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        Cloudflare - Why did it tank 20%?

        JP_mykayaplus wrote a column · 05/03 23:28
        Cloudflare - Why did it tank 20%?
        Hypergrowths are having a hard time in high-interest rates conditions.
        Even stellar stocks like $Cloudflare(NET.US)$ are not spared.
        Even though the results were considered great, share prices have tanked by 20%.
        So what are the challenges that Cloudflare faces?
        1. Revising guidance down
        Cloudflare - Why did it tank 20%?
        Full-year revenue guidance for 2023 is down. It used to be USD 1.33 billion but in their latest Q1'23, the top line estimates got adjusted down to USD 1.28 billion.
        Source: Cloudflare Q1 2023 - Investor Presentation
        Source: Cloudflare Q1 2023 - Investor Presentation
        2. Significant drop in DBNR
        Source: Cloudflare Q1 2023 - Investor Presentation
        Source: Cloudflare Q1 2023 - Investor Presentation
        Dollar-based net retention, which measures how much more revenue Cloudflare hikes on the services and offerings that it has, has dropped to 117%. Compared to Q1'22, the figures have experienced a 10 percentage point drop YoY.
        Although prices can't always go up forever, this sudden drop below 120% might have spooked investors.
        3. Lofty valuations
        Cloudflare - Why did it tank 20%?
        Even though Cloudflare has been eking out operating margins, it is not positive from a GAAP perspective.
        Source: Cloudflare 10-Q
        Source: Cloudflare 10-Q
        Growth at all costs is the past. The theme now for hypergrowth is to break into profitability or EBITDA positive.
        Trading at a P/S ratio of 11x and still loss-making, might have broke all key supports for Cloudflare.
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