As Americans largely stay home for health reasons, demand continues to rise for web security and content delivery services, such as Cloudfare (NYSE:NET). Investors are noticing and despite some volatility, shares of NET stock were pushed higher.
There are a handful of companies working in this area of internet operations. Cloudfare, though, has developed a higher profile than many of its competitors.
And its profile, not surprisingly, increases as the price of its stock heads north. Everyone likes a winner, and in the market, a stock with NET’s generally upward momentum usually draws positive marks.
All of which begs the question should you invest in Cloudfare?
Serving as a Proxy
Cloudfare was founded in 2009. The company is headquartered in beautiful San Francisco. In simple terms, it is hired to be a “reverse proxy” for clients, and Cloudfare’s servers handle many requests from the client’s customers. The term “proxy” is important as the client’s customers don’t know Cloudfare is acting as an intermediary.
Cloudfare also offers internet security services and, by virtue of its proxy role, is on the front line of denial-of-service attacks. In other words, the company acts as a shield.
The company’s policy of not judging the content it facilitates nor the clients it serves has, over the years, put Cloudfare on the defensive. In response to criticism, company officials said that judgment was not its role.
Some of its customers may be viewed as unseemly, even outlaws, but Cloudfare insists it adheres to the laws that apply to its activities. Also, the company has dropped some customers as its practices evolved.
In addition, Cloudfare offers internet security software and related services.
A Look at NET Stock
NET stock offers a way for investors to peel back a layer of the vibrant technology sector and make a behind-the-scenes type play.
Despite not being visible to the average person, issues surrounding security and content delivery are very serious for businesses. Their importance increase as reliance on the internet grows. And during the novel coronavirus pandemic, sensitivity and security are magnified.
About 10 years after its founding, Cloudfare took the steps to go public on the New York Stock Exchange. The company hit the market in September 2019.
A share of NET stock initially sold for $15. The stock cracked $20 this past February and began steadily climbing as summer approached. Its 52-week low is $15.05, while the 52-week high is a more impressive $71.77.
October saw volatility hit the stock. Currently, shares of NET stock are trading around $64.
Cloudfare’s third-quarter performance injected some encouraging numbers to the stock’s desirability. For the period ending Sept. 30, the company posted revenue of about $114.2 million, a year-over-year increase of 54%.
Though the company is not profitable, Cloudfare reported improved numbers. According to the company’s report, the adjusted net loss was $5.4 million, compared to $18.5 million in Q3 2019. The adjusted loss per share totaled 2 cents, an improvement from 16 cents a year ago.
The company also projects more revenue, as well as a loss in the fourth quarter, and for the year. Effects of the continuing pandemic inject “substantial uncertainty,” the company said.
For the full fiscal 2020, Cloudfare is forecasting revenue to be between $422.5 million to $423.5 million. The adjusted net loss is expected to be about 13 cents.
The Bottom Line on NET Shares
Cloudfare serves a segment of the technology market that operates in the background but provides essential services to companies that use the internet.
As a proxy, the company’s servers reduce demand on its clients’ servers. Cloudfare also provides a shield, protecting clients from bad actors that seek to hack into or interfere with clients’ operations. It also is adding new services aimed at the increasing remote-work trend.
NET stock, although valued at a premium, merits consideration for a diversified, long-term portfolio that is not already too heavy on technology stocks.
If shares take another dip, NET stock would also be an attractive value investment at a lower price.
On the date of publication, Larry Sullivan did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Larry Sullivan is a veteran journalist in Florida who has covered banking and finance for several years. He is a former investing editor at U.S. News & World Report in Washington D.C.