If you want to be a winner, you gotta think big.
The legendary Dallas Cowboys coach Tom Landry said a winner never stops trying, and the journalist and author Damon Runyon said you can be a winner only “if you are willing to walk to the edge.”
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The people at Cloudflare (NET) understand that message in big, block letters. The San Francisco cybersecurity company has been coming on strong as it takes on some of the biggest names in the tech sector.
Last month, Matthew Prince, Cloudflare’s co-founder and chief executive, told analysts that fourth-quarter revenue had jumped 27% from a year earlier.
“During the quarter, we added a record number of new large customers, those that pay us more than $100,000 per year, and now have 3,497 large customers, also up 27% year over year,” he said during the earnings call. The revenue contribution from these customers grew to 69% from 66% a year earlier, he said.
Cloudflare CEO Mattew Prince says the company has seen ‘encouraging signs that confidence is beginning to return.’
Getty/TheStreet
Cloudflare CEO sees encouraging signs
Prince said that since the beginning of 2024, customers have been disciplined with their budgets, “scrutinizing deals carefully and ensuring every dollar spent delivered clear and immediate value.”
“That trend continued through Q4,” he said. “However, as the quarter progressed, we saw encouraging signs that confidence is beginning to return, particularly in the U.S. Security, AI, modernization and efficiency form the word ‘cloud’ we hear most often in these conversations.”
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“These themes play directly to Cloudflare’s strength,” Prince added.
Analysts at Bank of America Securities like what’s happening with Cloudflare, which has seen its share price climb nearly 35% from a year ago.
On March 25 the investment firm took the unusual step of double-upgrading Cloudflare to buy from underperform, while more than doubling its price target to $160 from $60.
B of A noted Cloudflare’s strength in AI-as-a-Service, which provides access to AI technologies and tools through a cloud-based platform, so businesses can use AI capabilities without investing in infrastructure or expertise,
The market for AI-as-a-Service was valued at roughly $14 billion last year and is expected to reach $72.13 billion by 2030. The investment firm places a “high probability” on Cloudflare becoming the leader in AI-as-a-Service.
“We think Cloudflare is poised to be one of the true ‘AI winners’ in software,” B of A said in an investors note. “It stands out by offering customers an alternative to building their own capacity — an expensive and inefficient task.”
Analyst: Cloudflare captures share, adds expertise
B of A said that AI-as-a-Service is already resonating with customers. Its surveys show AI is the leading product Cloudflare customers are looking to adopt in the next 12 months, with average AI spending forecast to increase more than 8% to $100,000 per customer, or 15% of total customer spending.
The firm identified two catalysts underpinning Cloudflare’s growth acceleration: a differentiated approach to AI and the company gaining momentum in network security, particularly Secure Access Service Edge. This latter structure delivers wide area network and security controls via the cloud directly to the source of connection rather than to a data center.
B of A said that customers are increasingly choosing Cloudflare over hyperscalers like Amazon’s (AMZN) AWS, Oracle (ORCL) and Microsoft’s (MSFT) Azure platform based on ease of use, scalability and utilization benefits.
“Cloudflare’s network-security offerings are showing strong momentum and capturing market share from competitors,” the firm said.
“According to our survey, network security products are currently 33% penetrated, with over 50% of new spending in the next 12 months expected to go to security products, replacing rivals such as CheckPoint (CHKP) and Cisco, (CSCO) as customers look to modernize network security with software solutions.”
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Earlier this month, Morgan Stanley analyst Keith Weiss assumed coverage of Cloudflare with an overweight rating and $154 price target.
The company has historically offered consistent product innovation across multiple domains, though it has lacked a matching go-to-market engine to fully monetize its large installed base of more than 200,000 customers, Weiss said.
But Cloudflare recently added Chief Revenue Officer Mark Anderson — the former Palo Alto Networks (PANW) head of sales, whom Prince called “‘one of the best go-to-market leaders in the industry” — and product chief CJ Desai, former chief operating officer at ServiceNow (NOW) .
As a result, Cloudflare has “reached a tipping point on multiple fronts,” the analyst tells investors.
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