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Cloudflare Q2 Preview: Can Shares Continue Their Recovery?

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It’s no secret that it’s been a poor year for tech. A Fed tightening cycle has recalibrated many of these stocks, putting dents in many portfolios.

The Zacks Computer and Technology Sector is down more than 20% in 2022 vs. the S&P 500’s decline of roughly 13%. However, the sector has posted a remarkable 9.6% return over the last month, notably higher than the S&P 500’s 7.8% return.

The table below shows the performance of the sector and the S&P 500 over several timeframes.

Zacks Investment Research
Image Source: Zacks Investment Research

Cloudflare (NET - Free Report) , a company residing in the sector, is slated to release quarterly results on Thursday, August 4th, after market close. Cloudflare is a global network designed to make everything connected to the Internet secure, private, fast, and reliable.

How does the company stack up heading into the quarterly release? Let’s dig a little deeper and find out.

Share Performance & Valuation

Year-to-date, Cloudflare shares have plunged, losing nearly 60% of their value and coming nowhere near the general market’s performance.

Zacks Investment Research
Image Source: Zacks Investment Research

However, the story visibly changes upon looking at the last month of share performance. Cloudflare shares have gained 17%, crushing the S&P 500’s return of nearly 8%.

Zacks Investment Research
Image Source: Zacks Investment Research

Amid a somewhat clearer economic outlook, investors have pivoted back to tech as of late, driving shares upwards.

In addition, shares appear overvalued, further bolstered by its Style Score of an F for Value.

Quarterly Estimates

Analysts have been silent over the last 60 days, with zero estimate revisions coming in. Still, the -$0.01 Zacks Consensus EPS Estimate pencils in a 50% uptick in quarterly earnings year-over-year.

Zacks Investment Research
Image Source: Zacks Investment Research

In addition, the top-line is forecasted to get a serious boost – Cloudflare is forecasted to rake in $227.5 million in revenue for the quarter, good enough for a sizable 50% uptick compared to year-ago quarterly sales of $152.4 million.

Quarterly Performance & Market Reactions

NET’s bottom-line results have been strong as of late, exceeding the Zacks Consensus EPS Estimate in four of its previous five quarters.

Top-line results have also been remarkable; NET has chained together eleven consecutive revenue beats. The chart below illustrates the company’s revenue on a quarterly basis.

Zacks Investment Research
Image Source: Zacks Investment Research

The market hasn’t reacted well to the company’s recent earnings reports – following its last two quarterly releases, shares have decreased by 15% and 9%, respectively.

Putting Everything Together

Cloudflare shares are the victim of a deep double-digit valuation slash year-to-date, but shares have been hot over the last month.

Analysts have been quiet as of late, but quarterly estimates reflect sizable growth on both the top and bottom-line. In addition, quarterly results have primarily been reported above expectations.

However, as of late, the market has reacted poorly to the company’s quarterly prints, with shares moving downwards by a wide margin following the last two.

Heading into the print, Cloudflare (NET - Free Report) is a Zacks Rank #4 (Sell) with an overall VGM Score of an F. 


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