On Friday, RBC Capital Markets analyst Matt Hedberg increased the price target for Cloudflare Inc . (NYSE:NET) shares, lifting it to $123 from the previous $99 while maintaining an Outperform rating. The stock, currently trading at $113.98, has shown impressive momentum with a 33% gain over the past six months and is approaching its 52-week high of $119.42.
Hedberg's optimism is rooted in Cloudflare's mission to build a better Internet through its cloud-based SaaS platform. This platform provides a unified control plane that is user-friendly and scalable, delivering security, performance, and reliability solutions for essential applications and web properties. The company's strong execution is reflected in its robust 77.5% gross margins and 30% year-over-year revenue growth. InvestingPro analysis reveals 13 additional key insights about Cloudflare's performance and potential.
The company's solutions are distributed through a global network that utilizes a mix of commodity hardware and proprietary software. This network is not only optimized for Cloudflare's offerings but also supports a cost-effective free service tier. Additionally, it enables third-party developers to create serverless applications that can scale globally without the need to invest in infrastructure or operations. With a healthy current ratio of 3.37, the company maintains strong liquidity to support its growth initiatives.
The analyst highlighted the unique advantage of Cloudflare's network, where each server in every city operates the full Cloudflare software stack. This factor contributes to the company's robust ecosystem and service delivery model.
Hedberg justifies the new price target by applying a 21x enterprise value to sales (EV/S) multiple on the company's estimated revenue for the calendar year 2025. The multiple represents a slight premium compared to peers with over 30% growth. The raised target reflects the company's potential for margin expansion, the possibility of surpassing expectations, and its compelling growth prospects, balanced against a valuation that is higher than that of its peers.
According to InvestingPro's Fair Value analysis, Cloudflare appears to be trading above its intrinsic value, making thorough valuation analysis crucial for investors. For comprehensive insights into Cloudflare's valuation metrics and growth potential, access the detailed Pro Research Report available exclusively on InvestingPro.
In other recent news, Cloudflare has seen several shifts in analyst ratings. Goldman Sachs upgraded the company's stock from Sell to Buy, citing a reorganization of its sales force and new leadership hires as key factors. Baird maintained its Outperform rating on Cloudflare, highlighting the company's position as a fast-growing cybersecurity vendor. Stifel also upgraded Cloudflare from Hold to Buy, reflecting confidence in the company's potential for sustained top-line growth and improving profitability.
On the other hand, Citi maintained its Neutral rating on Cloudflare, noting the company's Pool-of-Funds deals are encouraging significant purchases and improving visibility among large enterprises. The firm believes that revenue headwinds from these deals are expected to diminish by 2025, contributing to Cloudflare's aspirations to achieve $5 billion in revenues.
Cloudflare reported a 28% year-over-year increase in Q3 revenue, reaching $430.1 million, and a significant rise in its customer base, now standing at 3,265. The company anticipates continued growth in sales capacity and productivity, with Q4 2023 revenue projections indicating a 25% year-over-year increase.
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