On Thursday, Citi analysts raised their rating on Cloudflare Inc . (NYSE: NYSE:NET) stock from Neutral to Buy, significantly increasing the price target to $145 from the previous $95. The upgrade reflects a positive outlook on the company's future earnings potential, with expectations of revenue growth and a profitable scale by the end of 2028.
According to InvestingPro data, Cloudflare is currently trading near its 52-week high of $119.42, with a market capitalization of $39.56 billion. The company has demonstrated strong momentum, achieving 30% year-over-year revenue growth in the last twelve months.
The analysts at Citi highlighted several factors contributing to their optimistic view of Cloudflare's stock. They pointed to the company's involvement in the burgeoning field of Generative AI, which is expected to shift from AI training to AI inferencing, offering Cloudflare multiple product opportunities for growth.
Additionally, the firm's relationship with Apple (NASDAQ:AAPL), which involves consumer-facing private AI processing and other AI-driven features, was cited as a cause for enthusiasm. InvestingPro analysis reveals the company maintains impressive gross profit margins of 77.5% and a healthy current ratio of 3.37, indicating strong operational efficiency and financial stability. Discover 11 more exclusive InvestingPro Tips and comprehensive analysis with a subscription.
Cloudflare's leadership team, including the President of Revenue and the President of Product & Engineering, was recognized for their deep experience and pedigree. This, along with a sales productivity increase from improved capacity, is anticipated to drive further growth. These changes in go-to-market strategies that took place over the course of 2023 have stabilized by 2024 and are expected to ramp up in 2025.
Despite acknowledging the high expectations already reflected in Cloudflare's stock price, Citi analysts expressed confidence in the company's ability to sustain a 27-30% revenue growth rate. They envision a clear path towards achieving approximately $5 billion in revenue by 2028, with an expansion in free cash flow margin, leading to scaled profitability.
In other recent news, Cloudflare Inc. has been the subject of various analyst revisions and forecasts. RBC Capital Markets maintained an Outperform rating for Cloudflare, while Goldman Sachs upgraded the company's stock from Sell to Buy. Baird also maintained its Outperform rating on Cloudflare, citing the company's position as a fast-growing cybersecurity vendor. Stifel upgraded Cloudflare from Hold to Buy, reflecting confidence in the company's potential for sustained top-line growth. However, Citi maintained its Neutral rating on Cloudflare.
Cloudflare reported a 28% year-over-year increase in Q3 revenue, reaching $430.1 million, and a significant rise in its customer base, now standing at 3,265. The company anticipates continued growth in sales capacity and productivity, with Q4 2023 revenue projections indicating a 25% year-over-year increase. These are recent developments that investors should pay attention to.
RBC Capital Markets analyst Matt Hedberg increased the price target for Cloudflare shares, lifting it to $123 from the previous $99. Goldman Sachs significantly increased the price target to $140 from the previous $77. Baird increased the price target to $120 from the previous $100, and Stifel significantly increased the price target to $136.00 from the previous $95.00.
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