Guggenheim Downgrades Cloudflare Inc. (NET) to Sell, 'Revenue growth will likely drop to 25% in 2024'

Guggenheim analyst John DiFucci downgraded Cloudflare Inc. (NYSE: NET) from Neutral to Sell with a price target of $50.00.

The analyst comments "We are downgrading NET to Sell from Neutral and are introducing a price target of $50. While we continue to view the vision of NET as what true Cloud should have always been, we believe there is certainly execution risk associated with the attainment of this, and again believe the stock has gotten way ahead of itself. We also believe there is risk in near, mid, and long-term estimates, and execution risk tied to the company’s worthwhile, but aspirational goals. We believe the modest 2Q23 beat will not likely carry over to the second half, where a steep hill of New ARR needs to be climbed just to meet expectations (informed by guidance) – unless of course the macro backdrop (described as a “grind” by management) significantly improves. Even a stable backdrop could hinder attainment of current estimates, which would also make 2024 estimates too high, and even modest improvement would not be enough to achieve the company’s long-term target of $5B in revenue for 2027. That would require consistent growth in New ARR of about 50% in every quarter after 2023 (i.e., for four years straight) – an unlikely scenario regardless of the macro environment, in our view. While some investors point to the impressive, relatively consistent average revenue growth of around 50% over the last six years (49% in 2022), significant moderation in New ARR growth (we estimate flattish) will likely result in about 30% revenue growth this year. Revenue growth will likely drop to 25% in 2024 (even if New ARR growth recovers), which could be sustained going forward (but not without risk). This is still impressive, but it’s not 16.4x EV/NTM Recurring Revenue impressive."

For an analyst ratings summary and ratings history on Cloudflare Inc. click here. For more ratings news on Cloudflare Inc. click here.

Shares of Cloudflare Inc. closed at $69.52 yesterday.

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