Should Investors Add Cloudflare Stock To Their Watchlist In 2021?
2020 has been a banner year for cloud computing stocks. Now, investors are beginning to wonder if this cloud computing stock can deliver more upside in 2021 and beyond. You see, since the onset of the COVID-19 pandemic, organizations around the world have been scrambling to adopt cloud-based approaches to support remote workers. If you spend some time thinking about your daily life, chances are slim that you could function in the new world without the internet.
Cloudflare (NET Stock Report) may not be a household name today, but I’ll not discard the possibility that it might be one in the future. For the uninitiated, the company’s aim is to build a better and safer internet. With more businesses moving their operations to the cloud, Cloudflare could see explosive growth in this burgeoning cybersecurity industry. That’s because of its role in safeguarding and speeding up the internet.
Cloudflare stock has skyrocketed 360% in 2020 amid signs that the business’s competitive position is strengthening. While other traditional businesses have been scaling down their businesses, Cloudflare has continued to roll out new services and enjoyed surging demand for its web security, content delivery, and enterprise network offerings.
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A Winner In The Cloud Computing Market That Keeps Winning
Cloudflare might have its fair share of competitors working in the same area of internet operations. With big names like Microsoft (MSFT Stock Report), Amazon (AMZN Stock Report), Alphabet (GOOGL Stock Report), or even Fastly (FSLY Stock Report) grabbing headlines in similar offerings, Cloudflare posted the strongest gains among them. Everyone likes a winning company, and with NET stock generally showing upward momentum, investors are starting to pay attention to Cloudflare.
After a monstrous rally in 2020, investors are beginning to wonder if the music could continue playing this year. Sure, Cloudflare stock is no doubt expensive now by any valuation metrics. Therefore, some investors might try to look for value buys in the stock market today. While I don’t see a problem in doing that, I choose to find reasons why so many investors have been so willing to pay such a steep premium with Cloudflare stock. And with the recent correction along with the broader market, it’s only looking more and more like a value deal to me.
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An Integrated Cloud Platform To Serve The Massive Cloud Computing Market
As companies continue to make the transition to send their business operations to the cloud, the demand for the company’s services looks like it will only go in one direction: up. Be it shielding attacks from hackers, access to content quickly, and ensuring the website is online all the time, Cloudflare has it all. The company’s capabilities are endless, as some would say.
On top of the integrated cloud platform, the company recently unveiled a new disruptive service, also known as Cloudflare Pages. This is a tool that allows them to build websites embedded with all of the company’s basic security features. Together with its edge computing Workers platform, developers are able to use a powerful tool to build applications and websites. They can then deploy what they have built using Cloudflare’s edge computing network.
“Internally, we believe it’s only a matter of time before an individual developer builds a billion-dollar company on their own,” said CEO Matthew Prince. “We hope Cloudflare Pages will provide the building blocks to help make our belief a reality.”
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Cloudflare Is Ready To Disrupt & Customers Fully Supports It
Given how fast Cloudflare is growing, it makes sense for us to dig deeper. After all, there is more to just looking at charts of its stock price. We have to understand the underlying force that supports the company to greater heights before making any investment decision. The company reported that paying customers have grown at a 22% compound annual growth rate (CAGR) over the last two years. But that’s not the main point, instead, it’s the top-line revenue that is growing at a faster pace, showing that customers are increasing their usage.
Corporate clients who are paying more than $100,000 annually are reportedly growing faster than average too. They are contributing significantly to the top line. The number of such customers increased at a CAGR of 68% for the last two years, reaching 736. They now account for almost half of the company’s revenue. In Q3 2020, revenue rose by 54% from a year ago, reaching $114 million for the quarter.
With companies like Cloudflare, another item to look at would be remaining performance obligations. These refer to contracted services that are yet to be delivered. In fact, these will convert to revenue over time. For Cloudflare, that figure stood at $342 million, a jump of 81% from a year ago. The thing is, there are still many enterprise customers out there that could be potential Cloudflare clients. Nevertheless, nearly half of the company’s revenue is from outside the U.S. That is a testament to the importance of Cloudflare’s services regardless of which country a customer comes from.
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Bottom Line
Despite not being visible enough to catch investors’ attention, issues surrounding security and content delivery are indeed crucial for global businesses. You could argue that the offerings from Cloudflare are the essential services to modern age companies. With the stock’s monstrous run in 2020, its valuation may be a concern to many. But hey, no investment is without risk. Perhaps you believe the market for cloud computing is growing. If so, you would agree that there’s a lot of potential in the space. Cloudflare might just be the one that you are looking for. The question is, would you buy NET stock on the dips to ride the cloud computing wave?
