Links for the 10am call below.
If we go back a few weeks in time to our 4Q22 Themes Presentation, titled the "The Setup Has Changed", you can easily see the long side of the story for most of the Software industry: oversold, hated, decelerating but Street estimates already too far on 4Q22 revenue, perhaps one more cut required for 2023 topline, but incremental profits & FCF set to surprise. In cyclical terms, one more cut is buyable and we can see in the last few months of software EPS reports, better than expected incremental profits are too.
So let's take that lens over to Cloudflare today, and in the process we will share our data and analysis with you. But let's notch some basics:
- 4Q22 Revenue in line, 1Q23 revenue a bit better, full year top-line slight tweak, but a long road of Street upgrades ahead on EPS and FCF
- RPO growth hasn't begun to underperform, and if Cloudflare follows the group, this reset has to happen
- Data definitely decelerated in 4Q22 across several metrics
- If Traffic is the lead indicator, there can be an inflection to positive comps in 1H23
- The future opportunity has never looked better especially in light of the extreme computing elasticity that Cloudflare provides relative to IaaS who stopped cutting prices in mid 2019
- After such an amazing period of onboarding the largest companies in the world, Cloudflare has a tough comp slog in the coming quarters, and their model doesn't necessarily trigger big net expansion rates, so Bulls will have to be patient and slog through a few tougher quarters
That's where the ball sits. We will take you through it and share our analysis and data. See you in a few minutes.
Ami
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