Cloudflare (NET) Stock Forecast & Price Target

Cloudflare has demonstrated impressive growth metrics, with a 31% year-over-year revenue increase to $562 million and a 43% year-over-year rise in Remaining Performance Obligations (RPO), indicating strong revenue visibility. The company also recorded a substantial increase in its customer base, with 296,000 paying customers, reflecting a 33% year-over-year growth, supported by enhanced sales productivity and successful enterprise sales transitions. Furthermore, the improved Net Dollar Retention Rate (NDR) of 119% and significant expansion in higher-value customer segments underscore the firm's effective execution strategy and ongoing momentum in catering to both existing and new clients.

Cloudflare's stock outlook appears negative primarily due to uninspiring incremental profitability this quarter, leading to expectations that future bottom-line targets may need to be adjusted downward. Additionally, the company's gross margin has declined due to a higher proportion of paid traffic, resulting in increased cost of goods sold (COGS) and reflecting ongoing pressures from sales and marketing (S&M) expenses. Furthermore, with recent market trends penalizing high-growth companies that face extended timelines to profitability, Cloudflare's elevated valuation in the software sector raises concerns about potential investor sentiment deterioration.