On Friday, Piper Sandler adjusted its outlook on Cloudflare Inc . (NYSE: NYSE:NET), reducing the price target to $81 from the previous $110 while maintaining a Neutral rating on the stock. The revision follows Cloudflare's recent earnings report, which, despite showcasing a strong quarter with indicators of upmarket strength and extended customer commitments, presented certain financial metrics that have impacted the company's stock performance.
The firm cited several reasons for the adjustment, including a lack of forecasted upside for fiscal year 2024, weaker calculated remaining performance obligations (cRPO) and billings, a flat net revenue retention (NRR) rate, and a lower than anticipated Q4 exit-rate. These factors have reportedly led to some investor concerns regarding the stock's prospects.
The analyst noted that Cloudflare's management has reiterated its fiscal year 2024 outlook mainly due to geopolitical risks. Additionally, the company experienced a slight delay in the hiring process during the first quarter under the new Chief Revenue Officer (CRO) Anderson's leadership. Despite these issues, Cloudflare's sales pipelines are reportedly the strongest to date, sales representative productivity has returned to satisfactory levels, and the adoption of the company's second and third wave products is robust.
The discussion among investors is expected to continue centering around Cloudflare's Q4 exit-rate and the company's sustainable growth rate, with some optimistic investors projecting a growth rate of over 30% in the coming months. Piper Sandler, while not altering its stance on the stock due to the current valuation, expressed appreciation for the management's cautious approach to the fiscal year and the company's long-term strategy.
InvestingPro Insights
In light of Piper Sandler's recent price target adjustment for Cloudflare Inc., real-time data from InvestingPro provides additional context for investors. Cloudflare's market capitalization stands at approximately $25.58 billion, reflecting its significant presence in the cloud services industry. Despite a negative P/E ratio of -164.64, indicating that the company is not currently profitable, analysts are optimistic about Cloudflare's future, expecting net income growth this year. This optimism is further supported by Cloudflare's impressive gross profit margin of 76.78%, which speaks to the company's ability to manage its cost of goods sold effectively.
Investors should note that Cloudflare's revenue growth remains robust, with a 31.51% increase over the last twelve months as of Q1 2024. This growth is consistent with the company's trajectory, as Cloudflare has also demonstrated a high return over the last year, with a 112.34% price total return. Moreover, Cloudflare's liquid assets exceed its short-term obligations, providing financial flexibility and stability. These InvestingPro Tips suggest that while the company has faced challenges, its financial health and growth prospects may still be strong.
For those considering investing in Cloudflare, additional InvestingPro Tips can provide deeper insights. With a total of 12 tips available on InvestingPro, including predictions of profitability and analysis of long-term returns, investors can make more informed decisions. To access these insights and more, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro. Cloudflare's next earnings date is slated for August 1, 2024, which will be a key event for investors tracking the company's performance.
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