A Well-managed Company to Keep in Your Watchlist
Feb 08, 2021 by InvestorDestination Team
This pandemic has forced businesses and educational institutes to operate remotely. A few companies have benefited from this shift, Cloudflare Inc (NYSE: NET) is one such company. Cloudflare is not a well-known name like Zoom, but everyone who uses the internet benefits from its products.
Cloudflare offers products to make the network secure, fast and reliable. The company's products are disrupting the on-premise network equipment industry. To compete successfully against on-premise network equipment providers, it has adopted a similar pricing model. For the majority of its products, it offers a flat rate, not a usage-based fee. For example, when one of its customers experience a large DDoS attack, that customer won't be charged with a large bill or won't be kicked out of Cloudflare's network and denied further DDoS protection. This pricing model offers its customers peace of mind and helps the company successfully disrupt the industry. We admire its business model.
When a company introduces a product, it often gives it for free. It carefully prices the product after the free trial period. This model helps its product adoption. Cloudflare's product conversion rate after the free trial period is good.
Remote working and cloud have disrupted enterprise network boundary and security. The company is being innovative and adding new products to address these changing needs in the enterprise network. For example, traditional IT network security denies access to an outsider, but everyone inside the network is trusted and given default access. The new Zero trust security addresses vulnerabilities in traditional IT network security. Recently, the company has announced a product in this category.
As the company is introducing more products, it is able to bundle them. Its go-to-market strategy is helping the company improve its profitability. As it is expanding its product portfolio, it is enhancing its TAM.
| 2017 | 2018 | 2019 | TTM | |
|---|---|---|---|---|
| Revenue (in millions) | 135 | 193 | 287 | 389 |
| EPS | (0.14) | (1.08) | (0.72) | (0.11) |
| Revenue Growth % | - | 42.8% | 49% | 50.4% |
| Gross Margin % | 78.7% | 77.4% | 77.9% | 76.8% |
| Sale & Marketing Expense % | 45.9% | 49% | 55.5% | 51.8% |
| Operating Margin | (7.2%) | (44.1%) | (37.6%) | (28.8%) |
| FCF % Sale | (12%) | (36%) | (29%) | - |
It is a well-managed company. It is in its early stages of growth and expanding its overall addressable market through product portfolio expansion. In the post-pandemic world, digitization will continue. So, the company's exceptional growth won't come to a screeching halt. It is not profitable yet but is improving its profitability. It has a strong balance sheet.
| Cloudflare | FSLY | PANW | |
|---|---|---|---|
| Revenue (in millions) | 389 | 267 | 3,583 |
| EPS | (0.11) | (0.62) | (3.11) |
| Revenue Growth | 50.4% | 46.6% | 18.8% |
| Operating Margin | (28.8%) | (23.9%) | (4.8%) |
| FCF % Sale | (23%) | (29%) | 23% |
| TEV (in millions) | 26,173 | 11,726 | 37,002 |
| TEV/Revenue | 67.3 | 43.9 | 10.4 |
| P/S | 70 | 45.4 | 10.4 |
| P/B | 32.9 | 22.7 | 49.7 |
By any measures, the company is not undervalued; rather, it is overvalued. Insiders, including the CEO, are selling the stock. You can keep this under your watchlist.
Disclaimer : InvestorDestination.com is not operated by a broker, a dealer, or a registered investment advisor. Under no circumstances does any information posted on investordestination.com represent a recommendation to buy or sell a security. In no event shall investordestination.com be liable to any visitor or third party for any damages of any kind arising out of the use of any content published or available on investordestination.com, or relating to the use of, or inability to use, investordestination.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security. The information on this site is in no way guaranteed for completeness, accuracy or in any other way.