Cloudflare is not competing with app builders like Lovable or Repl though. They are the underlying infrastructure for companies like that. This is why they will win in the AI era.
Lovable is hosted on Cloudflare: https://x.com/CloudflareDev/status/2113651157721600492
Staying in your lane is often a better choice.
Maybe expanding through acquisition is the best of both worlds. So replit might be bought.
Network effects make it harder for Cloudflare to build Replit than it might seem, too.
And the reason for Cloudflare to do it is because there are several (apparently) very juicy businesses to be built by slapping a chat UI and off the shelf coding agent on top of Cloudflare infra... Not saying they should do this, but the rationale is pretty self-evident.
The reason for Replit to try going down the stack is platform risk and compressing margins from competitors who also have the brilliant idea of slapping a text box and off the shelf coding agents onto Cloudflare.
A great time to expand your offerings is when there's an adjacent offering that's producing outsized returns for someone else, is easily replicable, and which you have an asymmetric advantage on.
I think everyone knows that when someone says "it's trivial" for a business to do something, it doesn't mean it's actually trivial. Doing anything of any value anywhere is non-trivial. It's shorthand for "doing Activity X is almost certainly achievable with an acceptable outlay of risk for Business Y."
This is absolutely not true, and proof that you completely misunderstood what I said.
You took an upmarket B2B infrastructure company and compared it to a low-end B2B/B2C software company. That is a completely different type of business.
Cloudflare launches new products and offerings all the time - and all B2B within their market space. The difference is that if they did what you suggest (make a Lovable), it would put them in a position of competing with their own customers, and it would have a chilling effect on selling more infrastructure to other companies who would then fear competition as well. It's not that they can't do it. It's that it is not wise for them to do so, and it's a different type of business entirely.
Cloudflare has already started releasing products that point in this direction. Not sure how far they will (or should) go, but it's really not categorically ridiculous or impossible or nonsensical, as you're implying.
It's like VPN service. Some other party comes along and offers it at 40% of the cost, you can do that.
Lovable is more nuanced. It takes more to move away, and there's just no reason to. The unit cost of Lovable buyeres is negligible aka less buyer sensitivity
It takes decades to build the kind of network cloudflare has.
“Please mr bezos, can I connect my new trivial network to yours?” “0.08/GB :)”
Lovable is a layer of abstraction, becoming as as complex as Shopify.
"It takes decades to build the kind of network cloudflare has."
It takes literally no time. Cloudflare's network could be emulated with proper planning and enough budget, and turned on instantly. 'Servers in 300 cities' is a medium sized challenge, but most importantly, it's a relatively clear path.
On the customer side, Cloudflare (in most cases) could be replaced as quickly as individuals replace their VPNs.
Shopify for example is ' just some siple HTML and checkout' - of course not - they are dominant and growing because there's a lot of complex interdependence, switching costs are much higher, their buyers are less technical and much less likely to want to change, and building a Shopify replacement involves hitting a lot of checkmarks.
Lovable started as a wrapper just as Shopify started with something simple, but they've quickly evolved.
AWS could snap their fingers and decide to knock out Cloudflare, it's a 'Commodity Plus' that came to the fore in a time when a specific need was there, and now people are turning to it out of convenience.
Of Lovable, Wix, Shopify, Figma, Stripe - Cloudflare is in the riskiest position because of the inherent commoditizability of their tech and the relatively low switching costs.
> Cloudflare's network could be emulated with proper planning and enough budget
lmfao
Shopify's core offer is a very long gnarly tail with any number of detail and moving parts, a massive eco system of 3rd party vendors, integations, and developer community.
Their service is sticky and switching costs are high.
It would literally cost more in Claude Code tokens to hack a prototype, than to sign up and host Shopify and get 100x the features. It's $0 to build the prototype and $1/mo to literally have a full product for the first 3 months.
At the same time, Claude Code can build you a full variation of Cloudflare's core product, and with less than $1M you can scale across 300 regions if you really put your mind to it.
The investors were right that the Internet would be important, and that Cisco would continue to be an important manufacturer of networking infrastructure. This just fundamentally did not matter because after the dot-com bubble popped, the market decided that Cisco simply wasn't worth the price it was selling at during the height of the bubble.
At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are? You don't need any transparency. You don't need any footnotes. What were you thinking?
Now this analysis is imperfect... but it's good enough.
For reference Cloudflare trades at 39x revenue
Share buybacks are always better for the company and investors.
In no scenario does losing control of at taxable event benefit the taxpayer.
ASX dividend stocks are popular with retirees in particular because the dividends are fully franked, meaning you get a credit for the tax already paid on the dividends by the company.
If you’re in a low enough tax bracket, this can turn into a tax refund if the tax the company paid exceeds your own personal tax liability.
Obviously you wouldn't pay 10x revenue if you expect revenue to be flat for the next 10 years.
No wonder that company no longer exists with a CEO that doesn't get that.
The EU is finally waking up to the fact that putting all its eggs in the U.S. basket is a bad thing. China is enormous, and they're not going to go all in on Cloudflare either for a myriad of reasons. And a bunch of folks just don't like nor want to do business with the company and its CEO.
Here's the valuation though. Percentage of total web traffic going through Cloudflare.
- 2016 ~3.9%
- 2017 ~5.3%
- 2018 ~6.6%
- 2019 ~7.6%
- 2020 ~11.2%
- 2021 ~15.4%
- 2022 ~19.4%
- 2023 ~18.0%
- 2024 ~18.9%
- 2025 ~19.2%
- 2026 (early) ~20.9% (with later snapshots higher, up to the mid-to-high 20s)
Combine that with consistently excellent execution and popularity, you get the valuation.
You're confusing market share with not valuation. Also, look into business cycle theory from marathon asset management.
The four most dangerous words in finance "this time is different"
I’m saying that 1/5th of global internet traffic runs through their servers. Period. Thats significant and if anything shows that there’s potentially a lot more opportunity.
I empathize with this view, however it is very hard to value businesses that have extremely high margins, and who grow revenue very quickly on existing products while they're adding additional products.
I don't think NET is a steal at 39x revenue. But at no point in the last 5 years has NET been available to purchase for <15x revenue [1].
During that time, it has had Gross Margins in the exceptional range of 70%-75%, and YoY quarterly revenue growth in the similarly exceptional range of 25-40%, which has increased in our post-AI agent software economy.
If you're a Ben Graham acolyte, you would have sat out of NET since it's IPO. However, if you're a Charlie Munger/Buffet admirer who understands the pivotal role NET plays in the software ecosystem (i.e. it's inside your "circle of competence"), you'd do well to consider the Mungerism:
"Forget what you know about buying fair businesses at wonderful prices. Instead, buy wonderful businesses at fair prices."
That still leaves as an exercise to the reader what a "fair price" is for NET, but (to me, at least) it's clearly a wonderful business.
[1]: https://www.macrotrends.net/stocks/charts/NET/cloudflare/pri...
As an example, Palantir has a similar cash flow / market cap ratio. I didn't check many others.
Cloudflare has a moat but it already smells like sewage.
Also owned a bunch of asml shares a decade or so ago. But it didn’t really move so got bored and sold. Good picks bad patience.
And frankly, they should basically be a commodity.
If anything, AWS or MS or other parties make it about as profitable as hosting web pages.
Regardless of what happens to the AI models, you will still need protection a decade from now.
Not to mention the most comprehensive platform to use with AI, they will inevitably eat Lovable / Repl's lunch.