$NET Announces

Second quarter total revenue totaled $152.4 million, representing an increase of 53% year-over-year
Record dollar-based net retention of 124%, representing an increase of 900 basis points year-over-year
Strong large customer growth, with a record addition of roughly 140 large customers in the quarter, bringing the total number of large customers to 1,088

All in all, looks like a good quarter, but is down in extended trading, at least early. May be related to their outlook. $NET was priced to perfection, and in some ways, “better than perfection”.


…hit the return to soon :frowning:

Hats off to Bear, who may have expected this. Read his last monthly summary post which references why he sold out of $NET (it was based on valuation). Contrast this with $DDOG’s performance today. The topic of “valuation” (and the quantification of it) is always tricky. I will say $DDOG’s Market cap to forward sales is much lower than $NET’s: $NET MarketCap/forward sales (4xmost recent revenue) = ~60ish:
DDOG MarketCap/forward sales = ~44ish


A lot to like here:

  • Accelerating sequential revenue growth from 9.65% to 10.41%
  • Accelerating sequential > 100k customers from 14.1% to 15.1%
  • DBNRR increased from 123 to 124 QoQ vs. 115 LY
  • Improving operating margins from -5.4% to -2.6% vs. -9.5% LY
  • Paying customers continues to grow well, up 31.8% vs. 23.9% LY
  • FCF Margin remains in the negative single digits but way better than last year’s double digits (-21.4% LY vs. -6.4% this quarter
  • Strong guidance of $166 M next quarter at the high end which is 8.9% sequential growth which means they’ll likely do 10%+ again (stronger guidance vs. last quarter too where they guided for only 6.5% growth)

I added to my position finally after the sell-off. EV/S is ridiculous but clearly they are a leader in the space and their business metrics are reflecting that. That guidance is very nice imo.


good point on guidance, just wondering if the market was expecting a bigger raise? I have a hard time believing the pull back is based on wider than expected loss for the current quarter. $NET is growing like crazy, landing and expanding, which is good. Their Sales and marketing operating expense for this quarter did increase to $76M (from $51M)and their R&D increased to $41M (from $28M), but a long term investor should be OK with these increased expenses: it represents a larger product annuity in the long term. Very few customers leave $NET, once they are customers.


Let not forget there was significant price appreciation during the previous quarter.

Q1 5/6 price $69
Q2 8/5 price $121

That’s 76% in 3 months.


They said they are not even pricing in the Federal Government contracts in their guidance, that has to say something not including a large customer and still having enough in the pipeline. They also need to expand their network to accommodate the contract requirements. Costumers are also signing multi year contracts that also says a lot. The rate of innovation is also set to continue, why would you sell this company? I would say my confidence has been increased.

Long NET


All in all, looks like a good quarter, but is down in extended trading, at least early

This is the third successive post-earnings reaction drop. Yet… NET is at an all-time high. I need to spend some more time with these numbers, but I sense an opportunity to extend my holdings.

post tenebras lux
For not in my bow do I trust, nor can my sword save me.


Cloudflare second-quarter earnings and revenue topped analyst estimates, but the size of the beat may have disappointed.

They reported a second-quarter loss of 2 cents per adjusted share vs. a 3-cent loss in the year-earlier period. Revenue jumped 53% to $152.4M. Analysts expected Cloudflare to report a loss of 3 cents per share on revenue of $146.1 million for the period ended June 30.

Seems companies quarterly reports really need to blow analysts hair back to gain positive AH reaction.

IMHO - $6.97/sh AH sell off will be bought tomorrow.



This, from Prince’s prepared remarks, is the type of swagger I want to see:

“From the point at which we reach breakeven, we intend to aggressively reinvest excess gross profit back into growth. We are nowhere close to being out of ideas for new products to build for customers to buy them. Cloudflare is optimized for innovation and we plan to continue to launch new products, add more customers relentlessly execute and reinvest in growth for the foreseeable future.”

How could this company not have an extraordinary valuation?


“down in extended trading, at least early. May be related to their outlook.”

Or the fact its up ~73% in the last 10 weeks?


yes, very good point, as a few other have made too. $NET has had a nice run over the last several weeks, so this quality announcement may have been priced in somewhat.

Regarding the $NET conference call yesterday, I noticed in the transcript that $NET CFO Thomas
Seifert’s comments about YoY growth may have been transcribed incorrectly:
He said: Total revenue for the second quarter increased 53% year-over-year to $152.4 million.
How it was transcribed: “Total revenue for the second quarter increased 33% year-over-year to $152.4

It’s not uncommon for the transcripts of conference calls to be “mis-transcribed”.

But back to the results, the record add of 140 large customers really stood out to me. I thought: “I wonder why these customers weren’t on $NET before…” which caused me to think there might be a significant number of customers that $NET doesn’t have yet, which would be a good thing for $NET investors.


To the last point re customers that GarryMF made, for those of us who may have historically thought of Cloudflare as just a CDN and Fastly competitor, here is a couple sentences from the conference call that should clarify what Cloudflare’s market is and what their potential customer base looks like:

“We don’t think of ourselves as competing with other niche edge computing platforms. We think of ourselves as competing with the big public cloud platform” (ouch, Fastly)

“I think that if you look at what for example the United States government chose and is going to be offering to all civilian federal agencies. That’s a subset of the Cloudflare for Teams product in order to make sure that government workers are not targeted by malware don’t fall for phishing scams. And so, we’re really proud of that win. But there were many, many, many more wins where Cloudflare for Teams is going up against companies that only do that sort of Zero Trust types of solution. And our win rates are very strong.”

The market for Cloudflare’s products has virutally no limits. I do not worry about them outgrowing it anytime soon if ever. In my mind, its all about execution, execution and execution. This company is redefining the very notion of “computers” “cloud” and “network” as we know them and if they succeed, they could be the next Google, Amazon, or Microsoft of the future.


Hi 5thHorseman

Your post will be deleted and more like that and you may be banned from the board.

And by the way, if you are interested, there’s a long recent thread on RSKD on our board starting at post #79500.