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Cloudflare Jumps in Trading Debut After Raising $525 Million

Drew Singer and Crystal Tse
Cloudflare Jumps in Trading Debut After Raising $525 Million

(Bloomberg) -- Cloudflare Inc. rose 20% in its trading debut, improving momentum for unprofitable companies going public at valuations in the billions of dollars with other large IPOs ahead.

The software company’s performance, giving it a market value of $5.28 billion, also affirmed the appeal of the sector to IPO investors this year. Shares of the 18 software and computer security companies that have gone public in the U.S. this year have risen an average of almost 40%, compared with the 12.6% increase for all IPOs based on a weighted average.

Cloudflare, a firm that helps websites protect and distribute content, sold 35 million shares on Thursday for $15 each to raise $525 million, exceeding its target for the listing. The shares, after rising as much as 30%, closed at $18 in their first day of trading Friday.

After a disappointing debut on Thursday by SmileDirectClub Inc., Cloudflare gives investors a second chance to endorse a so-called unicorn IPO before other high-profile debuts including Peloton Interactive Inc. and WeWork. amid a broader rotation away from momentum stocks.

SmileDirectClub, tumbled 28% from its above-range IPO price in the worst debut since at least 2008 for any U.S. IPO that raised more than $1 billion. The online provider of orthodontic products gained back some of those losses Friday, gaining 12%.

Cloudflare’s paying customers include about 10% of Fortune 1,000 companies, according its filings with the U.S. Securities and Exchange Commission.The San Francisco-based company said its security services blocked an average of 44 billion cyber threats a day during the second quarter.

For the first six months of the year, Cloudflare lost $37 million on revenue of $129 million, compared with a loss of $32 million on revenue of $87 million for the same period last year, it said.

Cloudflare acknowledged in its filings that its risks included negative publicity from the use of its network by 8chan, a website favored by white supremacists and used by gunmen before mass shootings in El Paso, Texas and Christchurch, New Zealand, this year. It also cited the use of its services by neo-Nazi website the Daily Stormer around the time of the 2017 protests in Charlottesville, Virginia.

Conversely, it also faced concerns about censorship for terminating the accounts of such groups, it said.

The company has a dual-class stock structure giving its Class B stockholders 10 votes per share, according to its filings. Co-founder and Chief Executive Officer Matthew Prince will control 12.9% of the company and have 17.1% of the voting power, the company said.

The offering was led by Goldman Sachs Group Inc., Morgan Stanley and JPMorgan Chase & Co. The shares are trading on the New York Stock Exchange under the symbol NET.

(Updates with closing share price in third paragraph)

To contact the reporters on this story: Drew Singer in New York at dsinger28@bloomberg.net;Crystal Tse in New York at ctse44@bloomberg.net

To contact the editors responsible for this story: Brad Olesen at bolesen3@bloomberg.net, ;Liana Baker at lbaker75@bloomberg.net, Michael Hytha, Matthew Monks

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