Cloudflare (NET +3.30%) has generated some volatile gains since its IPO in September 2019. The cloud-based content delivery network (CDN) provider went public at $15, and its shares soared to an all-time high of $217.25 on Nov. 18, 2021.
But today, its stock trades at around $78. A $10,000 investment in its IPO would have grown to nearly $145,000 before shrinking back to about $52,000 today. That pullback is disappointing, but a five-bagger gain in just over four years is still impressive.
Cloudflare is now worth just $26 billion, but could it become a $1 trillion stock by 2050? Let's take a long-term view of its business to see if it could become the next tech titan.
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Cloudflare's long-term catalysts
Cloudflare's CDN accelerates the delivery of photos, videos, and other media for websites by storing cached copies of the data on "edge" servers -- which are physically located closer to websites' visitors than their "origin" servers. It also shields those websites from bot-based attacks with tools to verify human users.
The market's demand for Cloudflare's services is booming as websites host more bandwidth-intensive media and expand their geographic reach. Cloudflare also expects its bot-blocking features to make it the "water filtration" system of the internet.
NYSE: NET
Key Data Points
From 2018 to 2022, Cloudflare's revenue increased at a compound annual growth rate (CAGR) of 50%. It also turned profitable for the first time on a non-GAAP (generally accepted accounting principles) basis in 2022. It now serves up data from 310 cities in over 120 countries and processes about 50 million HTTP requests every second.
From 2023 to 2032, Precedence Research believes the CDN market could grow at a CAGR of 18.3%. A lot of that growth could be driven by the expansion of the cloud and streaming media markets. Cloudflare's recent rollout of artificial intelligence (AI) tools that enable developers to directly build AI apps on its CDN should also expose it to the explosive growth of the generative AI market -- which Fortune Business Insights expects to grow at a CAGR of 47.5% from 2023 to 2030.
Does Cloudflare have a viable path toward $1 trillion?
Assuming Cloudflare's valuations hold steady, its revenue would need to grow at a CAGR of 14% from 2023 to 2050 to reach a $1 trillion valuation. That seems like a realistic target relative to its prior and expected growth rates.
From 2022 to 2025, analysts expect Cloudflare's revenue to rise at a CAGR of 29%. That means Cloudflare could still continue to grow faster than the broader CDN market and most of its closest competitors. By comparison, its larger competitor Akamai is expected to grow its revenue at a CAGR of just 7% from 2022 to 2025. Analysts expect its smaller competitor Fastly's revenue to grow at a CAGR of 16% during the same three years.
But at 16 times its 2024 sales, Cloudflare is pricier than Akamai and Fastly, which both trade at 4 times their estimated 2024 sales. If Cloudflare loses its premium valuation, it would need to grow a lot faster to join the 12-zero club by 2050.
Look beyond Cloudflare's market cap
Cloudflare might become a trillion-dollar stock by 2050, but a lot could happen over the next 26 years. So instead of fretting over its market cap, investors should pay closer attention to its near-term challenges and long-term catalysts.
First and foremost, Cloudflare needs to continue gaining large customers (who spend more than $100,000 annually) while stabilizing its dollar-based net retention rates. Both of those figures declined over the past year as the macro headwinds drove companies to rein in their software spending, but they gradually stabilized in the third quarter of 2023.
Looking further ahead, the company needs to expand its CDN platform with more features, expand its AI ecosystem, and continue growing faster than its closest competitors. It also needs to rein in its stock-based compensation to turn profitable on a GAAP basis. If it achieves all of those goals, Cloudflare could still have a lot more room to run -- even if it falls short of joining the 12-zero club by the middle of this century.
