NET Results

Investment Analysis Clubs Saul’s Investing Discussions
1

Cloudflare Announces Second Quarter 2022 Financial Results
08/04/2022
Second quarter total revenue totaled $234.5 million, representing an increase of 54% year-over-year
Strong large customer growth, with a record addition of 212 large customers in the quarter, bringing the total number of large customers to 1,749
Achieved positive operating cash flow for the second quarter and year to date; operating cash flow was $38.3 million, or 16% of total revenue, and free cash flow was negative $4.4 million, or 2% of total revenue for the quarter

https://cloudflare.net/news/news-details/2022/Cloudflare-Ann…

Best,

mpfd

8 Likes
2

If my math is right, that’s three quarters in a row of exactly +54% YOY growth

Their guidance is still pretty strong, at a high end, would be +46% in Q3 and then +42% in Q4 (implied based on the full year guidance.

Compare that to DDOG who just posted +74% growth in Q2 and only has +36% implied in Q4. Either they’re being a lot more conservative, or they expect a much more sudden slowdown later this year.

-mekong

25 Likes
3

Compare that to DDOG who just posted +74% growth in Q2 and only has +36% implied in Q4. Either they’re being a lot more conservative, or they expect a much more sudden slowdown later this year.

Or maybe NET’s business model leads to greater confidence/predictability than DDOG’s wrt future growth?

Cheers,

Eric
long NET and DDOG

3 Likes
4

Or maybe NET’s business model leads to greater confidence/predictability than DDOG’s wrt future growth?

that certainly could be the case

out of curiosity, I just looked back at what Datadog guided for Q3 and (implied) Q4 2021 when they reported the second quarter of '21 at this time last year.

The Q3’21 guidance was +60% and implied into Q4 was +49%

The actuals for those last two quarters of 2021 were ultimately +75% and +84%.

I’m hardly suggesting that they will beat the Q4 percentage by 35% again, but it was ultimately a pretty conservative estimate for the end of the year.

On the other hand, they were coming off only +51% in Q1’21 and +67% in Q2’21 at the time, so the dropoff they estimated over the second half of 2021 this time last year, was much less than what they’ve implied today.

-mekong

20 Likes
5

Yes, i concur, 54% YoY growth for 3 quarters straight.

Cloudflare also continues to raise full year revenue guidance from $927.0 to $931.0 million in Q4’21
to full year revenue guidance of $955.0 to $959.0 million in last Q1’22.
Now they have raised full year revenue guidance again to $968.0 to $972.0 million.

The past couple of quarters they have also raised and then beaten quarterly expectations, at the high end, by about 3% so i expect revenues for Q3 to come in around $258.5M.
Q3’21 Revenue was $172.3M up 50.9% YoY, so that would also put next Q3’22 up 50% YoY… if my math is right. ;^)

Though your math is quicker and 46% - 50% is great for Q3’22.

…and if Q3 is their slow quarter, then Q4 could pop right back up to 54+% if they keep raising guidance.

Better yet, i like the growing ‘Large Customer’ count and overall retention rates.
Last quarter they delivered a record dollar-based net retention of 127%, and this quarter they had
Strong large customer growth, with a record addition of 212 large customers in the quarter, bringing the total number of large customers to 1,749

Large Customers (>$100,000 Annualized Revenue) count has been rising steadily YoY,

Q2 2022    Q2 2021     Q2 2020     Q2 2019
1,749      1,088       637         387

With a similarly steadily rising Total ‘Paying Customer’ count of 151,803 this quarter which is up from 148,184 (*corrected -5925) from last quarter.
https://cloudflare.net/files/doc_financials/2022/q2/Q2-2022-…

“We delivered another strong quarter, with revenue growth up 54% year-over-year, driven by strength in our large customers, and a record number of large customer additions. Large customers now represent 60% of our revenue, and they are leaning forward to hear how Cloudflare can save them money and reduce IT complexity, all while increasing their security, performance, and reliability,"

said Matthew Prince, co-founder & CEO of Cloudflare.

“Cloudflare addresses organizations’ ‘must-have’ list, and that’s even more important in these economic times. Companies aren’t abandoning the Internet, reverting back to outdated on-prem boxes backlogged with supply chain issues, or ditching cybersecurity when attacks are larger than ever. I’m confident Cloudflare will continue to grow stronger even through the tough economic times that may be ahead.”

Dollar Based Retention Rates

Q2’22     Q1’22     Q4’21     Q3’21     Q2’21
126%      127%      125%      124%      124%

From CEO Prince comments it sounds like Cloudflare is a ‘must-have’ we can look forward to steady and increasing Retention rates. ;^)

“Cloudflare’s mission is to help build a better Internet."

i like this report, Matthew Prince’s confidence, and guidance.

Best, kevin c
long of Cloudflare, Inc.
please click my screen name for disclose holdings

57 Likes
6

I listened to both calls and both sounded cautious about the future and saw sales cycles lenghtening. The biggest difference between NET and DDOG is that the later has a larger portion of their revenue coming from consumption, whereas NET is much more fixed fee driven. DDOG was very clear that they are being super conservative with their guidance. It is easier to “optimize usage” of DDOG products to save money than with NET. DDOG mentioned that customers optimize usage all the time its just that they all decided to do it at the same time. Anyone interesed in details should listen to both calls. Analysts did actually decent job and asked several questions about this topic on each call.

35 Likes