What is CDN?
According to Cloudflare’s (ticker: NET ) own explanation, the Cloudflare CDN is a content delivery network with enterprise-grade speed and reliability. Learn why IDC named us a leader in the latest Marketscape.
With network congestion, limited bandwidth, and slow internet speeds, there’s nothing more annoying than visiting a website and watching icons spin as it slowly uploads or downloads.
Through its most advanced CDN, Cloudflare helps users solve this most concerned problem of all the Internet. It will use strategically located servers and cache data to speed up the process of network usage and the overall user experience─── But this is only the basic service provided by the company at the beginning. The company also provides a global network based on cloud computing, security protection to help protect websites and applications, protect corporate networks and devices, and run programs and applications on edge computing.
Cloudflare is the leader in CDN
How is it performing in its industry?
Cloudflare’s performance is particularly impressive in this difficult economic environment, revealing that the company may accelerate its business growth under more favorable conditions.
The issue investors are looking at is simple: Cloudflare offers a wide range of cloud computing services that improve the performance and security of business-critical applications and IT infrastructure while eliminating the cost of on-premises network hardware. Despite stiff competition from hyperscalers like Amazon, Cloudflare has a strong presence across multiple cloud computing verticals, and if this performance continues, the company is proving that it has the ability to continue to capture larger markets in other areas share.
What about its market share?
Cloudflare benefits from two main advantages: speed and scale. Its main business is operating one of the fastest cloud computing network platforms in the world. This resulted in the leadership of CDN software and edge computing (Edge Computing), but the speed plus free solution also created the incredible scale it has today. Cloudflare handles nearly 18% of the Internet’s traffic and provides security services for 20% of the Internet, both of which provide companies with unparalleled bottom-level operational visibility into overall Internet performance and security issues Function. Cloudflare could use this data to improve its product, creating a network effect that could help it gain more traction in other cloud computing verticals, especially the security of Zero Trust architectures.
How do professional bodies evaluate it?
For that matter, Forrester Research recently named Cloudflare a leader in web application firewalls, and Gartner named the company a leader in web application and API protection. The stock trades at about 23 times earnings, which is a bargain compared to its three-year average of 42 times earnings.
Performance in the fourth quarter of 2022
Total addressable market
Cloudflare is making inroads into the cybersecurity space, but the company is still only scratching the tip of the iceberg of a $125 billion total addressable market (TAM).
Key operating figures for the fourth quarter of 2022
Strong customer metrics help drive financial performance:
- Customers spending more than $100,000 per year increased to 2,042, a 44% year-over-year increase
- Customer count grew 16% to 162,000
- In the past year, the average spending of customers has increased by 22% year-on-year
Cloudflare’s combination of industry-leading technology, impressive customer metrics, and strong financial growth should provide the company’s share price with continued momentum.
Fourth Quarter 2022 Financial Report
Despite macroeconomic headwinds, cloud computing company Cloudflare submitted another extremely eye-catching financial report in the fourth quarter of 2022. The key excerpts are as follows:
- Fourth-quarter revenue grew 42% year over year to $275 million
- Cash flow from operating activities soared 92% year-over-year to $78 million, or 28% of revenue
- Record free cash flow of $33.7 million, or about 12% of revenue. the
- Non-GAAP gross profit of 212.5 million (equivalent to Non-GAAP earnings per share of 0.06), gross profit margin of 77.4%
- GAAP net loss shrunk significantly to 46 million from 193.4 million in the same period last year
A Word About Valuations
Eagle-eyed investors will notice the similarities between Cloudflare and Datadog (see my other blog post, “Datadog, a rising star in cloud monitoring”), namely their high valuations. Neither stock is cheap when evaluated by traditional valuation metrics. Cloudflare and Datadog are currently trading at 13 and 10 times forward revenue forecasts, respectively, with a typical price-to-revenue ratio between 1 and 2. However, given their above-average growth rates in the face of various headwinds, their industry leadership, and significant remaining market opportunities, the market still pays them such a premium in a bear market.
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