Clear Skies Ahead: Alternative data signals that Cloudflare is a buy

April 8, 11:45 am

Cloudflare ($NET) is a web-services specialist that provides protection against DDoS attacks, content-delivery-network (CDN) services, and domain-name-system (DNS) services. The company has been growing its sales at an impressive pace, with revenue growth of 49% for the year and revenue for the period reaching $975.2 million in Q4 2020. The company's dollar-based net-revenue-retention rate of 122% in Q4 2020 is an encouraging sign that customers already using its services increased spending by 22% YoY compared to the prior-year period.

Despite Cloudflare's impressive performance, the stock is down 47% in the last 12 months. However, alternative data points to a positive trend that suggests it might be a good time to buy.

According to our data, web traffic to Cloudflare.com grew significantly in Q1. This trend is supported by a positive trend in search, according to Google trends. An uptick in searches for the company, with an increase in webpage visits, should signal an influx of new clients to the company.

The positive trend in search and webpage visitors can also be reflected in the company's social media audience. The company has grown its Twitter followers by 10% in the last 6 months, up to a total of 150 thousand followers. This can be compared to their main competitors, Fastly, which only has 27 thousand followers and Akamai, which has 125 thousand followers but has actually lost followers in the last 6 months, down by 2%.

Cloudflare's employees are also optimistic about the company's future, with 84% of employees having a positive outlook, according to employee reviews. Customer satisfaction is also high, with an NPS of 46 compared to Fastly's NPS of 31 and Akamai's at 26.

The overall sentiment for the stock is also very positive. People on the major popular stock forums are speaking highly of the stock, and the stock sentiment has been trending higher in the last couple of weeks. Adding to that, the average stock analyst is also very positive, with 90% of analysts saying that the stock is either a buy or a hold.

However, there are risks to investing in Cloudflare. The company reported in its latest filing that it has incurred net losses in all periods since it began operations and it may not achieve or maintain profitability in the future. Additionally, if the company is unable to attract new paying and free customers, its future results of operations could be harmed.

In conclusion, while there are risks associated with investing in Cloudflare, our analysis of alternative data points suggests that there may be clear skies ahead for the company. With strong revenue growth, positive sentiment from both employees and customers, and an increase popularity in both search and social media following, Cloudflare should be well-positioned for success. We believe that the company's upcoming earnings report will reflect this positive outlook, and as such, we're adding the stock to our portfolio.

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