It's probably a great time to be getting into finops, and I don't think CloudFlare's fair value is anywhere remotely near $18bn.
I think we'll discover before the end of this year just how many of the tech darlings were largely side effects of the poisonous sandbox constructed by the US fed.
Aside from that, Cloudflare is growing revenue not just overall but also on a per-customer basis, due to the expansion of products.
Once Cloudflare releases products that allow it to more directly compete with AWS, it'll be repriced by investors. They've already stated that this is their goal. They're missing a compute product and a real database or KV store solution to be at the bare minimum. I think we'll see both, and at least one will happen in the near future.
Cutting infra costs is not easy, especially when the costs of lapsing security spend are so high (how much did Equifax lose on reputational damage + cleanup work?).
($NET shareholder)
?? Poisonous sandbox?
Is this an awkward way of referring to money printing? Or the low interest rate environment?
If you want to continue the sandbox metaphor, which I do like, "playing in the Fed's sandbox until the bottom fell out" might work. Or even "toxic sandbox".
In my experience that is not a correct statement for the target demographics.
poisonous (adj.)
[...]
2. (figuratively) Negative, harmful.
Synonym: toxic
Poisons are something you do to yourself (usually by ingestion), venoms are injected by the other organism (such as a snake bite).
The Caddyshack Baby Ruth scene seems apropos.
Fed Floaters. Everybody out! Pool's closed.
All toxic substances are poisonous. A toxin is a poison produced by a living cell or organism.
Poisonous Sandbox was elegantly simple, pithy even, and quite appropriate.
"Toxin" is a newer invention, derived from "toxic" by adding the biochemistry-related suffix "-in" to indicate toxic substances of biological origin.
What indicates a coming tightening of hiring soon?
But cloudflare is also pretty cheap for many things, so that may bring in some more money from people downsizing from something like akamai, could it not?
(I'm no expert just speculating)
I know it's down a lot but I'm asking because it started from such a loft valuation I have no opinion on NET but a lot of the cloud bubble stocks of the last few years needed to come down by 95 percent IMO to get closer to intrinsic value. To do that they'd first drop 90 percent, then drop another 50 percent from that point. Hence I don't know which you meant.
A reasonable starting point might be where it was prior to Covid QE and rate reductions (-61%), add one company-specific shock due to missed growth expectations (-30%), maybe +20% for real growth experienced over Covid in the meantime, and that already leaves us with $6bn, before accounting for the effect of the fed beginning to unwind their balance sheet (which starts in June, initially at around 1% per month)
Incrementally buying at $18-$25 would definitely feel tempting in that scenario, assuming the fed delivered its claimed targets, and only with the understanding the IPO price should not be considered a floor.
This is all before considering the reality their product isn't much more than a commoditized fly on the windshield of bigger vendors, and it's easily possible to imagine a Lightsail-like competitor appearing in the meantime.
If you think this, you should be happy and buy more of the stock. I don't know enough to say if I think it's a good idea, but if you do, don't be sad, buy more of it.
Good companies come and go. Good companies of old no longer exist because the world changed. Some companies are good for awhile, and then lose their way. Nuance abounds.
Not putting words in the parent commenter's mouth, but maybe a different way to say this is that Cloudflare is a good product. A product can be both great, and not viable under some conditions. The two are not mutually exclusive.
Abbott Laboratories
Circuit City Stores
Fannie Mae
Gillette Company
Kimberly-Clark
Kroger
Nucor
Philip Morris
Pitney Bowes
Walgreens
Wells Fargo
https://www.harpercollins.com/products/good-to-great-jim-col...
Are there any consistent patterns which allow us to reliably predict which good companies will contine being good longer term?
My belief in their goodness, or lack thereof, has absolutely nothing to do with their finances. It is the same reason I won't invest in Crypto currencies or NFTs. The line may be going up but so is the global temp. Not good.
I suppose it comes down to conflicting opinions/strategies - I'd be way over-allocated in Amazon & Cloudflare (and probably 'tech' and the USA) if I always did.
