On Friday, UBS adjusted its outlook on Cloudflare Inc . (NYSE: NYSE:NET), reducing the price target to $76 from the previous $88, while keeping a Sell rating on the stock.
The firm cited Cloudflare's first-quarter performance, which showed an approximate 1.4% top-line beat and significant operating margin improvements, with a year-over-year increase of 450 basis points to 11.2%. Despite these positive aspects, Cloudflare's guidance for the second half of the year was revised downwards due to concerns about the macroeconomic environment and geopolitical tensions.
The analyst noted the contradiction between the company's prudent second-half forecast and the more optimistic indicators such as strong security demand, solid pipeline generation, shorter sales cycles, and enterprise momentum. The cautious stance for the latter part of the year seems to incorporate conservative expectations related to the recent changes in go-to-market (GTM) leadership.
Cloudflare's valuation, based on after-hours pricing, was described as unappealing at 16 times its calendar year 2024 estimated enterprise value to sales (EV/S). The company's revised guidance suggests around 25% growth in the fourth quarter, which the analyst believes limits the potential for over 30% top-line growth in both calendar year 2024 and potentially 2025. These factors contributed to the decision to lower the price target for Cloudflare's shares.
InvestingPro Insights
As Cloudflare (NYSE: NET) navigates through a challenging economic landscape, the latest data from InvestingPro underscores some key financial metrics that may interest investors. Cloudflare's market cap stands at $30.23 billion, reflecting its substantial presence in the industry. Despite not being profitable over the last twelve months, there is an expectation of net income growth this year, with analysts predicting the company will turn profitable. An impressive gross profit margin of 76.78% over the last twelve months as of Q1 2024 indicates Cloudflare's strong ability to control costs relative to its revenue.
Investors should note that Cloudflare is trading at a high revenue valuation multiple, with a Price / Book ratio of 37.91 as of Q1 2024, which might be a point of consideration when evaluating the company's stock value. The company has also experienced a significant price uptick of 38.11% over the last six months, showcasing its strong market performance in the short term. For investors seeking more in-depth analysis, there are additional InvestingPro Tips available, which can be accessed through the InvestingPro platform. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking further insights into Cloudflare's financial health and market potential.
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