Cloudflare Impresses Wall Street

Written by Jennifer Clark
Posted September 18, 2019

The cloud-based web security company Cloudflare (NYSE: NET) went public last Friday. This 9-year-old company priced its IPO at $15 per share. The company originally priced its public offering between $10 and $12, and on Thursday night, it took the risk of raising it. 

However, it wasn’t as risky as it would have been for other companies that have been eyeing going public, companies like the workplace real estate business WeWork. Recently, it announced that it would be putting talks of an IPO on the shelf. Companies like WeWork are popular. They know how to market themselves to get the types of investors they need to maintain a valuation worthy of an IPO. 

Cloudflare isn’t that type of company. On its first day of trading, shares rose by 20%. It put 35 million shares up for sale, which put the company near a $1.5 billion market capitalization. Cloudflare’s IPO comes only a few months after the cybersecurity company, CrowdStrike (NASDAQ: CRWD), which is up 67% since its June IPO. Recently, cybersecurity has become a very lucrative and popular industry, and companies in the space that have gone public are reaping the rewards.

Cloudflare's CEO Matthew Prince said this about its IPO:

When a company gets to a certain scale and a certain size… you owe it to your employees and investors to run the company as a public company, so you might as well be a public company.

Unlike other companies that go public to earn money to stay in business or pay off debt, Cloudflare's next logical step was to go public. In the company’s initial prospectus, it reported a $36.8 million net loss on $129.2 million in revenue for the first half of 2019 — revenues were up 48% and losses were up 13% from the same period a year ago. 

Cloudflare also indicated in its prospectus that it has 74,873 paying customers as of the first half of 2019 — customers like IBM, Zendesk, and chat service Discord. It has said that it blocks 44 billion cyberthreats per day. The company works in both cloud and security, which are both lucrative, competitive sectors.

Cloudflare claims it competes against companies like Amazon, Cisco, and Oracle. It also competes with firms like Akamai, Limelight, and Fastly. Cloudflare sets itself apart from its competitors by turning hardware like load balancers, DDos mitigation gear, WAN optimizers, malware scanners, and firewalls into cloud services. The company aims to eliminate hardware and act as an internet edge service provider. 

As a company, Cloudflare is growing rapidly with regards to its paying user base, especially with its highest-paying customers. Its total paying customers have doubled to 75,000 as of June 20, 2019. At the end of 2016, the number of total paying customers was only at 35,000. Cloudflare’s customers who pay over $100,000 annually have quadrupled from 95 to 408.

Now that Cloudflare is public, it’s going to have to decide what the best move for its business will be. It has investors to impress now. It will have to either continue competing with bigger companies and making a name for itself, or giving in to acquisition from one of those bigger companies.

Until next time,

Jennifer Clark
Pro Trader Today

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