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Here's Why Cloudflare Stock Skyrocketed 345% Higher Last Year

By Anders Bylund - Jan 8, 2021 at 12:42PM

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The cloud-based network performance and security expert kept surprising Wall Street with strong quarterly results and promising new products.

What happened

Shares of Cloudflare ( NET -12.77% ) rose 345.4% in 2020, according to data from S&P Global Market Intelligence. The web infrastructure and security specialist posted strong business results all year long, and investors were quick to embrace a new network-as-a-service (NaaS) package for enterprise customers.

So what

Cloudflare delivered analyst-stumping results in each of last year's earnings reports. Sales rose 54% year over year in November's third-quarter update and the company edged closer to break-even bottom-line profits. Network security and performance tools were pushed to the center stage when the coronavirus lockdowns arrived in the spring, forcing millions of people to work from home and find entertainment online.

"The world has never needed the Internet more than it has over the last nine months, and we're laser-focused on helping to keep it fast, reliable, and secure," CEO Matthew Prince said in the third-quarter earnings release.

The largest single-day jump of the year was not earnings-related, though. Cloudflare shares spiked 15% higher on Oct. 12 when the company announced the NaaS service bundle known as Cloudflare One. The platform lets large organizations manage their global network performance and security solutions through a single, cloud-based interface.

A blue Ethernet cable forming a cartoon-style cloud.

Image source: Getty Images.

Now what

The story doesn't end there. Cloudflare also teamed up with consumer technology veteran Apple and content delivery expert Fastly to develop a new domain name system with strong encryption and other privacy-friendly features. That all-star team's announcement was good for another 6% share-price jump on Dec. 8 (and Fastly rose 15%, but mostly for a different reason).

The company has a lot of balls in the air and the COVID-19 tailwinds will help Cloudflare to keep those balls moving. Shares aren't cheap, but Cloudflare has earned its nosebleed valuation ratios by delivering explosive revenue growth. Maybe you're not comfortable with buying a stock that trades at 61 times sales and 680 times forward earnings, but you should definitely keep an eye on this exciting growth stock, and perhaps pick up a few shares on the inevitable dips along the way.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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