Should You Buy Cloudflare Stock in Anticipation of New Cybersecurity Threats?

Cloudflare (NYSE:NET) was a hero stock during the pandemic, and growing cybersecurity threats from Russia and North Korea could spell a repeat this year. Cloudflare’s services were in high demand during the pandemic. After all, making content load faster and keeping websites safe from hackers was a booming business. In response, NET stock rocketed to a nearly 1,100% gain between November 2019 and November 2021. Then a long slide began, lasting through January. NET stock has been up and down in recent weeks, but remains down 6% so far in 2022.

In this photo illustration a Cloudflare Inc (NET) logo is seen displayed on a smartphone
Source: IgorGolovniov / Shutterstock.com

There are two ways to look at Cloudflare. One is promising, the other even more so.

As a Content Delivery Network (CDN), Cloudflare is in the business of ensuring the fastest possible access to websites and web-based services. Naturally, that business accelerated during the pandemic, but it’s not going anywhere as the pandemic winds down.

What I want to talk about today, though, is cybersecurity. This is another big part of Cloudflare’s business. It includes secure access for remote/hybrid workers and securing websites from attack. And all signs point to this business growing in a big way.

Internet Security Was a Big Issue Thanks to the Pandemic

The demand for cybersecurity services increased as a result of the pandemic on several fronts. That demand saw NET stock soar in value.

Companies and organizations that were forced to close their offices and send employees to work remotely had to lock down that access. Securing a PC in a building is challenging enough. Securing an employee’s access — quite possibly using a personal device — being used to work with critical data from a home internet connection is a completely different animal.

Cloudflare offers a wide range of services, including Zero Trust network access and Zero Trust web browsing. These measures help protect companies from threats via their employees’ remote access. 

The company also offers security services that protect websites from cyber threats like distributed denial of service (DDoS) attacks. These attacks can bring websites and web-based services down completely. With consumers and customers relying on online shopping during the pandemic, this protection became even more important.

Rogue States Will Drive Cybersecurity Needs to New Levels

Projections were already showing the global cybersecurity industry on a high growth path. According to a Fortune Business Insights report, it was worth $139.77 billion in 2021. That’s projected to hit $376.22 billion by 2029, for a compound annual growth rate (CAGR) of 13.4%.

However, the situation has changed rapidly in the first few months of 2022. Cybersecurity is becoming an even bigger threat than anticipated. Two countries that have had a reputation for promoting cyber attacks are ramping up their efforts. There are growing fears that Russia will attempt to launch wide-scale cyber attacks on Western countries in retaliation for sanctions over the invasion of Ukraine. 

In addition, North Korea has been increasing its hacking efforts, which bring in badly-needed cash. Just days ago, the country was found to be behind attacks on computers running the Chrome operating system using malware hosted on hacked websites. Among the targets were those in media, cryptocurrency, IT specialists, and financial services. 

Hacking efforts by Russia and North Korea have real potential to push the spending on cybersecurity higher than originally forecast. That would be a win for a company like Cloudflare and would be reflected in NET stock’s price.

Bottom Line on NET Stock

Cloudflare shares have experienced a pullback since peaking last November. Despite a recent rally, they are still down 6% in 2022.

Cloudflare’s slowing rate of growth was predictable given the waning influence of the pandemic. Despite that, the company still performed well in 2021, When Cloudflare reported its fourth quarter earnings in February, revenue was up 54% year-over-year. Full-year revenue was up 52% for 2021, the company’s fifth straight year of 50% or greater growth. The results narrowly topped Wall Street expectations. The company also announced additional security offerings including new Zero Trust capabilities. 

Looking at what investment analysts see happening with NET stock, the 18 analysts tracked by CNN Business have NET rated as a narrow consensus “buy.” Their median 12 month price target of $147 offers 25% upside. Plug the numbers into Portfolio Grader and you’ll find NET earns a “B” rating.

Cloudflare isn’t entirely without risk For one thing, the company’s decision to stay in Russia could result in the loss of customers. However, with NET stock currently priced 44% below its Nov. 18, 2021 all-time high close of $217.25 and the cybersecurity business set to get hotter than ever thanks to Russia and North Korea, Cloudflare is a pretty safe long-term growth pick. 

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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