[Earnings release and call to be announced on 2/11/2021]
NET’s stated mission is literally to “build a better internet”. To achieve that purpose they have “built a global cloud platform that delivers a broad range of network services to businesses globally—making them more secure, enhancing the performance of their business-critical applications, and eliminating the cost and complexity of managing and integrating individual network hardware”. Cloudfare already boasts 16% of the Fortune 1,000 as paying customers and they have more than 3.2 million total customers! And lest you question the quality of their customer base, they achieved 76% gross margins last quarter and have successfully maintained CAGR (Compound Annual Growth Rate) exceeding 50% for the past 3+ years and have sustained a very impressive dollar based net retention rate that exceeds 115% for at least the past 10 quarters. Moreover, in last quarter’s earnings release, they announced Q/Q revenue growth that has broken out even HIGHER for the first time. If that breakout is sustained when they release on February 11, 2021, that will be incredibly positive news.
Back on November 4, I posted the following after NET’s fantastic quarterly earnings:
“NET is a 12% position (in the portfolio) and my third largest holding and they just absolutely crushed their quarterly earnings announcement at 1:10pm today and are accelerating on a hockey stick growth, finally breaking out of the 48% revenue growth rate they have been tracking for the past 5 quarters and achieving 54% revenue growth this quarter. This is sooner than I’d anticipated and I expect this company to continue to outperform. Call is at 2pm today if you care to listen in. As you recall, I used to have NET and FSLY and identified NET as the long term winner, which FSLY was benefiting short term. With FSLY’s trip and fall last month, I sold all those shares and doubled down on NET, who has a much larger TAM and it breaking into various different markets to now give ZS and others a run for their money. Among their highlights this quarter, they surpassed $100m in quarterly revenue, brought on over 100 new large customers, including their first $10m per year annual recurring customer, achieved positive Cash flow from operations, and have over $1B in cash and equivalents. This company is SOLID. NET should be up decidedly tomorrow in open trading and is up after hours 8% today on this phenomenal earnings report. Hope some of you took the opportunity to pick some shares up the past week on the rare dip they had. Cheers! “
[Back to the present day] As we approach Cloudflare’s (NET) next quarterly release on 2/11/2021, the stock has rocketed from $58/share up to $88/share since their last release 10 weeks ago, before settling back down recently to $77 on Friday. Most of the post above remains accurate; however between the surge in stock price and additional purchases since earnings, my position as a percentage of my portfolio has increased from 12% UP to approximately 17%. I will hold it through earnings, as I anticipate another fantastic report. Since the above quarterly release, NET has not been dormant the past 2 months and has had many news releases that bode well for them. Among others, they were named the “Innovation Leader” by Frost and Sullivan and are working with the government on a project called “Fair Shot” to provide a digital waiting room to cue up people to receive the vaccine for Covid. Whether its security, performance, the reliability of the internet, or Covid vaccines, Cloudflare is at the core and making it better, easier, faster and more secure.
In a global pandemic during which the internet has become infinitely more complex and used for so many more purposes than originally intended, Cloudflare has stepped up and shines bright. I don’t think this company has even scratched the surface and I feel it stands to benefit from the incredible tailwinds produced by Covid-19’s incredible push into the digital transformation. The past 2 weeks market dip back down from $88 to $77 may be looked back upon later as a mere blip and a buying opportunity…uhhh, if we can get past the sideshow that has been Gamestop (GME) the past week and get back to actually earnings from phenomenal companies with incredible fundamentals…like Cloudflare (NET). Cheers! -Poleeko
[Please note: None of my blogs are intended to be a recommendation, advice or endorsement to buy any company or stock. I share my holdings and the reasons behind my purchases freely and without monetary compensation primarily for my own tracking and so others may follow along and hopefully learn the methods I have. I may add to my holdings in any given company, or sell a stock entirely and exit, at any given time depending on their performance and may or may not blog about it in a timely manner or at all. Any decision to invest in the stock market should be backed by your own homework and is entirely your own responsibility and decision].
