What happened
Shares of Cloudflare (NET -1.56%) posted strong gains Thursday following the announcement of a new service. The web services specialist closed out the daily trading session up 10.6%, according to data from S&P Global Market Intelligence. It was also generally a good day for technology stocks, with the growth-heavy Nasdaq Composite ending the session up roughly 1.5%.
Cloudflare published an update on its company blog today announcing Secrets Store -- a new offering that allows developers to manage access to sensitive information. While the new service doesn't look like a radically transformative new offering for the business in and of itself, it represents another step in the software specialist's push to build a comprehensive ecosystem of web technologies.
So what
Cloudflare's core service offerings are technologies that speed up the rate at which information can be sent and accessed around the internet, and protections against cyberattacks that can be used to take web properties offline. The company is already one of today's most important internet-infrastructure providers, and the recent announcement of Secrets Store signals that it's taking steps to align its ecosystem with the needs of web-software developers.
Now what
Cloudflare stock has seen some volatile moves. Investors have weighed the company's growth-dependent valuation against near-term performance headwinds and potentially massive long-term expansion potential. After growing sales 49% annually last year, the web services specialist now expects 2023's sales growth to come in between 30% and 31.5% -- representing a substantial deceleration in the face of macroeconomic pressures.
Even as the stock trades down roughly 73% from its high, Cloudflare is valued at approximately 15 times this year's expected sales. That's a heavily growth-dependent valuation that sets the stage for outsized volatility if business performance falls short of expectations or macro trends broadly cause investors to move away from risky stocks.
On the other hand, Cloudflare occupies a unique position in the software industry. The company may be able to continue building on its current foundations and deliver strong returns for long-term shareholders.
