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Cloudflare's IPO filing at a glance: rising revenue, falling losses and risky customers

Ian Agar

A day after WeWork's blockbuster IPO filing appeared, another big VC-backed name has advanced to the next step in 2019's IPO frenzy.



Web services unicorn 

Cloudflare has publicly released its S-1, planning to trade on the NYSE under the symbol NET. The company did not disclose the number of shares that would be offered and set a placeholder target of raising $100 million. 

Goldman Sachs,

Morgan Stanley and

JP Morgan are the lead underwriters.



Founded in 2009, the San Francisco-based cybersecurity and internet services provider grew relatively quickly in its early days, followed by something of a plateau in the past few years. Cloudflare was valued at $6.3 million after a $2.25 million Series A in 2009, and its valuation began steadily rising from there, jumping to $80 million in 2011, $1 billion in 2012 and $1.8 billion in 2015 following a $182 million Series D. The company stayed off the fundraising radar for four years, before raising $150 million this past March amid rumors of the impending public debut. Key figures A key challenge for Cloudflare is that it operates in a relatively saturated field, in contrast to some of the other VC-backed unicorns in relatively new industries. Cloudflare counts

Cisco

Zscaler,

Akamai,

Amazon and

Microsoft as just some of its competitors, resulting in comparatively more modest YoY growth rates than those in WeWork's prospectus, for example.



Here are some of the key financials and other figures from Cloudflare's IPO filing:



Revenue

  • 1H 2019—$129.2 million
  • 2018—$192.7 million
  • 2017—$134.9 million


  • Net losses

  • 1H 2019—$36.8 million
  • 2018—$87.2 million
  • 2017—$10.7 million


  • Cash & cash equivalents on hand

  • 1H 2019—$124.7 million
  • 2018—$160.7 million
  • 2017—$73.4 million


  • Number of paid subscribers

  • 1H 2019—74,873 (408 paying over $100,000 annually)
  • 2018—67,899 (313)
  • 2017—49,309 (184)


  • New Enterprise Associates is one of Cloudflare's largest shareholders, with a 20.4% pre-IPO stake. Pelion Ventures holds 18.8%, CEO Matthew Prince controls 16.6%, and

    Venrock possesses 16.2%. 



    Prince co-founded the company with current COO Michelle Zatlyn and Lee Holloway; Prince and Zatlyn also serve on the board of directors. Holloway, who was the platform architect and led an early technical team, stepped down in 2015 due to frontotemporal dementia. His trusts own about 3.2% of the company in stock.



    There is more to Cloudflare's growth strategy than its key metrics, however. While an increasing number of VC-backed companies are making acquisitions as they move toward the public market, Cloudflare has been remarkably restrained in this aspect. It has only made four acquisitions over its lifetime, according to PitchBook data. Most recently, it acquired mobile application performance analytics provider Neumob in November 2017 for an undisclosed amount. Censorship controversy More than 19 million websites use Cloudflare's services, and throughout its existence, the company has made it clear that it will vigorously avoid selectively censoring websites, unless abiding by a legal order. Hence, it was a rare and attention-grabbing move that made headlines, when last week Cloudflare severed ties with controversial online message board provider 8chan. After numerous mass shootings in the United States and the Christchurch shooting in New Zealand were found to have been ideated or discussed on 8chan, Cloudflare decided to permanently terminate the site's service earlier this month, announcing the decision in a blog post that cited "lawlessness [that] has caused multiple tragic deaths" as a cause.



    Cloudflare made a similar decision in 2017 when it ceased serving the Daily Stormer, a neo-Nazi website that made false claims of receiving ideological support from Cloudflare. However, a December

    report from the Huffington Post found Cloudflare was actively serving at least seven organizations labeled as terrorist groups by the US State Department. These clients reportedly include al-Shabab, the Popular Front for the Liberation of Palestine, al-Aqsa Martyrs Brigade and the Kurdistan Workers’ Party (PKK), among others.



    The report suggested continued service by Cloudflare could be considered providing "material support" to a terrorist organization under US law, although this is up for interpretation. Cloudflare did not comment on the specific websites; its general counsel responded by confirming the company will "stay in compliance with [sanctions] laws."



    However, in its IPO prospectus, the company acknowledged that the controversial content some of its customers publish is a risk factor, as is the potential liability resulting from some customers' activities. The IPO filing specifically cited the examples of 8chan and the Daily Stormer being terminated, but it also acknowledged the potential negative effects of Cloudflare's maintaining relationships with website "that others find hostile, offensive or inappropriate."



    Featured image via jamesteohart/iStock/Getty Images Plus