Cloudflare's Newer Innovations & GenAI Capabilities Under Limelight Amid Stabilizing Macro Conditions: Analyst

Mizuho analyst Michael Romanelli reiterated a Neutral rating on Cloudflare, Inc. NET, raising the price target to $70 from $65.

Following a troubled Q1, NET executed better in the recently reported Q2 results, where revenue totaled $308.5 million, representing an increase of 32% year-over-year.

The analyst notes that total revenue growth surpassed the Street's 30% forecast, as an increased emphasis on its go-to-market (GTM) efforts is paying early dividends. 

Management also believes the macro environment is beginning to stabilize. 

The analyst believes NET can potentially disrupt foundational security and networking areas, such as Multiprotocol Label Switching (MPLS), Secure Web Gateway (SWG), specific firewall deployments, and VPN.

In addition, newer innovations - R2 (edge storage without egress fees), Cloudflare for Offices, email security, and D1 (serverless database for Cloudflare Workers) - add to the allure of the platform and the NET story, the analyst adds.

The analyst also applauds the company's strong positioning in Generative AI (particularly around inference-related tasks).

In fact, management interestingly cited a couple of 7-figure expansion deals in 2Q, one of which is with a leading Generative AI vendor, the analyst adds.

Based on the above, the analyst raised FY23 revenue estimates to $1.287 billion from $1.283 billion. The analyst also raised FY23 EPS to $0.37 from $0.35.

Price Action: NET shares are trading higher by 7.7% to $70.05 on the last check Friday.