Cloudflare Earnings: Maintaining Our $87 Valuation as Sales Growth Is Spearheaded by Enterprise Wins

We maintain our $87 fair value estimate for narrow-moat Cloudflare after the firm reported first-quarter results above our expectations while providing guidance that fits our model. We remain optimistic about Cloudflare’s long-term opportunity as it scales its business and penetrates more enterprise customers. While customers have slowed down additional spending, cybersecurity budgets have held up pretty nicely despite the tight macro, a trend we see continuing in the near term. As macro conditions improve, however, we expect Cloudflare to benefit from the upside as customers become more comfortable spending more on larger security vendors. The firm’s shares traded down sharply following the earnings report, likely due to guidance missing the market’s expectations. With this, we view current shares as slightly undervalued.