What Happened?
Shares of internet security and content delivery network Cloudflare (NYSE:NET) jumped 4.1% in the afternoon session after the stock continued its upward momentum following a week of positive analyst commentary and strong performance. The positive momentum appeared to be a continuation of bullish sentiment from earlier in the week. On July 21, the stock reached a new 52-week high of $198.57, reflecting strong investor confidence. This rally was supported by favorable analyst commentary, including a decision by Wells Fargo to raise its price target on the company to $225 from $200 while maintaining an "Overweight" rating. The firm’s outlook was reportedly based on Cloudflare's solid fundamentals, which included strong revenue growth and high gross profit margins.
After the initial pop the shares cooled down to $199.28, up 4.1% from previous close.
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What Is The Market Telling Us
Cloudflare’s shares are very volatile and have had 26 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 6 months ago when the stock gained 20.1% on the news that the company reported impressive fourth-quarter results, which exceeded analysts' billings expectations.
Revenue also beat, with 28% year-on-year growth accelerating from 27% last quarter, something that the market tends to reward. The top line benefited from strong wins in the enterprise segment as the number of large customers kept pace with the sales growth, while the large customer count (1m+ customers) grew even faster at 47% y/y. This raised the total enterprise revenue mix to 69%, up from 66% in the same period last year. Cloudflare's AI business also lived up to the hype, driving strong adoption of its Workers platforms, as the company won several large enterprise AI deals during the quarter. It wasn't just top line, either, with operating profit beating handily.
Lastly, we were happy with full-year revenue guidance, which exceeded expectations. Overall, this was a very good quarter.
Cloudflare is up 77.1% since the beginning of the year, and at $199.28 per share, has set a new 52-week high. Investors who bought $1,000 worth of Cloudflare’s shares 5 years ago would now be looking at an investment worth $5,334.
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