Cloudflare Will Perform Well as Strong Cybersecurity Demand Continues

NET stock - Cloudflare Will Perform Well as Strong Cybersecurity Demand Continues

Source: IgorGolovniov /

Cloudflare (NYSE:NET) shares have been trending higher since last month. During this period, NET stock gained nearly 20%, outpacing the S&P 500. The price performance also came on the back of positive tech sector cues.

Today’s weakness in its price seems to be a short correction, which is likely to happen with profit-booking after the rally.

Currently, 11 out of 23 analysts on Wall Street have an optimistic outlook for the stock. Only one has a negative view. The consensus forecast for its 12-month average price target is $151.61, which represents a 37% upside potential from current levels.

I expect NET stock to remain a strong performer based on a heightened need for cybersecurity globally. As such, Cloudflare is solidifying its network by investing strategically.

The company recently announced the acquisition of Area 1 Security’s native cloud platform. The purchase will enable Cloudflare to provide a zero-trust security service. Area 1 Security’s technology is interoperable with any email network and helps prevent malware cybercrimes. This means it’s an easy solution against security threats from emails.

The company’s move into cloud storage is likely to be rewarding in the long-term. The cloud storage market is expected to reach $353.81 billion by 2028, growing at a compound annual growth rate (CAGR) of 24.48%.

In March, Cloudflare disclosed plans to expand its partnership with Crowdstrike and bring zero-trust security services to devices, networks and applications. The integration of the company’s platform will enhance their competitive position and accelerate growth opportunities.

These initiatives are supported by the company’s ability to generate strong free cash flow. NET stock recorded free cash flow of $8.6 million (or 4% of revenue) in the fourth quarter of 2021.

The company’s revenue has increased from $287 million in 2019 to $656.4 million in 2021. This implies a healthy CAGR of 51.2%. Its rising dollar-based net revenue retention rate of 125% adds to the positive outlook.

Going forward, management expects revenue to increase by 42% to a midpoint of $929 million in 2022. Even with some growth deceleration, the long-term outlook for NET stock is bright.

On the date of publication, Sakshi Agarwalla did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines. 

Sakshi Agarwalla has more than eight years of experience writing equity research reports and preparing financial models for companies across various industries, as well as writing newsletters and financial articles. Recently, she assisted her Fund manager in executing trades, preparing weekly, monthly NAVs and writing newsletters. She has a postgraduate degree in finance and has completed CFA.

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