Cloudflare, Inc.

NET Details

Partnership with Internet Archive: Cloudflare, Inc. (NYSE: NET) is a global web infrastructure and web security company engaged in protection and acceleration of internet without the addition of hardware/software products or changing a line of code. As on 28 September 2020, the market capitalization of the company stood at ~US$12.49 billion. The company has recently announced a partnership with the Internet Archive to improve its "Always Online" solution. The partnership will make sites available when original servers are down.

Q2 FY20 Financial Results Highlights: During 2Q FY20, the company has reported a YoY growth of 48% in revenues which stood at $99.7 million, mainly due to increased usage of internet services during the lockdown. In the same period, the company generated a net loss of US$26.1 million as compared to US$19.7 million in pcp. As at 30 June 2020, the company had cash, cash equivalents, and available-for-sale securities were $1,069.1 million.

Q2 FY20 Underlying Results (Source: Company Reports) 

Outlook: The company expects to invest in future and looking to improve the internet services more efficiently. Cloudflare Inc. has provided guidance for the third quarter of FY20, as per which, it expects to report total revenue in the range of $102.5 million to $103.5 million and non-GAAP loss from operations in between $16 to $15 million.

Stock Recommendation: The stock of the company has provided a return of 71.1% in the past six months and 16.43% in the last three months. It is currently inclined towards its 52-week high level of $45.28. On a technical analysis front, the stock has a support level of ~$38.58 and a resistance level of ~$42.78. On a TTM basis, the stock is trading at a price to book value multiple of 8.9x, higher than the industry median (Software & IT Services) of 2.7x, demonstrating the overvalued position of the stock. Hence, considering the company’s current trading levels and valuation on TTM Valuation, we give an “Expensive” rating on the stock at the closing price of $40.88, up by 2.1% on 28 September 2020.

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

Twilio, Inc

TWLO Details

Appointment Of First Chief Diversity, Inclusion And Belonging Officer: Twilio, Inc (NYSE: TWLO) is a cloud communications platform service company that provides software’s to make and receive phone calls, send and receive text messages, and perform other communication functions through its software infrastructure using its web service APIs. On 15 September 2020, Twilio announced the appointment of Lybra Clemons as company’s first Chief Diversity, Inclusion and Belonging Officer. She will be responsible for guiding and scaling inclusion strategy and diversity initiatives across the company’s global workforce.  

Q2FY20 Results Highlights: For 2Q FY20, the company reported total revenue of $400.8 million, up 46% on pcp. Further, the company reported Non-GAAP income from operations of $9.5 million, significantly higher than $1.5 million in pcp. As at 30 June 2020, the company had over 200,000 active customer account, up 24% on pcp.

Q2FY20 Results (Source: Company Reports)

Outlook: The company has provided guidance for the third quarter of FY20, as per which, it expects to report Q3FY20 revenue to be in the range of $401 million to $406 million, and non-GAAP loss from operations to be between $15 million and $10 million. The company recently announced that it is going to hold ‘Investor Day’ on 1 October 2020.

Valuation Methodology: Price to Book Multiple Based Relative Valuation (Illustrative)

Price to Book Multiple Based Approach (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: Twilio is focusing on differentiation through innovatively broadening technology products. As per Nasdaq, the stock of Twilio gave a return of 152.08% in the past six months and a return of 15.89% in the last three months. The stock is inclined towards its 52-weeks’ high level of $288.81. On a technical analysis front, the stock has a support level of ~$222.4 and a resistance level of ~$257.7. We have valued the stock using Price to Book multiple based illustrative relative valuation method and have arrived at a target price with low double digit-upside (in % terms). For the purpose, we have taken peers like Cisco Systems Inc (NYSE: CSCO), Avaya Holdings Corp (NASDAQ: AVYA), Five9 Inc (NYSE: FIVN). Considering the company’s decent Q2FY20 results, Q3 outlook, and growth in active customer accounts, we give a “Buy” recommendation on the stock at the closing price of $244.52, down by 0.2% on 28 September 2020.

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

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