Cloudflare (NET +1.10%) has grown like a weed since its initial public offering in 2019. The cloud-based content delivery network (CDN) provider, which accelerates the delivery of digital content for websites, grew its revenue by 51% in 2019, 50% in 2020, and 52% in 2021. It expects another 48% to 49% bump this year.
It went public at $15 a share, and its stock soared to an all-time high of $217.25 last November during the buying frenzy in growth stocks. At its peak, it was valued at $70 billion -- more than 100 times the revenue it would generate in 2021. Today, it trades at about $50 with a market cap of $16 billion -- or 16 times the revenue it's expected to generate in 2022.
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Cloudflare's stock isn't cheap, but it's still a hypergrowth play that could generate more multibagger returns over the long run. But could it become more valuable than the tech titan Alphabet (GOOG +1.44%) (GOOGL +1.71%), which has a market cap of $1.2 trillion, by 2030?
How fast will grow Cloudflare grow this decade?
Cloudflare's CDN network stores cached copies of digital content (such as photos, videos, and other files) on "edge" servers, which are physically closer to the website visitor than the "origin" server. The physical proximity to the server allows for faster data transfer. Cloudflare's service also helps shield websites from bot-based attacks. The market's demand for these services has been growing as internet penetration rates rise, internet speeds increase, websites load up more digital media, and bot-based cyberattacks become more common.
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Key Data Points
Cloudflare already serves data from 275 cities across more than 100 countries, and W3Techs estimates that it's used by nearly 80% of all websites that use CDN networks. That market dominance, along with the fact that it's growing faster than its smaller competitors like Fastly, makes it the top play on the expanding CDN market.
Market Research Future expects the CDN market to grow at a compound annual growth rate (CAGR) of 20.4% from 2020 to 2030. If Cloudflare's growth decelerates and merely matches that CAGR, its annual revenue could still rise from $656 million in 2021 to over $3.4 billion in 2030. But for now, analysts expect Cloudflare's revenue to grow at a much higher CAGR of 39% from 2022 to 2024 and reach $1.76 billion. If it meets those estimates and maintains a 30% CAGR over the following six years, its annual revenue could potentially hit $8.5 billion by the end of the decade.
However, that would still be a drop in the pond compared to Alphabet's estimated revenue of $283.5 billion this year. Assuming Alphabet's annual revenue grows at a CAGR of just 10% through the end of the decade, it could generate $600 billion in revenue in 2030. Therefore, Cloudflare won't come anywhere close to matching Alphabet's market cap by the end of the decade -- unless antitrust regulators break the tech giant into several smaller companies.
But it could still generate big multibagger gains on its own
Cloudflare won't join the big leagues anytime soon, but it could still grow a lot larger by the end of the decade. Its adjusted gross margin has already expanded from 78.2% in 2019 to 78.6% in 2021, which indicates it has plenty of scale and pricing power in the CDN market, and it finally turned profitable on a non-GAAP (adjusted) basis in the first nine months of 2022. Its profitability under generally accepted accounting principles (GAAP) could also improve once it reins in the stock-based compensation, which consumed 18% of its revenue throughout the first three quarters of the year.
Assuming Cloudflare generates $8.5 billion in revenue in 2030 and its stock trades at a more reasonable 10 times sales, it could be worth $85 billion by the end of the decade -- which would represent a five-bagger gain in just eight years.
