What happened
Cloudflare (NET 2.92%) stock got hit hard in January as investors moved out of growth-dependent tech stocks. The company's share price fell 26.7% in the month, according to data from S&P Global Market Intelligence.
Concerns about rising interest rate hikes and other macroeconomic headwinds combined to create a brutal month for the stock market, and the S&P 500 and the Nasdaq Composite indexes ended January down 5.3% and 9%, respectively. There wasn't any negative, business-specific news driving Cloudflare's share price lower, but the company's growth-dependent valuation set the stage for a dramatic pullback amid market turbulence.
Image source: Getty Images.
So what
Investors had to contend with a mounting assortment of risk factors last month. In addition to the potential for military conflict between Ukraine and Russia, the market was confronted with a rising tide of macroeconomic headwinds. Fed chairman Jerome Powell confirmed that interest rate hikes were coming in the near future, and it's broadly expected that multiple significant increases will arrive this year.
The combination of flaring geopolitical tensions, high inflation, rising interest rates, and some underwhelming economic data prompted investors to continue moving out of growth-dependent tech stocks, and January served up another month of big sell-offs for Cloudflare. The stock now trades down roughly 53.5% from the lifetime high that it hit in November.
Now what
Despite market volatility created by Big Tech earnings, Cloudflare stock has managed to inch higher early in February's trading. The company's share price is up roughly 0.8% in the month so far.
Cloudflare is scheduled to report Q4 results after the market closes on Feb. 10. For the fourth quarter, management is guiding for non-GAAP (adjusted) earnings in the range of a loss of $0.01 and breakeven on revenue between $184 million and $185 million. For comparison, the company posted an adjusted loss of $0.02 per share on sales of $125.9 million in last year's fourth quarter.
With a market capitalization of roughly $33 billion, Cloudflare is now valued at roughly 37 times this year's expected sales. That's still a highly growth-dependent valuation that could set the stage for volatile trading if the market continues to shy away from tech stocks with forward-looking multiples, but the company has category-leading web security and content delivery services and looks poised to be a big winner over the long term.
