Cloudflare (NET) Reports Narrower-Than-Expected Loss in Q1

Cloudflare, Inc. NET reported better-than-expected results for the first quarter of 2020. The company posted loss per share of 4 cents, narrower than the Zacks Consensus Estimate of a loss of 6 cents. The quarterly loss also came in narrower than the year-ago quarter’s loss per share of 19 cents.

Total revenues jumped 48% year over year to $91.3 million, surpassing the Zacks Consensus Estimate of $87 million. Elevated demand for its cloud-based solutions amid the coronavirus-led remote working wave mainly aided the company’s top-line results.

Revenue Details

Geographically, sales in the U.S. region climbed 44% year over year and represent 40% of the total revenues. The company recorded a 62% year-over-year surge in its international business, mainly driven by a 58% increase in Europe.

During the first quarter, the company added 250K new customers, bringing the total free and paying customer count at 2.8 million, representing a year-over-year jump of 40%.

Cloudflare Inc Price, Consensus and EPS Surprise

Cloudflare Inc Price, Consensus and EPS Surprise

Cloudflare Inc price-consensus-eps-surprise-chart | Cloudflare Inc Quote

Additionally, Cloudflare added 5,000 new paying customers during the quarter, thereby increasing the total number of paying customer count to 89,000. Large customers (annual billings of more than $100,000) were 536 at the end of the first quarter, up 65% year on year. Additionally, the company’s dollar base net retention rate was 117% in the quarter, up 1% from the year-ago quarter.

Non-GAAP gross profit soared 50.8% year over year to $71.5 million, while margin expanded 150 basis points (bps) to 78.3%. Improved network efficiency mainly bolstered gross margin in the March-end quarter.

Non-GAAP total operating expenses flared up 35% year on year to $85.9 million primarily due to a 43% increase in headcounts. However, as a percentage of revenues, operating expenses shrunk 900 bps to 94%.

Non-GAAP loss from operations narrowed down to $14.4 million in the first quarter from the year-ago quarter’s $16.1 million.

Balance Sheet and Cash Flow

Cloudflare ended the first quarter with cash, cash equivalents and marketable securities of $588 million compared with the prior quarter’s $637 million. Moreover, the company had outstanding debt (operating lease liabilities) of $51 million as of Mar 31, 2020.

During the quarter, the company used $14.3 million of cash for operational activities. Free cash flow was also a negative $30.6 million.

Financial Outlook

For the second quarter, Cloudflare expects revenues between $93.5 million and $94.5 million. The Zacks Consensus Estimate for the ongoing-quarter revenue is pegged at $92.5 million.

Non-GAAP operating loss is projected at $190-$20 million. The company anticipates reporting non-GAAP loss per share of 5-6 cents. The Zacks Consensus Estimate currently stands at a loss of 6 cents per share.

Furthermore, Cloudflare reaffirmed its outlook for the full year. The company anticipates to generate revenues of $389-$393 million. The consensus estimate is pegged at $387.7 million.

Non-GAAP loss from operation is expected to be within the $61-$65 million range. Cloudflare projects reporting loss per share between 19 cents and 21 cents in 2020. The Zacks Consensus Estimate stands at a loss per share of 20 cents.

Zacks Rank and Key Picks

Currently, Cloudflare carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector include Inphi Corporation IPHI, Workday, Inc. WDAY and NVIDIA Corporation NVDA, each carrying a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The long-term earnings growth rate for Inphi, Workday and NVIDIA is currently pegged at 37.6%, 26.2%, and 15.2%, respectively.

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