Pandemic-Driven Tailwinds Set Cloudflare up for Continued Growth

Cloudflare (NYSE:NET) offers the opportunity to invest in a company that’s benefiting from the pandemic, but also poised to leverage those gains into future growth. With fast, secure access to websites more important than ever, Cloudflare has been rapidly signing up new customers. With those gains, came big gains for Cloudflare stock. NET is still up over 218% so far this year.

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Cloudflare shares get an ‘A’ rating in Portfolio Grader, and its shares are currently trading at a 10% discount from its mid-October high. Many investors see this as a buying opportunity.

What Cloudflare Does

Cloudflare operates a global, content delivery network (CDN). Its servers are distributed to be closer to end users than a single hosted server. Customers hit a Cloudflare server first. It caches frequently accessed content, including region-specific pages. That makes things faster for the end user, while reducing the load on the customer’s own server. At the same time, Cloudflare protects against security threats like DDOS attacks.

According to the company, a website on the Cloudflare network will load content twice as fast. It will use 60% less bandwidth and have 65% fewer requests to process. In addition, the website will also be more secure.

The company also offers related products like Cloudflare for Teams. This service allows remote-based teams to securely access corporate applications over the internet.

A Winning Formula for Cloudflare Stock During the Pandemic

Faster web access with improved security? Talk about a winning product offering during the pandemic. Consumers have been shopping online in droves. Video streaming was so popular during lockdowns that services had to cut image quality in some regions due to the strain on infrastructure. Video gaming surged in popularity, just as streaming gaming services started to launch.

Above all, many companies sent employees home to work. That meant video conference calls, collaboration software, and the need to remotely access company systems. Often from a home Wi-Fi network and PC that are lacking in security and slower than what enterprise customers are accustomed to.

Given the pandemic backdrop, it’s only natural that Cloudflare saw its business spike this year. When the company filed its second quarter earnings, revenue of $99.7 million was up 48% year-over-year.

Cloudflare also said it added a record number of both large and paying customers. In other words, the increased usage of its network wasn’t free trials, and it is making inroads in signing up big customers. Its adjusted loss of 2 cents per share beat analyst estimates of a 6 cents per share loss. 

Cloudflare is far from the only CDN option out there. However, there has been plenty of business during the pandemic for both Cloudflare and its competitors.

Why the Success Won’t Be Short-Lived

Some companies will see their pandemic business boost come to an end. I don’t see that happening with Cloudflare. Companies and businesses that bolstered their online capabilities in 2020 aren’t going to back off.

Working from home is gaining ground as a permanent move for many employers. Consumers aren’t going to abandon the convenience of online shopping. If anything, the recognition Cloudflare has seen during the pandemic is boosting the visibility of it services — which should pay off with more customers in the future as well.

Cloudflare’s biggest challenge going forward isn’t going to be signing up paying customers. It’s going to be achieving profitability. However, with an adjusted loss of 2 cents per share last quarter, it’s getting closer. 

Bottom Line on Cloudflare Stock

The pandemic has been good to Cloudflare and to Cloudflare stock. But I don’t think the good times will be over once a vaccine is found. Consumer and business expectations for internet performance are going to remain high.

With the current dip, NET shares are discounted, but should offer plenty of long-term growth upside as CDNs like CloudShare continue to grow in popularity.

On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.

Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system —with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation.

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