What Happened?
Shares of cloud security and performance company Cloudflare (NYSE: NET) jumped 10.4% in the afternoon session after the company reported an impressive "beat and raise quarter."
Cloudflare's revenue grew 30.7% year over year to $562 million, while its adjusted earnings came in at $0.27 per share, both topping Wall Street's estimates. Another key metric that impressed investors was billings, an indicator of future revenue, which jumped 39.6% to $624.4 million. The operational metrics confirm management's execution prowess. The company's Non-GAAP operating margin expanded to 15.3%, reflecting disciplined scaling. Furthermore, free Cash flow jumped 59.6% year-over-year to $75 million, representing a robust 13% margin on revenue. The company's confidence in this momentum was reflected in its raised full-year adjusted EPS guidance to $0.91 and strong Q4 revenue forecast of up to $589.5 million. This performance, fueled by demand for its core security and its innovative Workers developer platform, particularly in the AI space, positions Cloudflare as a highly differentiated growth engine in the "connectivity cloud" market.
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What Is The Market Telling Us
Cloudflare’s shares are very volatile and have had 21 moves greater than 5% over the last year. But moves this big are rare even for Cloudflare and indicate this news significantly impacted the market’s perception of the business.
The previous big move we wrote about was 9 days ago when the stock dropped 1.6% on the news that reports revealed the Trump administration is considering new restrictions on software exports to China. The news amplified investor anxiety surrounding US-China trade relations, triggering a broad sell-off in the technology sector. According to reports, the administration is weighing these limitations as a potential response to China's own trade measures. The uncertainty rattled the market, contributing to declines in major indexes like the S&P 500 and Nasdaq. Proposed export controls of this nature could significantly disrupt the global technology trade, impacting companies that rely on the Chinese market. The move adds to existing macro challenges, creating a cautious outlook among investors for the software industry.
Cloudflare is up 120% since the beginning of the year, and at $247.17 per share, has set a new 52-week high. Investors who bought $1,000 worth of Cloudflare’s shares 5 years ago would now be looking at an investment worth $4,749.
P.S. In tech investing, "Gorillas" are the rare companies that dominate their markets—like Microsoft and Apple did decades ago. Today, the next Gorilla is emerging in AI-powered enterprise software. Access the ticker here in our special report.
