Cloudflare's Weaker Bottom-Line Expectations Are Concerning, but Shares Remain Cheap; $82 FVE

We are lowering our fair value estimate for Cloudflare to $82 per share from $95 after the firm kicked off 2022 with bottom-line results below our expectations and management's expectation of a weaker bottom line thereafter (although the firm’s guidance for the top line remained strong). Our fair value change reflects a decrease in our near-term and long-term profitability outlook, with the firm’s planned operational spend outstripping our prior estimates. We don't foresee GAAP profitability for Cloudflare until 2026, a year later than our prior projection. Still, we think the market reaction is overdone. With shares down 14% on May 5 and down another 7% or so after market close, we see Cloudflare as attractive at current prices.