Is Now an Ideal Time to Buy Cloudflare Stock?

  • After a big post-earnings drop, Cloudflare (NET) stock has erased most of its pandemic gains.
  • NET stock is down nearly 70% from its all-time high close of $211.04 last November, but post-pandemic trends (including hybrid working) are favorable for this company.
  • Cloudflare stock faces the prospect of continued market volatility through 2022, but long-term growth investors should consider buying NET stock at this price.
Close up of Cloudflare logo at the Company's headquarters

Source: Sundry Photography / Shutterstock.com

Cloudflare (NYSE:NET) was one of those companies in the right place at the right time when the Covid-19 pandemic hit in 2020. Many companies were forced to send workers home to work remotely when offices closed. Schools switched to remote learning. Online shopping surged. Cloudflare is a CDN (content delivery network) and internet security company and suddenly found its services in hot demand. That demand translated to big returns for those who had invested in NET stock. From the start of the pandemic to November 2021, shares exploded in value by over 1,000%.

However, since last November it has been a different story. Cloudflare stock has lost around 70% of its value since that time. It actually hadn’t performed as poorly as many tech stocks in 2022, but that changed in early May. Cloudflare released first quarter results that included guidance for flat earnings in Q2. That triggered a three-day selloff that knocked 37% off NET stock’s value.

The post-pandemic slump — and especially the selloff after those quarterly earnings — presents an opportunity. There is risk of further volatility in this market. However, growth investors have an opportunity here with NET stock reset to November 2020 levels.

Ticker Company Current Price
NET Cloudflare $55.86

Cloudflare Built a Solid Customer Base Through the Pandemic

In the company’s Q1 2020 earnings report, Cloudflare’s CEO wrote: “Our scalable global network is solving digital transformation needs for our customers in hours or minutes, faster than hardware could even ship to vacant offices … I’m proud of the strong results for the quarter, and the role we are playing, as a guardian of the Internet, when the world needs it most.”

When the pandemic began, there was a scramble to strengthen internet security and set up remote access. However, Cloudflare has done a great job of hanging onto the customers it signed up in the early stages of pandemic. It has sold them additional services. And more companies continue to sign up.

In its Q1 2022 earnings report from May, Cloudflare reported revenue up 54% year-over-year and record dollar-based net retention of 127%. The company set a quarterly record for signing up new customers. The 14,000 paying customers it added in the quarter brought its total to 154,109.

Does that sound like a company that’s struggling in the post-pandemic world?

Post-Pandemic Trends Will Fuel Cloudflare Growth 

Looking forward, there are big trends that will continue to work in favor of Cloudflare, fueling NET stock growth.

One of the biggest tech topics at the moment is the metaverse. These virtual worlds require blazing fast connections or lag will kill the user experience. That means CDNs like cloudflare will be in high demand. That demand is projected to more than double the size of the CDN market by 2030.

The global internet security market is also in growth mode. With more companies adopting permanent hybrid work arrangements, remote workers are a security risk. Companies like Cloudflare help to minimize that risk. The demand for security solutions is expected to drive continued growth, pushing global cyber security spending to over $376 billion by 2029 (it was worth nearly $140 billion in 2021). That’s a CAGR of 13.4%.

These trends have nothing but upside for NET stock.

Should You Buy NET Stock?

Currently trading in the $55 range, NET stock is back to November 2020 levels. It has given back much of its pandemic gains. However, the company has kept most of the customers it acquired during the pandemic and continues to grow that base. Trends that the pandemic helped turbocharge — including online shopping and hybrid remote work — are showing signs of continuing. Cyber security in general is a growth industry and is projected to continue being so for years to come. With the rise of the metaverse, the speedy internet connections provided by CDNs like Cloudflare will become even more important. 

In short, there’s a lot to like about the long-term growth prospects of NET stock. The problem with this Portfolio Grader “B” rated stock really is volatility in the short-term. 2022 being what it is, NET shares could continue to experience sudden moves. Not all those will favor investors.

If you’re risk-adverse or prone to fixating on daily movement, you might want to hold off on buying Cloudflare stock. However, if long-term growth is your objective, NET stock at current prices is likely to deliver.

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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