Cloudflare Solves the Internet’s Need for Speed and Security

Cloudflare (NYSE:NET) investors had to ride a roller coaster for the first five months of 2021. However, since mid-May, NET stock has been in growth mode, posting gains of over 50% from its low point. On July 9, it closed at $108.97, a new all-time high, though it has since eased back. Still within spitting distance of that record close, will NET stock run out of momentum, or does it still have room for growth?

Close up of Cloudflare logo at the Company's headquarters

Source: Sundry Photography / Shutterstock.com

I would argue that Cloudflare is a company with the right product mix at the right time to continue fueling long-term growth. Online shopping is only continuing to grow in popularity. Other services are moving online, including the transition from cable TV to streaming video services.

Cloudflare provides the critical services that keep online services fast, and keep them safe. It’s even a big part of exploding IoT (Internet of Things) growth. This Portfolio Grader “B” rated stock is up nearly 500% from its September 2019 public debut. Given the business Cloudflare is in, the stock growth may just be getting started.

The Importance of Website Speed

One of CloudFlare’s primary lines of business is being a CDN, or content delivery network. That may not sound exciting, but it is an increasingly important service — and one that was in the spotlight during the pandemic.

Cloudflare uses local servers to host critical website services so that users enjoy the speed they expect. Even if a user is logging in on a PC across the country from a company’s main data center, they hit a Cloudflare regional server first so there is no lag and no overload. That ensures online shopping, video conferencing, and other web-based activities offer a positive experience for all users, regardless of their location.

Now, more than ever, slow-loading websites are simply not acceptable. As Forbes’ Jason Hall wrote in 2019:

If a page loads slowly, many people will give up and go somewhere else. That can mean a loss of traffic to your site and a loss of dollars in your pocket. Your conversion rates may suffer, and your bounce rates — the number of people who leave your site after only visiting one page — may increase.

In addition, loading speed is also a factor in used search engine page rankings. Slow-loading websites show up lower in search results.

What holds true for websites also holds true for internet-based services. Streaming video, social media and mobile apps often rely on CDNs to keep their services fast and responsive no matter where customers are located.

Being a leading CDN is a big part of the NET stock story. It’s going to continue to be a big part of the long-term growth story for Cloudflare stock as well.

Protecting Against Security Threats Like Ransomware

Cybercrime is on the rise. Ransomware is a big problem, as seen from attacks like the Colonial Pipeline shutdown. We’ve also seen an escalation in DDoS (distributed denial of service) attacks, with the volume of attack attempts up 31% in the first quarter. According to stats published by Cybercrime Magazine, damage from these attacks (including destroyed data, theft of money, and disruption to business) cost $3 trillion in 2015. By the time the damages are tallied for 2021, that number is expected to hit $6 trillion.

Boston University’s Sharon Goldberg explains that taking security measures is a huge step in protection against ransomware attacks:

“Attackers are not going to go after the organizations that are hard to breach–they’re going to go after the ones that are weaker.”

Cloudflare security solutions protect companies against cyber attacks. This includes DDoS attacks that slow a website or service, even taking it offline. And we know how people react to slow websites. Cloudflare also protects against ransomware attacks. Security is a big market for the company, and it’s only going to continue to grow.

Bottom Line on NET Stock

Is now the time to make a move on NET stock? The company is due to report second quarter earnings in three weeks, so you might want to take that into account. The current rally began shortly after Cloudflare delivered solid Q1 earnings that included 51% year-over-year revenue growth, a 70% increase in large customers, and boosted full-year 2021 guidance. If the market reacts in a similar fashion to Q2 earnings, today’s price might seen like a bargain by then. 

On the date of publication, Louis Navellier had a long position in NET. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article. InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.

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