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Cloudflare Inc. won big praise on Wall Street for its latest earnings, but the majority of analysts still decline to recommend its stock, largely due to concerns about the valuation.

The company “is executing well while simultaneously benefiting from strong secular trends, underpinned by rapid innovation in core networking, security and [generative artificial-intelligence] infrastructure,” JPMorgan’s Mark Murphy wrote in a note to clients.

He added that “investors are rewarding these dynamics” as Cloudflare
shares are “making progress back in the direction of their $200-plus highs reached roughly two years ago.”

Read: Cloudflare’s stock catapults 24% higher as earnings bring ‘a lot to like’

The stock was up 22.1% in Friday morning, trading to about $111 and on track for its largest single-day percentage gain since Nov. 10, 2022, when it rose 24.9%.

Still, most analysts who cover Cloudflare’s stock have a somewhat cautious stance on it: Only 38% have bullish ratings. Murphy is among those on the sidelines, writing Thursday that “the company’s technology and market opportunity may be partially offset by a mixed business environment and premium valuation.”

He rates the stock at neutral, but upped his price target to $90 from $53 in his latest note.

Bernstein’s Peter Weed, meanwhile, said that while Cloudflare’s beat-and-raise quarter and margin expansion excited Wall Street, those factors likely weren’t enough to explain the stock’s massive gains.

Rather, executives’ “commentary about continued progress developing their enterprise sales capability, momentum in their new security-product lines, and traction in their edge network related to AI seem to have had a strong effect.”

He added that the company’s leaders “repeatedly emphasized their success in their Zero Trust offering displacing legacy products on the back of significant product maturation and a natural fit to their customer and platform.”

That and the AI potential “seem very exciting,” but Weed said he was “cautious about adding much upside in our revenue model beyond the current pace of cloud-tied growth” because it’s hard to know whether the products will drive incremental spending beyond what Cloudflare otherwise would have received.

He rates the stock at market-perform, but upped his target price to $100 from $85 Friday.

Jefferies analyst Brent Thill flagged that Cloudflare “gained enterprise traction,” and he liked that the company brought on Mark Anderson, an Alteryx Inc. veteran, to serve as its president.

Yet Cloudflare’s stock remains “one of the most expensive assets in software,” he noted, trading at 23 times enterprise value to forward revenue. “While we are long-term believers in the story, valuation keeps us on the sideline while we wait for a better entry point,” Thill wrote.

He has a hold rating on the stock, though he upped his price target to $110 from $80.

Jonathan Ho of William Blair, meanwhile, remained bullish.

“Overall, we believe the company has moved past prior execution issues and is gaining traction more quickly than anticipated in the zero trust and [Secure Access Service Edge] markets,” he wrote. “We believe significant trends in cybersecurity, AI, and edge compute could be meaningful drivers for future growth as Cloudflare has positioned itself as a key enabler.”

He has an outperform rating on Cloudflare’s stock.

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