Key Takeaways
- Cloudflare shares jumped 11% after third-quarter revenue rose 39% to $782.5 million.
- Its fourth-quarter guidance came in well above analysts’ estimates, and their 2027 numbers look too low.
- Akamai grew just 6% in the same quarter, and Palo Alto Networks reports on Nov. 18.
- Gross margin slipped, and the stock already traded at 179x forward earnings before today’s jump.
Cloudflare (NET) stock is up 11% today after its third-quarter revenue grew at the fastest pace in nearly four years.
That’s quite a turnaround from Thursday, when a selloff in cybersecurity stocks pulled down both Cloudflare and Palo Alto Networks (PANW). Akamai (AKAM), its oldest rival, reported the same evening, with very different numbers.
Faster, again
Revenue rose 39% to $782.5 million. Analysts expected $739.7 million.
CEO Matthew Prince didn’t hold back: “Our engine is firing on all cylinders, and we’ve found an even higher gear for this next phase of growth.”
The guidance backs him up. Cloudflare expects fourth-quarter revenue of $845 million to $846 million, against analysts’ $798.2 million.
Going into the report, analysts expected revenue of $2.87 billion this year and $3.70 billion in 2027:
If that 2027 figure holds, growth slows to about 25% next year, from about 37% this year. I’d expect it to move up.
Margins are the catch
Gross margin slipped to 71.2%, from 74.0% a year ago.
And the stock was already pricey at 179x forward earnings at Thursday’s close, above its 173x average since mid-2023. At today’s price, it’s even higher.
TIKR tracks 34 analysts on Cloudflare. How many say “Buy”?
See the full breakdown of Buy, Hold, and Sell ratings on Cloudflare, along with Wall Street’s revenue and earnings estimates, all in one place. More than 500,000 investors use TIKR to research stocks like this one. See Cloudflare’s Analyst Ratings
Akamai is growing far slower
Akamai’s third-quarter revenue rose 6% to $1.12 billion. Its fourth-quarter guidance of $1.145 billion to $1.17 billion fell short of analysts’ $1.2 billion. CEO Tom Leighton expects growth to pick up to 17% to 22% in 2027 (adjusted for currency), backed by more than $14 billion of multi-year commitments signed this year for its cloud infrastructure business.
At 13x forward earnings, the market isn’t paying for much of that. Can that cloud business keep Cloudflare from pulling further ahead?
Palo Alto is up next
Palo Alto Networks reports on Nov. 18 and guided to 33% to 34% revenue growth for the quarter. At 84x forward earnings, it needs security budgets to hold up too. Did its customers keep buying through the fall the way Cloudflare’s did?
Buy the growth, watch the margin
A company whose growth is still speeding up past $3 billion of annualized revenue deserves a premium. But at this price, gross margin needs to stop slipping. The fourth-quarter report, likely in February, is the next check.
So what is Cloudflare stock actually worth?
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
