Shares of Cloudflare (NYSE:NET) are down more than 15% in premarket trading Friday after the company’s Q2 earnings forecast missed expectations.
NET reported Q1 adjusted EPS of 1c, beating the consensus projection of 0.16c. Revenue came in at $212.2 million, topping the analyst estimates of $205.7 million. The adjusted gross margin stood at 78.7% in the quarter, just above the expected 78.4%.
Looking ahead to Q2, Cloudflare expects an adjusted loss per share of 1c to $0, while analysts were looking for EPS of 0.26c. Revenue is expected in the range of $226.5 million to $227.5 million, compared to the estimates of $218 million. The company expects a Q2 operating loss in the range of $1 million to $2 million.
For the full year, NET expects adjusted EPS in the range of 3c to 4c, compared to the analyst consensus of 3.5c. FY revenue is expected to range between $955 million to $959 million, up from its previous guidance of $927 million to $931 million, while analysts were looking for $929.9 million.
The company forecasts FY adjusted operating income in the range of $10 million to $14 million.
Morgan Stanley analyst Keith Weiss said that the move lower in after-hours despite good results is a result of the “highest growth adjusted multiple in software.”
“Despite the >60% pullback in shares, NET remains the amongst the most expensive names in our coverage group, trading at ~18x EV/CY23revenues or 0.45x EV/Sales/Growth (AH price of ~$70/share)versus high growth peers like CRWD, DDOG, MDB, SNOW and ZS trading at an average 0.40X EV/Sale/Growth multiple. Given the premium multiple and very unforgiving market backdrop, the decelerating billings likely further pressures the multiple. That said, given the quality of the asset, we would look to any significant pullbacks in the stock to get more aggressive on the shares,” Weiss said.
BTIG analyst Gray Powell saw “strong” results “in an unforgiving market for tech stocks.”
“While the overall report was very good, there were some items to debate such as lower than expected OCF and underlying (secondary) metrics like RPO and billings that moderately decelerated off of tough comps. This combined with an unforgiving market for growth stocks sent NET shares down 10% AMC. That said, we see no change in the underlying growth story and see potential for NET to maintain 50% revenue growth in 2022 as the year plays out. At 18.5x 2023E EV/sales, we think the risk reward is balanced,” Powell told clients in a note.
By Senad Karaahmetovic