Internet security and content delivery network Cloudflare (NYSE:NET) reported Q4 CY2024 results exceeding the market’s revenue expectations, with sales up 26.9% year on year to $459.9 million. On the other hand, next quarter’s revenue guidance of $468.5 million was less impressive, coming in 1% below analysts’ estimates. Its non-GAAP profit of $0.19 per share was in line with analysts’ consensus estimates.
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Cloudflare (NET) Q4 CY2024 Highlights:
- Revenue: $459.9 million vs analyst estimates of $451.8 million (26.9% year-on-year growth, 1.8% beat)
- Adjusted EPS: $0.19 vs analyst estimates of $0.18 (in line)
- Adjusted Operating Income: $67.25 million vs analyst estimates of $57.32 million (14.6% margin, 17.3% beat)
- Management’s revenue guidance for the upcoming financial year 2025 is $2.09 billion at the midpoint, in line with analyst expectations and implying 25.3% growth (vs 28.9% in FY2024)
- Operating Margin: -7.5%, up from -11.8% in the same quarter last year
- Free Cash Flow Margin: 10.4%, similar to the previous quarter
- Billings: $548 million at quarter end, up 31.8% year on year
- Market Capitalization: $49.52 billion
“We had a very strong end of 2024. We saw record growth in our largest customers, those that spend more than $1 million with Cloudflare per year—closing the year with 173. We added 55 of those customers in 2024, and more than half of these new additions came in during fourth quarter alone,” said Matthew Prince, co-founder & CEO of Cloudflare.
Company Overview
Founded by two grad students of Harvard Business School, Cloudflare (NYSE:NET) is a software-as-a-service platform that helps improve the security, reliability, and loading times of internet applications.
Content Delivery
The amount of content on the internet is exploding, whether it is music, movies and or e-commerce stores. Consumer demand for this content creates network congestion, much like a digital traffic jam which drives demand for specialized content delivery networks (CDN) services that alleviate potential network bottlenecks.
Sales Growth
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Thankfully, Cloudflare’s 36.5% annualized revenue growth over the last three years was exceptional. Its growth surpassed the average software company and shows its offerings resonate with customers, a great starting point for our analysis.
This quarter, Cloudflare reported robust year-on-year revenue growth of 26.9%, and its $459.9 million of revenue topped Wall Street estimates by 1.8%. Company management is currently guiding for a 23.7% year-on-year increase in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to grow 24.6% over the next 12 months, a deceleration versus the last three years. Still, this projection is healthy and indicates the market sees success for its products and services.
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Billings
Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.
Cloudflare’s billings punched in at $548 million in Q4, and over the last four quarters, its growth was impressive as it averaged 25.8% year-on-year increases. This alternate topline metric grew slower than total sales, meaning the company recognizes revenue faster than it collects cash - a headwind for its liquidity that could also signal a slowdown in future revenue growth. 
Customer Acquisition Efficiency
The customer acquisition cost (CAC) payback period represents the months required to recover the cost of acquiring a new customer. Essentially, it’s the break-even point for sales and marketing investments. A shorter CAC payback period is ideal, as it implies better returns on investment and business scalability.
Cloudflare is quite efficient at acquiring new customers, and its CAC payback period checked in at 30.1 months this quarter. The company’s rapid recovery of its customer acquisition costs indicates it has a strong brand reputation, giving it more resources pursue new product initiatives while maintaining the flexibility to increase its sales and marketing investments. 
Key Takeaways from Cloudflare’s Q4 Results
We enjoyed seeing Cloudflare exceed analysts’ billings expectations this quarter. Revenue also beat, with 28% year-on-year growth accelerating from 27% last quarter, something that the market tends to reward. It wasn't just topline, either, with operating profit beating handily. Lastly, we were happy with full-year revenue guidance, which exceeded expectations. Overall, this was a very good quarter. The stock traded up 4.6% to $148.00 immediately after reporting.
Is Cloudflare an attractive investment opportunity right now? What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.