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Cloudflare Earnings Incoming: What to Watch

By Daniel Sparks – Oct 15, 2021 at 9:07AM

Key Points

  • Following two quarters of accelerating revenue growth, investors will be watching the edge network software specialist closely when it reports earnings.
  • Investors will look for more momentum with large customer wins.
  • Cloudflare reported an impressive dollar-based net retention rate of 124% in Q2.

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The tech giant's stock is up 117% year to date. It's safe to say that expectations are high.

With banks kicking off earnings season this week, many investors are likely marking their calendars for the earnings dates of companies they follow. One company with both a soaring stock price and accelerating revenue growth worth watching is edge network software specialist Cloudflare (NYSE: NET). Following such impressive momentum, investors will be watching the growth stock's third-quarter earnings report closely.

Cloudflare is set to report its third-quarter results on Nov. 4. Investors will be looking for more strong numbers to support the company's soaring stock price.

Ahead of the report, here's a preview of the metrics worth checking on.

A diagram of 3 laptops connected to a cloud.

Image source: Getty Images.

Revenue growth

Playing a key role in investor optimism for Cloudflare stock, the company's revenue has accelerated for two quarters in a row, with year-over-year top-line growth coming in at 53% in the second quarter of 2021. This put quarterly revenue at $152 million.

Management guided for revenue for fiscal Q3 to be between $165 million and $166 million. Analysts, on average, expect revenue to be toward the high end of this range.

Large customer additions

Investors should also look to see how the company's progress with large customers is going. In Cloudflare's second-quarter update, management said it added "more than two six-figure customers every single business day" during the quarter.

Was Cloudflare able to keep up this traction with large customers in Q3?

Dollar-based net retention rate

Another key metric worth watching closely is Cloudflare's dollar-based net retention rate (DBNR), or a measure of the percentage of spend existing customers are spending that they were spending a year ago. In this metric, a 100% would indicate no growth in spending from the measured cohort of customers.

Impressively, Cloudflare posted a DBNR of 124% in Q2. This was a record. In addition, it was up 900 basis points year over year. Investors should look to see if Cloudflare's third-quarter DBNR can come close to its second-quarter level.

Revenue guidance

Finally, investors should check on Cloudflare's revenue guidance. Analysts are expecting another meaningful sequential bump higher in the company's quarterly revenue in the fourth quarter. On average, they are forecasting fourth-quarter revenue of $175.7 million.

Will Cloudflare's guidance live up to this high bar?

Investors can tune into Cloudflare's fourth-quarter results after market close on Thursday, Nov. 4.

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Cloudflare, Inc. The Motley Fool has a disclosure policy.

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