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2021-12-16

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Cloudflare Stock Could Have a Rough 2022

Cloudflare is a good business, but that doesn't make NET stock worth owning at this price

Cloudflare Stock Could Have a Rough 2022

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The edge computing provider has enjoyed a huge run-up amid a burst of demand for the company’s products. NET stock is up around 90% year-to-date.</p>\n<p>However, the enthusiasm has dimmed considerably over the past month. NET stock had rallied from $60 to $220 over the past year, but has now slid back under the $150 level.</p>\n<p>This isn’t due to any particularly bad news for Cloudflare. In fact, the company’s last earnings report was generally upbeat, with the company topping both revenues and earnings estimates. Guidance was also quite strong. In addition to that, Cloudflare recently announced that it will be buying Zaraz, which is a firm that helps speed up computing without sacrificing user privacy.</p>\n<p>So if Cloudflare is continuing to grow and putting up good earnings, why is NET stock dropping now? Simply put, it’s not the company that’s the problem, but rather, the valuation. Cloudflare went up too much, too quickly, and is now seeing the other side of the peak.</p>\n<p><b>Fastly: We’ve Seen This Movie Before</b></p>\n<p>Cloudflare’s meteoric rise is not without precedent. Go back in time just 12 months ago, and Cloudflare wasn’t the hottest edge computing stock out there. Rather, that honor went to&nbsp;<b>Fastly</b>(NYSE:<b><u>FSLY</u></b>).</p>\n<p>Fastly completed its initial public offering (IPO) in early 2019 and shares traded listlessly around $25 for the next year. Once the pandemic started, however, demand for bandwidth went through the roof. As Fastly charges based on usage, its revenues suddenly went stratospheric as everyone started using the net for video conferencing, telemedicine, remote education and the like.</p>\n<p>Momentum traders, however, got carried away, pushing Fastly stock up to $125 at one point. Fastly’s business prospects had improved but they hadn’t come close to quintupling. Once the pandemic tailwind faded, Fastly’s stock price crashed. Shares are down by more than two-thirds from their recent peak. With the company remaining unprofitable and its growth trajectory slowed dramatically in the economic reopening, Fastly has a slow road back to recovery.</p>\n<p><b>Net Stock Will Follow The Same Trajectory</b></p>\n<p>Fastly was trading around 12 times revenues following its IPO. In the summer and fall of 2020, the stock suddenly went from 12 times revenues to 50. It held in the 30 range until early 2021 when its revenue growth fell short of traders’ eager expectations. FSLY stock is back down to 12 times revenues once again. It’s as though the pandemic surge never happened.</p>\n<p>Cloudflare, by contrast, started trading around 15 times revenues following its own 2019 IPO. The stock gradually advanced to around 30 times revenues early in the pandemic. It shot up to 60 early this year and leveled off around there for awhile. In October, shockingly, NET stock topped 100 times sales. That’s ludicrously excessive.</p>\n<p>With the recent pullback, NET stock is back to 73x revenues. Unfortunately, that means the stock still has something like 70% downside ahead. Almost all the leading growth stocks have fallen to less than 20 times revenues in recent months. The market simply isn’t willing to assign pie-in-the-sky valuations to most growth companies anymore, particularly ones that aren’t even profitable yet.</p>\n<p>Cloudflare’s decline from 100 times sales to 20 times or less will be a long and painful lesson for traders that ignored valuation. Don’t believe me? Just ask people that owned Fastly stock at 50 times sales last year how that worked out for them.</p>\n<p><b>NET Stock Verdict</b></p>\n<p>There’s an old adage that a good company isn’t necessarily a good investment. Price is a crucial component of investment success. And the historical record shows that buying stocks at 75 times revenues usually doesn’t turn out well.</p>\n<p>Even in the unlikely event that a company is in fact the next&nbsp;<b>Amazon</b>(NASDAQ:<b><u>AMZN</u></b>), you generally aren’t going to do well buying at such an inflated price/sales ratio. Don’t forget that AMZN stock itself dropped 90% in the wake of the dot-com bubble crash. Put aside your opinions of Cloudflare’s business fundamentals for the moment. With NET’s stock price this high, the odds are greatly stacked against investors here. Give this one another look in 2022 once shares reach a more sensible level.</p>","source":"lsy1606302653667","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Cloudflare Stock Could Have a Rough 2022</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nCloudflare Stock Could Have a Rough 2022\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-12-16 09:41 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://investorplace.com/2021/12/net-stock-could-have-a-rough-2022/><strong>InvestorPlace</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Cloudflare(NYSE:NET) has been one of the year’s biggest winners. The edge computing provider has enjoyed a huge run-up amid a burst of demand for the company’s products. NET stock is up around 90% ...