VOL. XCIV, NO. 247
★ EXPANSION-STAGE STOCKS & SCALING SETUPS ★
NO ADVICE
Saturday, January 10, 2026
Cloudflare, Inc.
NET · NYSE
This analysis is generated by AI and supervised by humans. Scores reflect business model strength, scaling runway, and valuation setup. Mistakes can happen.
Overview
Connectivity cloud platform providing security, performance, and developer services (edge network + software) to businesses globally via subscription and usage-based products.
Thesis summary
Cloudflare is in a scaling phase where product-market fit is established across security, networking, and developer services, and the next leg is driven by enterprise go-to-market throughput, deeper product attach, and operating leverage. Revenue growth re-accelerated into the low 30%s in Q3 2025, large-customer momentum remains strong, and the company is already demonstrating non-GAAP operating leverage while maintaining a large runway in connectivity, Zero Trust/SASE, and developer/AI workloads.
Investment Thesis
Why Now?
Momentum inflected in 2025: revenue growth accelerated for multiple quarters, backlog (RPO) expanded materially, and management highlighted outsized enterprise wins (including a $100M+ deal driven by Workers). If execution holds, the market can underwrite a multi-year scaling arc (enterprise penetration + product bundling + margin expansion).
Scaling Thesis
Scaling is driven by (1) enterprise sales and partner capacity expanding deal volume and deal size, (2) land-and-expand across an increasingly broad product portfolio (security + networking + developer), (3) network scale efficiencies and disciplined capex improving unit economics over time, and (4) operating expense leverage as revenue grows faster than opex.
Competitive Moat
Global edge network and single software stack (performance/security close to users), broad integrated platform (reduces vendor sprawl), strong developer ecosystem (Workers) and security intelligence, plus switching costs from consolidating multiple critical functions onto one network.
Key Assumptions
Valuation Scenarios
Illustrative: 2028E revenue $3.8B, ~17% non-GAAP operating margin, 10x EV/rev; assumes growth slows and multiple compresses. Assumes ~410M diluted shares and ~$0.5B net cash by 2028.
Illustrative: 2028E revenue $5.0B, ~21% non-GAAP operating margin, 18x EV/rev; assumes sustained enterprise + platform expansion and continued operating leverage. Assumes ~410M diluted shares and ~$1.0B net cash by 2028.
Illustrative: 2028E revenue $6.5B, ~24% non-GAAP operating margin, 24x EV/rev; assumes premium multiple persists with strong AI/dev + SASE adoption and durable growth. Assumes ~420M diluted shares and ~$1.5B net cash by 2028.
Catalysts
Q4 2025 results + 2026 outlook: revenue growth durability and margin/FCF trajectory.
A clear guide that keeps growth in the mid/high-20%s with improving margins can sustain premium valuation; a cautious guide risks multiple compression.
Sustained large-customer expansion (>$100k customers) and continued mix shift toward enterprise spend.
Validates the scaling playbook (enterprise throughput + expansion) and supports higher long-term margin confidence.
Platform attach acceleration (Workers/AI + Zero Trust/SASE + networking) driving higher net retention and larger multi-year deals.
Raises the ceiling on revenue per customer and improves predictability (RPO) as more workloads consolidate on Cloudflare.
Operating leverage: non-GAAP operating margin trending toward high teens while maintaining >25% growth.
Margin expansion with durable growth typically drives multiple durability and rerating.
Risks
Hyperscalers, security suites, and networking incumbents bundle aggressively, pressuring Cloudflare pricing or slowing enterprise wins.
Mitigation: Track net retention, enterprise deal commentary, competitive displacement win rates, and any pricing/packaging changes that reduce ARPC expansion.
Network/compute/bandwidth costs (including AI-related workloads) pressure gross margin and delay the margin expansion narrative.
Mitigation: Monitor non-GAAP gross margin trend and capex as % of revenue; look for evidence of network efficiency improvements and disciplined product economics.
Enterprise go-to-market scaling fails to translate into consistent bookings, or sales cycles elongate materially.
Mitigation: Track large customer counts, RPO trajectory, and management commentary on pipeline, sales productivity, and deal duration.
Material outage, misconfiguration, or security incident damages trust for a mission-critical provider.
Mitigation: Watch reliability disclosures, incident frequency/severity, and customer sentiment; size position to tolerate idiosyncratic incident risk.
Premium valuation + ongoing stock-based compensation creates downside if growth or margins disappoint (multiple compression and dilution).
Mitigation: Use staged entry, require KPI confirmation before adding, and track diluted share count trajectory vs. growth/margin progress.
Data sovereignty, censorship pressures, sanctions/export controls, or changing security regulations create compliance costs or limit operations.
Mitigation: Follow regulatory disclosures, geographic revenue exposure, and any changes to product availability or customer onboarding policies.
Scale Readiness
Non-GAAP gross margin ~75% and Q3 2025 free cash flow margin ~13%; near-term GM pressure vs. long-term model but cash generation is real.
Large customers (> $100k) reached 4,009 and represented ~73% of revenue; supports enterprise scaling thesis.
Dollar-based net retention rebounded to ~119% in Q3 2025, suggesting expanding cohorts and healthier upsell dynamics.
Platform breadth is expanding (Workers + Zero Trust/SASE + networking). Enterprise wins increasingly driven by multi-product demand.
Global edge network scale and single software stack remain core differentiation; the network footprint continues to expand.
Non-GAAP operating margin was ~15.3% in Q3 2025 with FY2025 guidance around ~14% - already meaningfully leveraged vs. earlier years.
Cash + available-for-sale securities ~$4.0B vs. ~$3.26B net convertible notes; net cash position supports investment through cycles.
Curation & Accuracy
This directory blends AI‑assisted discovery with human curation. Entries are reviewed, edited, and organized with the goal of expanding coverage and sharpening quality over time. Your feedback helps steer improvements (because no single human can capture everything all at once).
Details change. Pricing, features, and availability may be incomplete or out of date. Treat listings as a starting point and verify on the provider’s site before making decisions. If you spot an error or a gap, send a quick note and I’ll adjust.