Cloudflare (NASDAQ: NET) still faces challenges, but the stock has confirmed its bottom.
The price action began to show a bottom in the middle of 2022, which has now been reinforced by the Q4 data, and the analyst coverage they sparked.
Also, analysts are expecting an increase in price targets, with the median price increasing after a year of decline.
If this trend continues, the price target could rise in the coming months, creating a tailwind for price action.
Today’s key point is that the current price projections represent a 30% upside for the stock.
Cloudflare Highlights Positive Results And Outlook
Cloudflare had a strong quarter, with sales of $274.7 million, up 42% over the previous year.
The strength was driven by an increase in income from large enterprises, implying that more improvements are on the way.
The revenue is also above the consensus projection, but only by 22 basis points, which is insufficient to fuel the market’s current rise.
This is reflected in the margins and earnings, which are all increasing.
The company’s GAAP losses continue, but this is attributable to investments and growth; adjusted statistics include a little contraction in the gross margin but expansion everywhere else.
The adjusted operating income margin grew to 6.8% from 1.2% last year, according to the company.
This resulted in a 28% rise in operating cash flow and a 12% increase in free cash flow, both of which reached new highs.
The adjusted earnings per share came in at $0.06, beating the consensus by a penny or almost 2000 basis points, and the guidance is positive if a little varied.
The company expects a sequential increase on the top line for the quarter and year, although, in comparison to the consensus, the Q1 projection is a little weak, while full-year expectations are a touch stronger.
In terms of earnings, the first quarter is likely to be excellent relative to analyst expectations, while the full year is expected to be slightly weaker, although both are better than what the market anticipated.
“We achieved record operating profit, operating margin, and free cash flow in the fourth quarter. We also passed over 2,000 large customers who pay us more than $100,000 per year and negotiated a record number of deals worth more than $500,000” Cloudflare co-founder and CEO Matthew Prince stated.
Cloud Security Stocks Have Hit Bottom
Cloud security stocks like Cloudflare have been under pressure in general over the last year, but the bottom may be in for the entire sector. F5 Inc (NASDAQ: FFIV) results were mixed in comparison to market expectations at the time, although they brought some respite to nervous investors.
Shares of that stock and others in the group, such as Palo Alto Networks (NASDAQ: PANW), which reports later this month, have been drifting sideways and establishing a support base since then.
Datadog (NASDAQ: DDOG), one of the hardest affected stocks in the group, reports next week and could surprise investors.
Analysts have been decreasing their estimates in recent months, with the bar set quite low at only 3% sequential and 38% year on year.
The Technical Outlook: Net’s Price Popped, But Hits Resistance
Cloudflare stock jumped more than 9% at the open after reporting earnings, only to lose ground in the first few minutes of trading.
This is an indication of resistance at a significant level, which may keep the price in check.
If the market can rise above $64 and stay there, it may reach $80.
That level will pose additional resistance, but crossing it will open the door to a more lasting recovery.
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