There are an incredible number of reasons why they might not be able to invest right now so perhaps it isn't the best thing to immediately goto implying they don't even have a savings account.
Boiling it down, I think institutional investors do not fundamentally understand Cloudflare's technical raison d'etre.
As you implied, NET gets lumped in with its IPO class of "tech stocks", but is fundamentally different, for the reasons you gave. They have a legitimate moat, differentiated technical talent, and are fishing in a growing pond.
Similar to the Amazon story, it seems inevitable that a company shaped like NET is going to make oodles of money in the next ten years provided they have the right leadership and capital structures. NET has all that, and a several-years head start. On and up.
Might put some fun-money in Cloudflare
https://www.nerdwallet.com/best/investing/online-brokers-for...
Try buying $1000 worth of any stock and immediately selling again. Notice how you now only have $980. You effectively paid a $20 fee. It was just a hidden fee in the spread caused by whoever executed your trades.
There are two prices, the bid price (how much someone is willing to pay) and an ask price (how much someone is willing to sell). When you submit a market order, you usually get a price close to the bid (if you’re selling) or the ask (if you’re buying).
The 20$ difference you describe is the spread - not a fee taken by the brokerage, market maker, exchange. Whoever is executing your trade isn’t pocketing the 20$.
So when you execute both trades, you are putting a literal $20 into their pocket.
The consolidated bid and the ask across all exchanges make up what's called the NBBO and every one (market makers, exchanges, etc) are required to give you a price equal to or better than the NBBO. So if the bid for SHOP is say $50.00, the ask is $50.10, and you are selling SHOP, its illegal for anyone to give you a price < $50.
Market makers make money by buying low and selling high (and vice versa). They typically look for small movements not large ones. So if a market maker bought SHOP at $50, they would try to sell it at $50.10. This is what everyone means when they say a market maker makes money off the spread.
This strategy works really well when you have large random order flow, which is why market makers want to pay brokerages for order flow. They incentivize brokerages, even ones that charge commission) by giving pfof (payment for order flow) and price improvement on top of the NBBO. This price improvement is passed on directly to the customer.
IIRC, brokerages have a best execution obligation. So they are required to try and execute orders in a way that gets customers the best prices. I don't know about other brokerages but at Robinhood, pfof wouldn't go into our order routing decision at all. We would send orders to the market maker using a model which only considered the historical price improvement they gave our customers.
Because Robinhood order flow is so lucrative for marker makers in aggregate, they were willing to give us really good price improvement. So the execution for options and equity orders at Robinhood be better than other brokerages (even ones you pay commission for)
Cloudflare doesn’t own anything significant in the form of data centers. Having small rented footprints at IXPs across the globe is not an asset, it’s just a cost. I’m not downplaying the difficulty of getting it setup but there is no intrinsic value in having it if demand for their product collapses.
> Developer sentiment towards Cloudflare is comparable to Apple fanboys of the previous decade
This is far from true. People begrudgingly pay protection money to cloudflare to protect themselves from DDoS attacks. Very few significant operations depend deeply on the cloudflare stack. It has not been the AWS alternative it set out to be with the launch of its lambda like edge compute products.
An AWS, Azure, or Google DDoS protection product could eat Cloudflare’s market in a hot minute. Cloudflare can’t escape being a “feature” of a cloud provider.
(Disclosure, I sold out of Cloudflare at the end of the year when it failed to gain significant traction.)
I don't understand this point. If there's a risk that demand will collapse isn't it better not to own the data centers? By renting CF can reduce their costs quickly in the face of falling demand. That's a feature.
An AWS, Azure, or Google DDoS protection product could eat Cloudflare’s market in a hot minute. Cloudflare can’t escape being a “feature” of a cloud provider.
This is also true of any other software company though - at some point a bigger company might offer whatever product as a feature. It's just a risk of building a software company - what we build is largely straightforward to copy. That doesn't mean there's no value in software as a product though.
