What happened
Shares of Cloudflare (NET -0.32%) traded higher Friday, surging as much as 10.6%. As the day wore on, however, the initial gains evaporated as the broad market downtrend weighed on the stock, and as of 12:57 p.m. ET today, the stock was up about 1%.
The edge computing specialist reported remarkably strong financial results, but the broad market downtrend today took the wind out of the company's sails.
So what
For the fourth quarter, Cloudflare's revenue grew 42% year over year to $274.7 million, resulting in record adjusted earnings per share (EPS) of $0.06. Analysts' consensus estimates called for revenue of $274.1 million and EPS of $0.05, so Cloudflare cleared both bars with ease.
The company also delivered record operating cash flow of $78.1 million, amounting to 28% of revenue, and record free cash flow of $33.7 million, or 12% of revenue.
Further buttressing the results were strong customer metrics, as Cloudflare surpassed 2,000 customers spending over $100,000 per year, while signing a record number of deals worth $500,000 or more.
Chief financial officer Thomas Seifert noted on the earnings call that deals were taking longer to close due to economic uncertainty, resulting in "businesses being more cautious with their spending."
Now what
Given the challenging environment, it's notable that Cloudflare issued robust guidance that came in above analysts' expectations. For the first quarter, management is expecting revenue to grow 27% at the midpoint of its guidance to $290.5 million, resulting in adjusted EPS of about $0.04. For context, analysts' consensus estimates were for revenue of $290 million and EPS of $0.03.
Management also raised its full-year guidance, forecasting revenue in a range of $1.33 billion to $1.34 billion, well ahead of expectations of $1.31 billion.
Analysts were widely impressed with the results, resulting in a rash of price target increases from no fewer than seven of Wall Street's finest. The prevailing opinion was that Cloudflare's beat and raise was a good sign, particularly in light of the ongoing macroeconomic headwinds.
Needham analyst Alex Henderson captured the bullish tone of analysts, saying Cloudflare is "in a class by itself," citing the company's strong revenue, annual recurring revenue, and cash flow. He further suggested management's guidance was "strong yet demonstrably conservative."
For all those reasons and more, Cloudflare is a buy.
