Clouflare’s increasing TAM

IMO, Peter Offringa’s newly released article about How to value a company was all about Cloudflare and why their P/S of 100 may be justified. Here’s a little:

What happens if a company can enter a new multi-billion dollar market every month? I realize this is another “this time is different” thesis. However, with intangible assets like software, the building blocks are virtual and composable. Small teams of software engineers can assemble product components into new offerings, leveraging the work done in the prior iteration. Coupled with a broad vision, ingrained and repeatable processes, a release-focused culture and millions of “free” beta testers, it is conceivable how this could happen. Maybe the software equivalent of GE can be built in a day. In a world of Capitalism without Capital, that can be an investment thesis by itself

That is the opportunity as I see it for Cloudflare. I am not looking for revenue growth to suddenly accelerate over the next few quarters. That would be great, but it’s just as likely growth continues in the 50% range. However, with addressable market expansion and ever-shortening product development cycles, that high growth rate is sustainable for a much longer period. Maybe forever. That compounding over time will provide the justification for a high valuation.

I believe this article can be taken as a must read for anyone who owns Cloudflare but also many of the other companies we’re looking at who share similar characteristics. It’s a 20 minute read. I just have to say, Well done Peter!

Best,

Jason

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Jason,

I think you forgot the link. I believe this is it, and I’m diving into it as we speak.

https://softwarestackinvesting.com/tag/net/

R4M (no NET position)

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