Cloudflare stock price has rallied this year, and is hovering at its highest level since December 2021 as demand for its services rise. NET was trading at $136.85 on Monday, up by about 255% from its lowest level in 2023. So, is it a good company to buy ahead of its earnings report?
Cloudflare has been one of the top companies in the technology industry as demand for its services rose globally.
Cloudflare is thriving
For starters, Cloudflare protects and supercharges most websites you visit today. It has evolved into one of the leading players in the CDN industry, competing with the likes of Akamai Technologies and Fastly. It serves about 35% of the Fortune 500 companies.
Cloudflare is in an industry that is growing, with the total addressable market (TAM) expected to grow from $176 billion in 2024 to over $222 billion in 2027. This industry is made up of subsectors like VPN, email security, multicloud networking, and object storage.
Cloudflare’s business has thrived, with its annual revenue jumping from $287 million in 2019 to $1.296 billion last year. Its trailing twelve-month revenue has jumped to over $1.57 billion.
One benefit with its business is that it uses a freemium model, offering some services for free and then charging for others. In most cases, some small websites start using its free service and then upgrade as their website traffic increase.
Also, customers often increase the number of services from Cloudflare. In addition to its CDN, they enroll in other services like code and AI protection.
Read more: Cloudflare stock price forecast: Can it hit $100 again?
NET earnings ahead
The next key catalyst for the Cloudflare stock price will be its fourth-quarter earnings on Thursday. The most recent results showed that it made over $430 million of revenue in the third-quarter, a 28% increase from the same period in 2023. This growth happened as the number of large customers grew to 3,265 from 1,908 in the same quarter last year.
Cloudflare has a long record of beating analysts’ earnings forecasts, meaning that this trend will continue this week. Analysts expect that its revenue rose by 24.7% in the fourth quarter to $452 million, bringing its full-year figure to $1.66 billion.
Cloudflare’s guidance for the first quarter earnings will be $474 million, a 25% YoY increase, a sign that it is stil having strong revenue growth. The annual EPS is expected to come in at $0.74 in 2024, followed by 85 cents next year.
A key concern, however, is that Cloudflare stock is highly overbought, with a forward P/E ratio of 186, higher than that of most companies.
One way for valuing Cloudflare is to add the FCF margin of 22% and its 30% revenue growth, bringing the total to 52%. This figure means that it is not all that overvalued.
Cloudflare stock price forecast
The weekly chart shows that the NET share price has surged to $136, its highest level since 2021, as we predicted. It recently crossed the important resistance level at $115, its highest swing in February 2024. It invalidated the double-top pattern that was forming.
The stock has moved above the 50-week moving average, while the Relative Strength Index (RSI) and the MACD have pointed upwards. Therefore, the Cloudflare stock will likely keep rising as bulls target the next key point at $150.
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