Cloudflare stock price has gone parabolic and crossed an important resistance level as demand for its services and its market share soared. NET jumped to a high of $195, its highest level since November 2021, and 410% above its lowest point in 2022, giving it a market cap of over $60 billion.
Cloudflare demand is surging
Cloudflare is one of the biggest and most important companies globally, powering most websites and applications that people use today. Its main product is a Content Delivery Network (CDN), a system of distributed servers that ensure that pages load faster.
CDNs store cached versions of content on servers located globally. As a result, when users request content, the CDN company routes them to the nearest server, reducing latency and boosting load terms.
Cloudflare has the biggest market share in the CDN industry, with over 40% share. This explains why you mostly see its service whenever you visit most websites today. Other solutions are jsDelivr, Amazon CloudFront, Akamai Technologies, Fastly, Google, and Microsoft.
Cloudflare’s business has done well in the past few years, with its annual revenue jumping from $430 million in 2020 to $1.6 billion last year.
This growth happened as it enrolled more clients, including highly trafficked websites like Walmart, Shopify, and Coinbase. It now has over 250,000 paying customers.
NET growth continues
The most recent results showed that Cloudflare’s growth continued surging in the first quarter. Its first-quarter revenue jumped by 27% in Q1 to $471 million, a strong figure for a company started in 2010.
This growth happened as the company’s large customers paying it over $100,000 a year jumped to 3,527, up from 2,156 in Q1’23. The company will likely continue doing well as the total addressable market jumped from $32 billion in 2018 to over $231 billion today.
The key benefit for the Cloudflare stock is that it has a high retention of 111% since most companies don’t switch their CDN service.
Further, the company is able to upsell its customers new products, especially in the cybersecurity space. For example, it has become a big player in the DDoS protection, and website application firewalls.
The company is also expected to boost its profitability this year. Its earnings per share is expected to be 80 cents, up from 75 cents a year earlier.
Analysts are also optimistic that its double-digit revenue growth will accelerate this year. The average estimate is that its revenue will grow by 25.5% this year to $2.1 billion, followed by $2.65 billion in 2026.
The risk, however, is that the company has become highly overvalued, even based on the rule-of-40 metric. This is a popular metric that looks at a company’s revenue growth and margins.
Cloudflare has a forward revenue growth of about 25% and a forward operating margin of 13%. This gives it a forward rule-of-40 metric of about 38%, slightly below 40
Cloudflare stock price technical analysis
The weekly chart shows that the NET stock price has surged in the past few months. It move above the crucial resistance point at $177.50, the highest swing in February. Moving above that resistance level invalidated the double-top pattern.
Cloudflare share price has moved above the 50-week and 100-week Exponential Moving Averages (EMA). Further, the Relative Strength Index (RSI) and the MACD continued rising.
Therefore, the stock will likely continue rising as bulls target the key resistance level at $220, the highest point in November 2021. A drop below the support at $177.50 will invalidate the bullish forecast.
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