Cloudflare (NET) Stock Forecast & Price Target

Cloudflare exhibited significant financial growth in the second quarter of fiscal year 2025, with revenue increasing by 28% year-over-year to reach $512.3 million, surpassing management's expectations. The company's strong performance is underscored by its substantial increase in paying customers, totaling 265,929, a rise of 26.5% year-over-year, and notable growth within its high-value customer segment, with 3,712 customers generating over $100,000 in annualized revenue, contributing 71% of total revenue. Additionally, Cloudflare's accelerating metrics, such as the 114% DBNRR and a 39% year-over-year increase in RPO, reflect the firm’s robust customer retention and expanding market presence, driven by increased sales capacity and emerging AI trends.

Cloudflare's financial outlook is hindered by a decline in gross margin, which fell to 77.1%, primarily due to an increased mix of paid traffic leading to elevated allocation expenses in cost of goods sold. Although operating margin and earnings per share exceeded expectations, the company's valuation remains under pressure, particularly as high-growth stocks facing longer profitability timelines have recently experienced significant market devaluation. Additionally, potential limitations on access to the Chinese internet market, along with the risk of alienating customers, could further impact Cloudflare's revenue generation and overall market position.