Cloudflare (NET) Stock Forecast & Price Target

Cloudflare's recent financial performance indicates a robust growth trajectory, highlighted by a record addition of high-value customers, including a 23% year-over-year increase in larger customers and a notable acceleration in Dollar-Based Net Retention Rate (DBNRR) to 114%. The company's total revenue for the second quarter reached $512.3 million, representing a 28% year-over-year growth, surpassing management's guidance and driven by the strength of its Pool of Funds and Variable Revenue segments. Furthermore, the increasing number of account executives, improvements in sales productivity, and strong customer retention metrics underscore Cloudflare's expanding market presence and operational efficiency.

Cloudflare's financial outlook is tempered by a decline in gross margin, which fell to 77.1%, reflecting a higher mix of paid versus free traffic and increased allocation of expenses to cost of goods sold. While operating margin and EPS exceeded estimates, the company faces valuation risks with elevated EV/Sales ratios for high-growth stocks and potential revenue loss due to constraints in accessing the Chinese internet market. Additionally, ongoing trade discussions may further jeopardize Cloudflare's joint venture with JD, potentially alienating customers and impacting overall revenue growth.