The past six months have been a windfall for Cloudflare’s shareholders. The company’s stock price has jumped 43.1%, hitting $269.53 per share. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is now still a good time to buy NET? Or is this a case of a company fueled by heightened investor enthusiasm? Find out in our full research report, it’s free.
Why Are We Positive on NET?
With a massive network spanning more than 310 cities in over 120 countries, Cloudflare (NYSE: NET) provides a global network that delivers security, performance and reliability services to protect websites, applications, and corporate networks.
1. Billings Surge, Boosting Cash On Hand
Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.
Cloudflare’s billings punched in at $709.4 million in Q1, and over the last four quarters, its year-on-year growth averaged 34.2%. This performance was fantastic, indicating robust customer demand. The high level of cash collected from customers also enhances liquidity and provides a solid foundation for future investments and growth. 
2. Projected Revenue Growth Is Remarkable
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite, though some deceleration is natural as businesses become larger.
Over the next 12 months, sell-side analysts expect Cloudflare’s revenue to rise by 28.4%, close to its 37.3% annualized growth for the past five years. This projection is eye-popping and indicates the market is forecasting success for its products and services.
3. Customer Acquisition Costs Are Recovered in Record Time
The customer acquisition cost (CAC) payback period represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.
Cloudflare is very efficient at acquiring new customers, and its CAC payback period checked in at 26 months this quarter. The company’s rapid recovery of its customer acquisition costs indicates it has a highly differentiated product offering and a strong brand reputation. These dynamics give Cloudflare more resources to pursue new product initiatives while maintaining the flexibility to increase its sales and marketing investments. 
Final Judgment
These are just a few reasons why we think Cloudflare is a great business, and after the recent surge, the stock trades at 31.6× forward price-to-sales (or $269.53 per share). Is now a good time to buy? See for yourself in our full research report, it’s free.
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