But it’s not an asset. Do you know what an asset is?
Akamai is the leading global CDN provider, want to guess how many data centers they own? Sure, owning a data center is an asset, but it’s also a liability too.
When whole species get torn down in one solar year bc some other species began to adopt a winning adaptation, that seems prone to overshooting (excessive curve fitting to the first derivative), with odd/suboptimal outcomes as no surprise.
The money you have in now should be held.
I’m not sure exactly what he meant, I read it as “we will be near the bottom in 2-3 years”. Recovering means something different than recovered.
https://www.theguardian.com/business/2015/apr/23/nasdaq-new-...
It took 15 years.
If you consistently invested during that period you'd be doing well.
In 2012:
- Apple and Google were the dominant mobile platforms
- Microsoft was dominant on the desktop
- Amazon was the dominant retailer and the dominant (but nascent cloud provider)
- Google was the dominant search engine and YouTube was dominant
- Facebook was the dominant social network
-Microsoft has been one of the top five companies by market cap since 2000 and Apple has been in the top 5 since 2011.
- Intel is still the top PC processor manufacturer.
If you saw a modern smart phone in 2022, would you really be impressed with the iPhone 12 ProMax compared to the iPhone 5s?
I was using a 2 year old Core 2 Duo 2.66Ghz Dell with 8GB RAM, gigabit Ethernet and a 1920x1200 (not a typo) screen. That computer can still run the latest version of Office and Chrome today.
In other words, the landscape hasn’t changed that much.
Now compare 2012-2002.
Have there been any new widely successful tech companies emerging since Facebook in 2009?
https://blogs.gartner.com/merv-adrian/2022/04/16/dbms-market...
Isn't Cloudflare an obvious example?
I’m not saying either is bad software.
https://a16z.com/2015/05/15/a16z-podcast-why-saas-revenue-is...
Lots of people who figured they could borrow against their rapidly skyrocketing holdings that are all receiving margin calls at the same time.
Hoping to take advantage of the dip to buy into some other great companies that I missed and buy more Cloudflare too.
I'm looking to get positions in Crowdstrike, ZScaler, Snowflake and Palantir if I can find good entry points. All have been too high to justify for the past couple of years.
I've been in Cloudflare since about $30 and sold about 20-30% when it was at $200, so I figure I'm playing with house money there and have no plans to sell at any point. I would like to buy back though.
After losing 15-20%, I decided to sell. Figured I'd buy again after it dropped further. Guessing when it's 80-90% down from peak I'll end up repurchasing.
As far as them going bankrupt seems pretty unlikely as some people are saying. Remember - Paypal, Yahoo, Google, etc. amongst many survived through the dot com bust. Cloudflare can generate positive cashflows anytime they want by stopping future development.
Battle of cloud is intensifying: https://www.economist.com/business/the-battle-of-the-computi...
HIGHLY recommend looking at Stackoverflow architecture: https://stackexchange.com/performance
https://nickcraver.com/blog/2016/02/03/stack-overflow-a-tech...
Technology and society has ways to build up layers of abstraction. It takes some realization, hindsight, genius and humbleness to cut down the overgrowth and pick the fruits, plant new seeds.
These resources are rarer and more expensive than increasing cloud bills (for now).
But at one point [1] it was hyped very quickly and had to sell most of it at >$200 after asking and reading the responses from this [1] it was really not a surprise to see through the hype at the time and why it crashed so quickly. [1]
(Disclosure also, I own NET)
I consciously stay out of negative threads about Cloudflare because I feel way too attached to them.
Out of all the tech companies that IPO’d in the past few years, Cloudflare is one that the most potential to excel long term. Developer sentiment towards Cloudflare is comparable to Apple fanboys of the previous decade, and their products are legitimately good, backed with tangible assets (datacenters). They also have consistent growth quarter over quarter.
It’s surprising how many not as impressive companies (pre-revenue!) got away with entering the public market last year. Good company or bad company, they all seem to be sharing the same freefall.
(Disclosure, I own NET)