Cloudflare (NET) Options: Moderately Bullish AI Signal

Cloudflare operates a 'Connectivity Cloud', delivering a range of services to businesses globally. Its core offerings provide security, performance enhancement, and reliability for web applications and infrastructure, eliminating the need for managing individual network hardware. Key products include website and application services such as 'Web Application Firewall (WAF)' and 'DDoS Protection', a 'SASE platform' offering 'Zero Trust' security, and developer-based solutions like 'Cloudflare Workers'. Cloudflare targets businesses of all sizes across various industries, providing a unified control plane spanning on-premises, cloud, hybrid, and SaaS applications. The company differentiates itself by offering an integrated infrastructure platform through a single vendor, avoiding customer lock-in to any one public cloud provider, and providing a programmable network for building applications.

NET exhibits mixed signals, leaning slightly bullish in the short-term. The recent price action shows a sharp decline on the most recent day, closing at $232.83 after opening near $240 and testing $245. However, the EMA_21 is at 224.26, suggesting the price is trading above its short-term moving average. The SMA_50 is at 218.27 and the SMA_200 is at 170.94 indicating a longer-term uptrend, although the price is extended above the 50-day SMA. Momentum indicators are indecisive. The MACD histogram is positive at 3.42, but the RSI is 67.45, suggesting it is approaching overbought territory, and the stochastic oscillator shows %K at 81.91 and %D at 84.18. The ADX is at 16.99, indicating a weak trend. The Bollinger Bands show the price outside of the upper band which could mean a short-term pullback. Given these conflicting signals, a neutral to moderately bullish outlook is warranted.

Cloudflare's MD&A presents a mixed but overall slightly positive picture. Revenue increased by 31% to $562.0 million for the three months ended September 30, 2025, driven by a 33% increase in paying customers and a dollar-based net retention rate of 119%. However, `Gross Profit` margin decreased from 78% to 74% for the same period, attributed to higher third-party technology services costs and increased expenses related to operating in co-location facilities and network bandwidth. `Net cash provided by operating activities` for the nine months ended September 30, 2025, was $412.7 million, compared to $253.1 million for the same period in 2024. The company is investing heavily in sales and marketing and research and development, which is expected to increase operating expenses in absolute dollars. Management acknowledges macroeconomic uncertainty could persist through 2026, potentially leading to lengthening sales cycles and increased customer churn. Despite these challenges, Cloudflare believes its existing cash, cash equivalents, available-for-sale securities, and available capacity under the Revolving Credit Facility will be sufficient to meet its working capital and capital expenditure needs for at least the next 12 months.

Cloudflare's Q2 2025 earnings call reflects a strongly bullish sentiment, underpinned by reaccelerating growth and key strategic wins. CEO Matthew Prince stated, 'We had an excellent quarter,' highlighting the company surpassing $2 billion in annual run rate revenue with $512.3 million in revenue for the quarter, a 28% year-over-year increase. The company's strategy to drive reaccelerating growth is working, demonstrated by the increase in large customers (3,712 paying over $100,000 annually, a 22% increase) and a dollar-based net retention rate that accelerated to 114%. CFO Thomas Seifert confirmed the company is 'tracking well to our expectations,' attributing the strong performance to large customer deals, momentum with the Workers Developer platform, and prioritization of security and resiliency. The company's focus on innovation, coupled with go-to-market improvements like increased sales capacity and productivity, sets a strong foundation. The emergence of 'Act 4' focused on powering transactions between AI agents further expands Cloudflare's market opportunity.

NET's financial performance presents a mixed picture. Revenue has generally increased, starting from $378.6M in Q1 2024 and reaching $430.1M in Q3 2025. However, net income has remained negative across all quarters, with a net loss of $15.3M in the most recent quarter. The gross profit ratio has fluctuated, ranging from 0.748 to 0.778, indicating some volatility in profitability. Operating cash flow is positive at $167.1M in the latest quarter, but varies considerably across the quarters. A significant concern is the increase in total debt, which has risen from $1.437B in Q1 2024 to $1.356B by Q3 2025, indicating increased leverage. While the company is generating positive operating cash flow in the most recent quarter, consistent net losses and a high debt burden raise concerns about long-term financial sustainability.

The company presents a moderately bullish investment profile based on its financial data. Revenue has shown positive growth, indicating increasing market demand or successful market penetration. The gross margin is healthy, suggesting efficient cost management in production or service delivery. A strong return on equity (ROE) signals effective utilization of shareholder investments to generate profit. The price-to-earnings (P/E) ratio suggests the stock is trading at a premium, but this could be justified by the company's growth prospects and profitability. A manageable debt-to-equity ratio indicates a reasonable level of financial leverage. The current ratio, being greater than 1, demonstrates the company's ability to cover short-term liabilities with its current assets, further solidifying its financial health. Overall, the combination of revenue growth, healthy profitability metrics, and a solid balance sheet makes the company an attractive investment for the next 12 months, although the elevated P/E ratio warrants careful monitoring.