Cloudflare (NET 0.12%) had an awesome first quarter of 2021, but no one seems to care. Share prices for the internet infrastructure and cybersecurity firm are down nearly 30% from all-time highs as of this writing, sliding along with other tech stocks in general since March as investors are favoring companies that stand to benefit from the economic reopening. 

To be fair, Cloudflare still carries a hefty premium even after the recent crash in its stock price and a big upgrade in full-year 2021 sales guidance. Nevertheless, for investors with years to wait patiently, this is one of the most exciting tech names to be invested in as cloud computing starts to migrate to the network edge.

Q1 earnings in review

I've been following Cloudflare since its IPO in 2019, and unlike some of its peers in the edge computing industry, Cloudflare's momentum has continued at a torrid pace and is showing little sign of slowing. 

Someone pictured off screen using a computer. An illustrated icon of a padlock is in the foreground.

Image source: Getty Images.

Key to its success, it often releases new products for free for individual users and later moves upmarket with premium access for businesses. This strategy has been paying off. In Q1 2021 alone, total customer count surpassed 4 million. Most were individuals, but a record 117 new large customers -- those that spend at least $100,000 a year with Cloudflare -- came on board as well. The large customer count was 945, up 70% year over year according to CEO Matthew Prince, but a tiny number in the grand scheme of things. There's no shortage of new customer acquisition out there for the company to pursue.  

In addition, Cloudflare's existing customers also continue to ramp up spending. Net dollar-based expansion was 123% in Q1, representing a 23% increase in average customer spend versus a year ago. Prince said 88% of customers use four or more Cloudflare products.  

It all added up to a stellar first quarter report. Free cash flow was in the red, but it was a minimal amount. This can be a highly volatile metric from one quarter to the next, but it's clear this modern infrastructure company is well on its way to turning a tidy profit. And in the meantime, it ended March with nearly $1.04 billion in cash and equivalents and only $392 million in convertible debt.  


Q1 2021

Q1 2020

YOY Change


$138 million

$91.3 million


Free cash flow (loss)

($2.2 million)

($30.6 million)


Data source: Cloudflare. YOY = year over year.  

Edge computing is going to be epic

Public cloud computing -- dominated by's Amazon Web Services, Microsoft's Azure, and Alphabet's Google Cloud -- has turned into a massive industry hauling in hundreds of billions of dollars each year. But the internet and business networks ultimately work best when they're decentralized and spread out across smaller data centers around the globe. Cloudflare is emerging as the dominant player in this migration back to the network edge

A big upgrade in full-year 2021 guidance is proof. Total revenue is now expected to be $612 million to $616 million, compared with guidance for $589 million to $593 million before. The update represents year-over-year growth of over 42% at the midpoint of the revenue outlook.

As of this writing, Cloudflare stock trades for 34 times expected full-year revenue. It's a steep premium implying that investors expect Cloudflare to continue growing at a fast double-digit pace for the foreseeable future. But given the company's perennial outperformance of its peers paired with a fast-growing edge computing industry overall, as well as Cloudflare homing in on positive free cash and an enviable cash hoard, the premium looks deserved to me. Granted, a steep price tag like suggests Cloudflare will be a very volatile stock. Don't buy unless you plan on owning for the better part of the next decade or more.  

Nevertheless, Cloudflare is at the very least worth keeping on your radar. This is an incredibly promising leader in edge computing and related software services such as cybersecurity and Web application development. I remain bullish on the company for the long haul after the Q1 2021 update.