroy your business.
In another call, trying to negotiate a reasonable contract, our CEO told Cloudflare Sales we were also talking with a competitor. I would have thought this is obvious, who wouldn’t look for alternatives when getting slapped with a $120k invoice? But a few hours after the call … Cloudflare had suddenly deleted all of our domains. All of our DNS records, caching setup, rate limits, whitelists, gone. Our public website, our incoming emails (including support emails from our customers) and our internal infrastructure, our authentication configuration on Cloudflare Access, down.
100% not the whole story. You can read some of the comments on this Reddit programming thread on a post from the same original author.
This was basically a shady online casino using Cloudflare’s shared IP addresses (that other customers use too) in order to avoid bans from certain countries/regions. BYOIP is a feature Cloudflare supports only on enterprise plans, it is not worth it to them to support this on a $250/mo plan.
“This also means that if a country DNS-blocks our main domain, a secondary domain may still be available. This could arguably be seen as a violation of the Cloudflare TOS, as they wrote above.”
I think you and tamhas are missing the point - it’s not about this particular customer or how valid the reasoning is, it’s about how the CF sales team engages the customers who are obviously underpaying. The bear case is that CF is going to have trouble converting these underpaying and free users to higher paying customers. Of course these are just anecdotes, but note the many other examples in the twitter thread from companies that are not crypto/gambling customers.
Also dubious is the immediate move to an annual plan (at just over 100k), instead of monthly, no doubt because a directive/goal of the sales org is to dress up as many 100k+ customers as possible for reporting in the quarters. The OP of this thread even tracks this as a vital metric for himself.
So at the end of the day it’s a black mark on the sales team - which has been called out as an issue by Prince for 2 years now. Regardless of the business reason (which I agree with you seems legitimate), the communication and how they handled it will undoubtedly turn off future prospective customers
I agree that the communication is off/odd, but again we don’t have the full story and Cloudflare forcing the $120k upfront payment seems to me like they didn’t actually want them as a customer. These types of sites are constantly under attack and even on an enterprise plan probably a lot of headache. These types of websites aren’t exactly desirable customers. Who knows…
