Recently Public Cloudflare Has New Edge – Cloudflare, Inc. (NYSE:NET)

Website infrastructure and security company Cloudflare went public in September last year and recently reported a strong quarter. With a new acquisition and a PaaS edge, the company looks promising.

Cloudflare’s Financials

Revenues for the fourth quarter grew 51% to $83.9 million, ahead of the Street’s estimate of $79.1 million. Net loss was $28.2 million, compared with a loss of $16.7 million a year ago. Non GAAP EPS was $0.06 compared with the Street’s estimate of $0.07.

Fiscal year 2019 revenue grew 49% to $287 million. GAAP gross profit was $223.6 million, or 77.9% gross margin, compared to $149.1 million, or 77.4%, in fiscal 2018. GAAP net loss was $105.8 million, compared to $87.2 million for fiscal 2018. Non-GAAP net loss was $69.5 million, compared to $59.5 million for fiscal 2018. GAAP net loss per share was $0.72, compared to $1.08 for fiscal 2018. Non-GAAP net loss per share was $0.48, compared to $0.73 for fiscal 2018.

The company added a record 300,000 customers during the fourth quarter and ended 2019 with 2.6 million total customers, up 34% y-o-y. It added over 5,800 paying customers in Q4 and now has over 82,000 paying customers, up 22% y-o-y. Its large customer count increased 76% to 550 total large customers with a net add of 237 large customers over the year and 75 over the quarter. Its large customers are defined as customers with over $100,000 in annualized billings. The number of Internet properties using Cloudflare platform grew by 10 million to 26 million in 2019.

Dollar-based net retention stood at 112% in the fourth quarter, which shows that existing customers tend to renew their Cloudflare contracts at larger sizes. This metric is also on the rise, moving up from 110% in the third quarter.

For the first quarter, Cloudflare forecast revenues of $87-$88 million with a non-GAAP net loss of $0.06-$0.05 per share. The market estimates revenues of $87.71 million with net loss of $0.06 per share. Cloudflare expects to end fiscal 2020 with revenues of $389-$393 million with a loss of $0.21-$0.19 per share. The market was looking for revenues of $510.89 million with loss of $0.14 per share.

Cloudflare’s New Offerings and Acquisition

San Francisco-based CloudFlare was founded in 2009 by Harvard students Michelle Zatlyn, Matthew Prince, and their friend Lee Holloway as an online service that helps improve website performance while ensuring security. As the world shifts towards scalable cloud services, Cloudflare has also built a large cloud network that spans 200 cities worldwide and is within less than 100 milliseconds of nearly everyone connected to the Internet. Last month, it announced Cloudflare for Teams to ensure that the people and teams within its organization can access the tools they need to do their job while staying safe from malware and other online threats.

The Cloudflare for Teams suite is built around two complementary products, Cloudflare Access and Cloudflare Gateway that leverage its unified, global platform and its extensive threat intelligence data. Cloudflare Access is a modern-day VPN, providing fast and granular access control for internal and external applications. Cloudflare Gateway is the modern next-generation firewall for malware and ensure compliance with organization policies on any device anywhere in the world without sacrificing performance. It has already won clients like Ericsson, Ziff Davis, and 23andMe.

In January, Cloudflare announced the acquisition of browser isolation startup S2 Systems founded in 2018 by former Microsoft (NASDAQ:MSFT) employees. Based in Kirkland, Washington, S2 develops remote browser isolation technology that executes browser code in the cloud rather than on the user’s device. This solution keeps security threats safely isolated from end devices, protecting against one of the biggest enterprise security threats. The company expects S2 technology to enhance Cloudflare for Teams, ensuring it can protect even the most security-conscious organizations without slowing them down. Terms of the deal were not disclosed. S2’s employees will move into Cloudflare’s new Seattle office following the acquisition.

Cloudflare’s New Edge

Other new products gaining traction are Magic Transit and Workers edge computing platform. Magic Transit is a software-defined networking product that offers IP transit with DDoS protection, next-gen firewall, and traffic acceleration for on-premise and data center networks from a single, easy-to-use interface.

Workers edge computing platform allows developers to build and deploy serverless applications on the Cloudflare edge network. Cloudflare Workers provides a lightweight JavaScript execution environment that allows developers to augment existing applications or create entirely new ones without configuring or maintaining infrastructure. The superior speed of development and flexibility that the platform offers is proving to be a differentiating factor in a large percentage of Cloudflare’s new deals.

Cloudflare’s primary competition is from on-premise network hardware vendors such as Cisco, F5, Check Point, FireEye, Imperva, Palo Alto Networks, Juniper Networks, and Riverbed. Other competitors Zscaler, OpenDNS (Cisco), Akamai, Limelight, Fastly, Edgecast (Verizon), Dyn (Oracle), Neustar, UltraDNS as well as some services provided by the major public cloud vendors including AWS, GCP, Azure, and Alibaba.

Cloudflare went public on the NYSE under the ticker NET at a list price of $15. Its stock closed 19% higher on the opening day at $17.9 for a market cap of $5.25 billion. Before going public, it had raised $182 million in venture funding and was last valued at $3.2 billion. Its stock is currently trading at $21.02 at a market cap of $6.33 billion.

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Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.

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