Cloudflare Q3

Excited to write this summary. I am long this company as my biggest position, and I want to start off with how much I admire management of this company and the vision they have. Now, lets review the Q3 report per the earnings transcript. I have fun writing these reports, there are some really good Twitter accounts to follow to understand the business of Cloudflare and to those Twitter accounts I thank you (you know who you are if you read this). Brief highlights so not everyone has to read through the transcript (but I highly recommend!).

Q3, blew past $100m in quarterly revenue coming in at $114m, this represents 54% YoY Growth, vs estimates of 39% YoY Growth and even my own personal estimate of 50% YoY Growth. Cloudflare has crossed 100,000 paying customers, ending the Q just shy of 101,000. Large customers added was 99. The company now has 736 customers spending more than $100,000 per year. The large customers account for 47% of total revenue in Q3, and the company anticipates they will make up more than half of revenue going forward. Cloudflare achieved a goal of winning their first $10m customer on an annual run-rate basis. No customer accounts for more than 5% of revenue, top 20 customers remain well under 20% of total revenue.

The hiring process, insane. In Q2 they received more than 40k applications and extended offers to .6%. In Q3, over 60k applications and extended offers to .4%. Management is critical when it comes to hiring, Cloudflare is hiring the best of breed! Collect and retain! One more Cloudflare week too!

75% of customer transitioned from free to paid accounts, new logos include JetBlue Travel Products, OneTrust and Delivery Hero. The company is allowing customers who were hit super hard by COVID to continue the free offering until they can get back on their feet, this is another great checkmark for management and customer experience/loyalty.

Customers: Cloudflare added a multitude of big names, it seems. Three more Fortune 500 companies. Industrial manufacturing company, food and beverage company, and a pharma company. We can only guess who these were :).

"Sometimes you hit on all cylinders. We had one of those quarters". -Matthew Prince. BOOM.

Geographic performance, strengths in the U.S. and EMEA both increasing 58% YoY. The U.S. represents 52% of revenue, while international represented 48%. 3.2 million total free and paying customers, increase of 40% YoY. Q3, the company has 100,000 paying customers adding roughly 4,800 sequentially. Large customers was a blowout, more record large customers (spending more than $100k annualized revenue), adding roughly 100 (99) sequentially and 285 large customers YoY. Ending the quarter with 736 large customers, this is an increase of 63% YoY. Cloudflare has shown us 60% growth in large customers every quarter since 1Q2018.

The $10m paying customer has been with Cloudflare from 2016. This automatically tells me they have been able to execute and retain high paying customers, with great products. This is a stick product I would like to own shares in.

"So, if you imagine in the future, that what the folks at TikTok are living through what Facebook is increasingly facing in Europe, that comes to every business that is operating on a global basis, where the data for their customers is required to be kept in market and process in market, then there really isn't another platform on the market that can provide that solution without cobbling together a bunch of things. And if in the future, you've got 100 different laws in 100 different countries, then you need a network that spans 100 different countries. And I think that that's the real opportunity for workers." This statement is important for so many reasons.

I will continue to be long this company, I think they have a competitive edge and that stems from strong management and product.

I don’t think I have seen a stock firing on this many cylinders since Livongo Health… even Prince said they are firing on all cylinders. Lets not get too giddy though, We could see some sort of pullback or profit taking in the next few weeks. Nothing wrong with that, I will still be holding this great company in my long-term portfolio. Adding a new name to the watchlist, Starbucks.


Honestly, I am getting tired of seeing "TAMs". I think I am on the boat where they are pointless. Here are are a few NET links below.

101 views0 comments

Recent Posts

See All