Cloudflare, Inc.

NET Details

NET Named as Leader in The Forrester Wave™: Cloudflare, Inc. (NYSE: NET) is a global web infrastructure and web security company engaged in protection and acceleration of the internet without the addition of hardware/software products or changing a line of costs. Recently, the company has been named as a Leader in The Forrester Wave™, by Forrester Research, Inc., under which NET’s DDoS solutions won the maximum achievable scores in 15 criteria of DDoS Mitigation Solutions, Q1FY21 report.

Q4FY20 Financial Highlights: During the quarter, the company has reported a year over year growth of 50% in revenues, which stood at $126 million. During the same time span, the company generated a non-GAAP net loss of $7.4 million, compared to a loss of $16.4 million in 4QFY19. Dollar-based net retention during the quarter stood at 119%, depicting an improvement of 300 basis points quarter over quarter, owing to continuous strength from large enterprise customers. During the period, the company’s paid customer count increased to over 111,000. Further, the company’s net cash flow from operations in 4QFY20 stood at -$8.8 million, with a negative free cash flow of $23.5 million. The company exited the period with cash, and cash equivalents, and available-for-sale securities of $1,032.1 million.

4QFY20 Key Highlights (Source: Company Results)

Key Risks: NET has significant exposure to small and medium businesses (SMBs), which was significantly impacted by pandemic outbreak. This might impede the growth of the company, going forward.

Outlook: For FY21, the company expects total revenue to be in the range of $589 million to $593 million, whereas non-GAAP loss from operations is expected to be in the band of $21 million to $25 million. Non-GAAP net loss per share is likely to be between $0.08 to $0.09.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative) 

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: Over the last three months, the stock went down by ~13.3%. The stock made a 52-week low and high of $15.05 and $95.77, respectively. On the technical analysis front, the stock has a support level of ~$60.71and a resistance level of ~$77.4. We have valued the stock using an EV/EBITDA multiple based illustrative relative valuation method and arrived at a target price of an upside of low double-digit (in percentage terms). We believe that the company can trade at a slight discount as compared to its peers’ average, considering, its negative cash flow from operations, net loss in 4QFY20 and COVID-19 induced uncertainties. We have taken peers like CrowdStrike Holdings Inc (NASDAQ: CRWD), Splunk Inc (NASDAQ: SPLK), to name a few.  Considering the company’s decent top line performance in 4QFY21 performance, increase in customer count, encouraging outlook, and valuation, we give a “Buy” recommendation on the stock at the closing price of $67.03, down by 0.4% on 5 March 2021.  

NET Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Akamai Technologies, Inc.

AKAM Details

A look at AKAM’s 4QFY20 Results: Akamai Technologies, Inc. (NASDAQ: AKAM) is engaged in offering solutions for securing, delivering, and optimizing content and business application over the internet. During the quarter, the company reported adjusted earnings of $1.33 per share, up 8% year over year. In 4QFY20, revenues came in at $846.3 million, up 10% from the prior corresponding period. The top line was positively impacted by the continued momentum in the company’s security solutions along with higher traffic.  Adjusted EBITDA margin for the quarter stood at 43%, up 200 bps on pcp. Non-GAAP operating margin went up 100 bps in 4QFY20 and came in at 30%. The company exited the quarter with cash balance of $1.099 billion. Cash flow from operations stood at $291.1 million in 4QFY20, with free cash flow amounting to $123.7 million.

4QFY20 Key Highlights (Source: Company Results)

Key Risks: Increasing expenditure owing to product innovation along with higher bandwidth costs are likely to put margins under pressure. Further, increasing competition and foreign exchange fluctuation risks, adds to the woes.

Outlook: For FY21, the company expects total revenue to be in the range of $3.37 billion to $3.42 billion, whereas non-GAAP earnings per share is expected to be in the band of $5.33 to $5.46. Non-GAAP operating income in FY21 is expected to be ~30%. The company expects to hold a virtual Investor Summit on February 25, 2021.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative) 

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: Over the last three months, the stock went down by ~6.8%. The stock made a 52-week low and high of $75.18 and $124.91, respectively. On the technical analysis front, the stock has a support level of ~$92.83 and a resistance level of ~$109.07. We have valued the stock using a P/E multiple based illustrative relative valuation method and arrived at a target price of an upside of low double-digit (in percentage terms). We believe that the company can trade at a slight discount as compared to its peers’ median, considering increased expenses on production enhancement, vigorous competition, risk related to foreign operations and government led restrictions. We have taken peers like F5 Networks Inc (NASDAQ: FFIV), Adobe Inc (NASDAQ: ADBE), to name a few.  Considering the company’s decent top-line performance in 4QFY21 performance, increase in sale of security solutions, enhancement in the product portfolio, encouraging outlook, and valuation, we give a “Buy” recommendation on the stock at the closing price of $97.13, up by 3.95% on 05 March 2021.  

AKAM Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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