Cloudflare Is a Good Hedge Against Data Breaches

In today’s connected world, I don’t think anyone could be blamed for being worried about data breaches. They happen all too often for comfort. That’s just one reason why I think Cloudflare (NYSE:NET) stock is such a good investments these days.

Close up of Cloudflare logo at the Company's headquarters

Source: Sundry Photography / Shutterstock.com

All of us have a lot of information on the web. There’s medical histories, bank accounts, passwords, home addresses, Social Security numbers and, of course, investment accounts.

The more pieces of our lives that exist online, the more likely would-be criminals are looking for ways to harvest that data. And it happens all too often.

Just this year, UNM Health (NYSE:UNM) saw personal information of more than 637,000 patients exposed. Fashion retailer Guess (NYSE:GES) sustained a ransomware attack that exposed Social Security numbers, driver’s licenses and other data. Several other companies saw data breaches of their own, including CVS Health (NYSE:CVS), Facebook (NASDAQ:FB) and Kroger (NYSE:KR).

The threat of these data breaches won’t go away. Internet security is already a high priority for both public and private companies. And as criminals get more sophisticated in their methods, companies will need to be even more vigilant.

With that backdrop, investing in a cloud security company like Cloudflare sure makes a lot of sense, doesn’t it? I happen to hold NET stock myself for a number of reasons.

NET Stock at a Glance

Cloudflare has been on a blistering ride so far this year, up more than 63% in 2021 and gaining 50% over the last three months.

The company is seeing similar growth in its business. NET stock saw revenue increase in the second quarter to $152 million, or a year-over-year (YOY) gain of 53%. It posted a quarterly dollar-based net expansion of 124%.

Cloudflare also ended the quarter in a much-improved cash position, showing free cash flow (FCF) of negative $9.8 million. That is a marked improvement from a year ago, when FCF was negative $20.2 million.

The company says it added a record 140 large customers – meaning those that pay more than $100,000 annually – and now has nearly 1,100 such contracts.

Cloudflare Has an Incredible Customer Base

Just as importantly, Cloudflare has millions of customers that use its free services. Those are prime candidates to be converted into paid contracts, particularly as small businesses grow and need sophisticated online security.

The company also used the earnings statement to announce some new customers, including a federal government contract for its Zero Trust solutions product. In partnership with Accenture Federal Services, Cloudflare scored a contract with the Department of Homeland Security.

CEO Matthew Prince said the company is going to invest more money into its network to win more lucrative government contracts, along with other work:

“We are nowhere close to being out of ideas for new products to build for customers to buy them. Cloudflare is optimized for innovation and we plan to continue to launch new products, add more customers relentlessly execute and reinvest in growth for the foreseeable future.”

In addition to its government contracts, Prince says Cloudflare is working with a diverse list of clients including oil and gas providers, Fortune 500 companies and a major cryptocurrency exchange.

The Bottom Line on NET Stock

As I’ve previously written, one of Cloudflare’s top lines of business is its content delivery network. In short, it uses local servers to host key website services so users can enjoy fast internet speed.

No doubt, that’s an important service. But it’s also important to recognize that NET stock has wonderful potential to grow from its internet security services.

Nearly everyone – from individuals and small businesses to Fortune 500 companies and the federal government – needs internet security. They want to protect their information and business records from snooping criminals. A company like Cloudflare fills that need.

NET stock stands to benefit from the growing need for internet security. With strong growth and a promising future, NET stock gets a “B” rating in my Portfolio Grader right now.

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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