Cloudflare (NET) Q1 Earnings Beat Expectations, Sales Rise Y/Y
Cloudflare NET reported mixed first-quarter 2023 results, wherein earnings surpassed the Zacks Consensus Estimate but revenues missed the same. However, both figures improved year over year.
The company reported non-GAAP earnings of 8 cents per share, beating the Zacks Consensus Estimate of 4 cents. The bottom line improved a whopping 700% from the year-ago quarter’s earnings of a penny per share.
Cloudflare’s first-quarter revenues of $290.2 million narrowly missed the Zacks Consensus Estimate of $291 million. The top line grew 37% from the year-ago reported figure.
The robust top line growth was aided by multiple clients wins and a growing momentum among large enterprise customers driven by the heightened need for stronger security and a zero-trust approach.
Cloudflare, Inc. Price, Consensus and EPS Surprise
Cloudflare, Inc. price-consensus-eps-surprise-chart | Cloudflare, Inc. Quote
Q1 in Detail
The company’s strong quarterly performance reflects its sustained focus on product innovation, a shift in its business model to subscription-based services, product development and continued investments on infrastructure expansion.
Region-wise, the United States accounted for 52.7% of NET first-quarter revenues, while the EMEA contributed 27%. The APAC represented 13.5% and Other made up the remaining 6.8%.
Cloudflare continued to win multiple customers in the first quarter. Its net dollar-based retention rate turned out to be more than 117%.
The company had 168,159 paying customers during the first quarter. The figure, which is highest so far, surged 13% year over year.
During first-quarter 2023, the company had 114 customers with higher than $100,000 annual revenues. The total count of such customers reached 2,156 at the end of the quarter.
Operating Details
Cloudflare’s non-GAAP gross profit increased 35.4% year over year to $225.9 million. Non-GAAP gross margin contracted 90 basis points (bps) to 77.8%.
Non-GAAP operating expenses climbed 27.5% year over year to $206.5 million. As a percentage of revenues, non-GAAP operating expenses shot down to 71.2% from the year-ago quarter’s figure of 76.3%.
Non-GAAP operating income for the quarter totaled $19.4 million compared with $4.9 million reported a year ago. Consequently, non-GAAP operating margin expanded 440 bps to 6.7%.
Balance Sheet & Cash Flow
As of Mar 31, 2023, Cloudflare had cash, cash equivalents and restricted cash of $268.4 million, up from $160.4 million as of Dec 31, 2022.
As of Mar 31, 2023, the company had a long-term operating lease liabilities of $108.8 million.
NET generated an operating cash flow of $36.4 million and a free cash flow of $13.9 million during the first quarter.
Guidance
Cloudflare anticipates 2023 revenues in the range of $1,280-$1,284 million while it expects non-GAAP income from operations in the $73-$77 million range.
For 2023, Cloudflare projects non-GAAP earnings in the 34-35 cents per share band.
For the second quarter of fiscal 2023, the company estimates revenues between $305 million and $306 million.
Non-GAAP operating income is anticipated between $14 million and $15 million. Non-GAAP earnings are forecast to be 7-8 cents per share.
Zacks Rank & Other Key Picks
Currently, Cloudflare carries a Zacks Rank #2 (Buy). Shares of NET have declined 37.5% over the past year.
Some other top-ranked stocks from the broader Computer and Technology sector are Meta Platforms META, Salesforce CRM and ServiceNow NOW. While Meta Platforms and Salesforce are flaunting a Zacks Rank #1 (Strong Buy), ServiceNow carries a Zacks Rank #2 at present. You can see the complete list of today's Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Meta Platforms' first-quarter 2023 earnings has been revised a penny upward to $1.97 per share over the past seven days. For fiscal 2023, earnings estimates have moved north by a penny to $10.23 in the past seven days.
META’s earnings beat the Zacks Consensus Estimate in two of the trailing four quarters, missing twice, the average surprise being 8.6%. Shares of the company have gained 15.9% in the past year.
The Zacks Consensus Estimate for Salesforce’s first-quarter fiscal 2024 earnings has been revised northward from $1.30 to $1.61 per share over the past 60 days. For fiscal 2024, earnings estimates have moved up by 21.3% to $7.11 in the past 60 days.
CRM's earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 15.6%. Shares of the company have gained 6% in the past year.
The Zacks Consensus Estimate for ServiceNow’s first-quarter 2023 earnings has been revised southward from $2.04 to $2.02 per share over the past 90 days. For 2023, earnings estimates have moved up by a penny to $9.16 in the past seven days.
NOW's earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 6.9%. Shares of the company have inched down 9.9% in the past year.
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