The insiders at Cloudflare (NYSE: NET) have been selling shares of their stock over the last two years but it’s not something investors should worry too much about. The selling is broad-based among execs, done in small periodic batches, and smacks of share-based compensation more than anything else. The takeaway is that insider sales over the last 12 months are worth little more than 1.25% of the current market cap and the total insider holdings are substantial. Even with the selling over the past two years, the insiders are still holding 16% of the stock and the institutional support is strong as well.
The institutional activity slacked off noticeably in the first few weeks of Q3 2022 but it has been strong over the past year. The institutions bought a net $2.7 billion over the past 12 months which is worth more than 10% of the current market cap. The institutions now hold about 70% of the stock and the figure is growing which makes this a tightly held issue and one that just raised its guidance. In this light, investors should expect to see institutional support remain strong if not strengthened.
On the analyst's end of the spectrum, there are 21 analysts with current ratings on Cloudflare and the sentiment is firming although a bit weaker than for competitors like Palo Alto Networks and Crowdstrike. The consensus rating for Cloudflare is a firm Hold with a price target 62% above the current price action compared to a Moderate Buy for Palo Alto Networks (NASDAQ: PANW) and a Firm Buy for Crowdstrike (NASDAQ: CRWD) but there is a catalyst in this information. With results and guidance coming in ahead of consensus there is a strong possibility Cloudflare will see a series of rating and price target upgrades and it has already started. At least three analysts have been out with commentary to include 3 price target increases that have the low end of the range moving higher
Cloudflare Pops On Strong Results And Outlook
Cloudflare put in a solid 2nd quarter and one that shows growing momentum within the business. The company reported $234.50 million in net revenue for a gain of 53.9% over last year and beat the consensus figure by 300 basis points. The gain was driven by a record addition of 212 large customers which brings the total to 1744 and represents 60% of the net revenue. Moving on to the margin, the company reported a slim contraction in the gross margin but to a whopping 76.2% of sales which is a respectable number from any perspective.
The good news is that revenue strength carried through to the bottom line and produced a smaller than expected operating loss as well as better than expected EPS. In regard to EPS, the company reports $0.00 in adjusted earnings to beat the consensus by a penny and the guidance is favorable as well. Not only did the company raise the revenue guidance to a range above the consensus but it is expecting positive FCF in the 2nd half and earnings of $0.03 to $0.04 for the year compared to the consensus of $0.03.
The Technical Outlook: Cloudflare May Move Higher
The price action in Cloudflare popped in the wake of the earnings report and it may move higher but there is risk in the outlook. The stock is still trading below the key resistance target of $80 and it may have a hard time crossing the line. If the market can get the stock above $80 it could move back to the top of a trading range near $120. If not, this stock could remain range bound in the $50 to $80 region until positive earnings are a reality and not an expectation.