Cloudflare Paying Customers Jump by 14% in First Quarter of 2023

Cloudflare reported its financial results covering the first quarter of 2023 last week. During those three months, the company’s paying customer base grew by 14% to 168,159 while its number of large customers – those paying over $100,000 – experienced rapid growth as well.

The San Francisco-based internet security firm now has 2,156 large customers compared to 1,537 it boasted during the first quarter of 2022. This corresponds to a 40.3% year-on-year jump.

Cloudflare’s revenues during this period jumped by 37% to $290 million. In the past three years, the company’s top line has been growing at a compounded annual growth rate of 50%, moving from $431 million in 2020 to $975 million last year.

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However, the management cautioned that “external headwinds” will likely persist for what remains of the year and those could weigh on its financial performance.

Cloudflare Finances Remain Robust Despite Sector-Specific Headwinds

In contrast to other firms in the tech sector, Cloudflare has not announced aggressive cost-cutting measures such as large layoffs. By the end of March 2023, Cloudflare employed 3,394 people. The company’s headcount in the past year grew by 23.4%.

During the first quarter though, Cloudflare reduced its general and administrative expenses to 12% of its sales, resulting in a 300 basis points drop compared to the same period a year ago. Meanwhile, research and development (R&D) expenses also dropped by 100 basis points as a percentage of revenue during this same period.

Cloudflare’s services are available in more than 285 cities and the company connects over 12,000 networks that are secured and protected by its products and solutions. According to its stats, 30% of Fortune 1000 companies are paying customers of Cloudflare and roughly 95% of the world’s population lives within 50 meters of a company-owned data center.

The firm claims to protect its customers from a total of 112 billion daily cyber threats. A large portion of those clients are based outside the United States as reflected by the company’s overseas revenues, which make up for 47% of its top-line figure.

Cloudflare has maintained its cash reserve at relatively stable levels. As of 31 March, the firm had $1.72 billion in cash and equivalents while it maintained its free cash flows in the green zone during the quarter.

Cloudflare Sees Market Opportunity Worth Over $125 Million

Cloudflare claims that its total addressable market (TAM) has nearly quadrupled in the past 5 years moving from $32 billion back in 2018 to $125 billion as of 2023 as the company has kept incorporating new services and solutions to its portfolio.

For the full year 2023, Cloudflare expects to bring in revenues of $1.28 billion, meaning that the firm is reportedly tapping on roughly 1% of its estimated total addressable market.

Initially, the California-based cyber security business offered WAN, CDN, and firewall solutions. However, the company has been strengthening and expanding this portfolio to incorporate new products such as content filtering, data-loss prevention software, network analytics, and its flagship solution called Cloudflare One.

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Cloudflare competes with content-delivery network (CDN) solutions such as Amazon CloudFront, Microsoft Azure CDN, Fastly, Akamai, and Google Cloud CDN.

Thus far in 2023, Cloudflare (NET) stock accumulates 4% gains. However, last year, shares of the tech firm experienced a sharp 66% drop as the tech sector was battered by expectations of a global economic slowdown and the hawkish measures adopted by the United States Federal Reserve.

In addition, the failure of three banks that were heavily tied to the tech industry including the Silicon Valley Bank and the First Republic Bank may weigh on the performance of the sector and Cloudflare as well as some of its clients may have difficulties obtaining the required financing to stay afloat in the absence of these important institutions.

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