Cloudflare Wows Analysts with Strong Q4 Results, Signals Robust Growth Ahead

Cloudflare Inc NET analysts bumped their forecasts after upbeat fourth-quarter results. The stock gained over 20% Friday.

Cantor Fitzgerald analyst Yi Fu Lee assumed a Neutral rating and raised the price target to $100 from $70.

Cloudflare delivered its strongest quarter in 2023 to finish the year, exceeding FactSet consensus estimates on revenue (+2.7 upside), operating income (+37%), EPS (+25%), and free cash flow (FCF, +4.2%). Lee noted the outperformance as driven by an improvement in the go-to-market execution translating into normalized sales execution/cycle-winning mega transactions.

Cloudflare signed its most prominent new logo with an expected total contract value (TCV) +$30 million and the largest customer renewal with a TCV of ~$60 million.

Even more encouraging, the pipeline close rates, sales force productivity, average deal size, and linearity all improved sequentially. 

While the analyst appreciated Cloudflare’s strong execution to close 2023, he noted 2024 revenue guidance calls for +27% Y/Y growth and an FCF margin of ~10%, locking the company out of the Rule of 40 standard, a metric attained commonly by tier 1 software peers. As such, he remains disciplined in his valuation and will patiently wait for a better entry point.

Oppenheimer analyst Timothy Horan had an Outperform rating and raised the price target to $122. The fourth-quarter revenue grew 32% Y/Y to $362 million, a 350 bps beat, which Horan noted could happen given the acceleration in the big three’s cloud growth.

Enterprise customer count continued to grow at a high rate, up 35% Y/Y and is now 66% of revenue. Security continued to see strong adoption. The analyst noted that Cloudflare has a unique and valuable global cloud platform with growth now set to accelerate. Horan projects first-quarter revenue and EPS of $374.3 million and $0.13.

Needham analyst Alex Henderson maintained a Buy and raised the price target from $110 to $135. Cloudflare delivered excellent execution on both the product and GTM.

The analyst noted NET as a unique platform built on a massive scale. NET should be a core holding for the long term, but I also think it’s well positioned for an eventual economic recovery, as per the analyst.

The analyst highlighted that Cloudflare called out improving pipeline, closure rates, sales cycle time, better linearity, strength in Enterprise, customer willingness to commit to more significant deals, and better GTM internal execution. Henderson projects first-quarter revenue and EPS of $372.9 million and $0.13.

Wells Fargo analyst Andrew Nowinski maintained an Overweight and raised the price target from $95 to $125.

Susquehanna analysts maintained a Neutral and raised the price target from $75 to $115.

The analysts noted that Cloudflare posted a solid fourth quarter with meaningful bottom-line upside and guided to continued upside on profitability in 2024, albeit to a lesser extent. Analysts continue to see NET as a key player in cyber and are encouraged by the increasing traction in SASE and other security solutions.

RBC Capital analyst Matthew Hedberg maintained an Outperform and raised the price target from $95 to $108.

The analyst stated that Cloudflare delivered a good quarter and in-line guide vs. expectations with particular strength in the largest customers. He said that hiring Mark Anderson as CRO is an incremental positive that should help expand sales force productivity and help scale the business.

Hedberg remained bullish around company catalysts and noted that initial calendar year 2024 guidance should represent a good starting point with the potential for estimates to work higher through the year.

Hedberg projects first-quarter revenue and EPS of $373 million (prior $368 million) and $0.13 (prior $0.11).

Mizuho analyst Gregg Moskowitz maintained a Neutral and raised the price target from $73 to $105.

The analyst said that NET possesses highly scalable architecture and a culture of vital innovation. He was optimistic that prior execution issues may be in the rear-view mirror. And based on where the shares are trading after hours), Moskowitz noted the valuation as complete.

Moskowitz projects first-quarter revenue and EPS of $373 million and $0.13.

Price Action: NET shares traded higher by 20.88% at $109.17 on the last check Friday.