</p>\n\n<a href=\"https://investorplace.com/2021/12/net-stock-could-have-a-rough-2022/\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"NET":"Cloudflare, Inc."},"source_url":"https://investorplace.com/2021/12/net-stock-could-have-a-rough-2022/","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1169073405","content_text":"Cloudflare(NYSE:NET) has been one of the year’s biggest winners. The edge computing provider has enjoyed a huge run-up amid a burst of demand for the company’s products. NET stock is up around 90% year-to-date.\nHowever, the enthusiasm has dimmed considerably over the past month. NET stock had rallied from $60 to $220 over the past year, but has now slid back under the $150 level.\nThis isn’t due to any particularly bad news for Cloudflare. In fact, the company’s last earnings report was generally upbeat, with the company topping both revenues and earnings estimates. Guidance was also quite strong. In addition to that, Cloudflare recently announced that it will be buying Zaraz, which is a firm that helps speed up computing without sacrificing user privacy.\nSo if Cloudflare is continuing to grow and putting up good earnings, why is NET stock dropping now? Simply put, it’s not the company that’s the problem, but rather, the valuation. Cloudflare went up too much, too quickly, and is now seeing the other side of the peak.\nFastly: We’ve Seen This Movie Before\nCloudflare’s meteoric rise is not without precedent. Go back in time just 12 months ago, and Cloudflare wasn’t the hottest edge computing stock out there. Rather, that honor went to Fastly(NYSE:FSLY).\nFastly completed its initial public offering (IPO) in early 2019 and shares traded listlessly around $25 for the next year. Once the pandemic started, however, demand for bandwidth went through the roof. As Fastly charges based on usage, its revenues suddenly went stratospheric as everyone started using the net for video conferencing, telemedicine, remote education and the like.\nMomentum traders, however, got carried away, pushing Fastly stock up to $125 at one point. Fastly’s business prospects had improved but they hadn’t come close to quintupling. Once the pandemic tailwind faded, Fastly’s stock price crashed. Shares are down by more than two-thirds from their recent peak. With the company remaining unprofitable and its growth trajectory slowed dramatically in the economic reopening, Fastly has a slow road back to recovery.\nNet Stock Will Follow The Same Trajectory\nFastly was trading around 12 times revenues following its IPO. In the summer and fall of 2020, the stock suddenly went from 12 times revenues to 50. It held in the 30 range until early 2021 when its revenue growth fell short of traders’ eager expectations. FSLY stock is back down to 12 times revenues once again. It’s as though the pandemic surge never happened.\nCloudflare, by contrast, started trading around 15 times revenues following its own 2019 IPO. The stock gradually advanced to around 30 times revenues early in the pandemic. It shot up to 60 early this year and leveled off around there for awhile. In October, shockingly, NET stock topped 100 times sales. That’s ludicrously excessive.\nWith the recent pullback, NET stock is back to 73x revenues. Unfortunately, that means the stock still has something like 70% downside ahead. Almost all the leading growth stocks have fallen to less than 20 times revenues in recent months. The market simply isn’t willing to assign pie-in-the-sky valuations to most growth companies anymore, particularly ones that aren’t even profitable yet.\nCloudflare’s decline from 100 times sales to 20 times or less will be a long and painful lesson for traders that ignored valuation. Don’t believe me? Just ask people that owned Fastly stock at 50 times sales last year how that worked out for them.\nNET Stock Verdict\nThere’s an old adage that a good company isn’t necessarily a good investment. Price is a crucial component of investment success. And the historical record shows that buying stocks at 75 times revenues usually doesn’t turn out well.\nEven in the unlikely event that a company is in fact the next Amazon(NASDAQ:AMZN), you generally aren’t going to do well buying at such an inflated price/sales ratio. Don’t forget that AMZN stock itself dropped 90% in the wake of the dot-com bubble crash. Put aside your opinions of Cloudflare’s business fundamentals for the moment. With NET’s stock price this high, the odds are greatly stacked against investors here. Give this one another look in 2022 once shares reach a more sensible level.","news_type":1},"isVote":1,"tweetType":1,"viewCount":959,"commentLimit":10,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"symbols":[],"verified":2,"subType":0,"readableState":1,"langContent":"CN","currentLanguage":"CN","warmUpFlag":false,"orderFlag":false,"shareable":true,"causeOfNotShareable":"","featuresForAnalytics":[],"commentAndTweetFlag":false,"upFlag":false,"length":7,"xxTargetLangEnum":"ZH_CN"},"commentList":[],"hasMoreComment":false,"orderType":2}