NET Surges 87.3% in 3 Months: Should You Buy, Sell or Hold the Stock?

Core Insights - Cloudflare (NET) stock has surged 87.3% over the past three months, significantly outperforming the Zacks Internet - Software industry's growth of 38.7% during the same period [1][5] - The stock's momentum is driven by success in Cloudflare One bookings, traction in its AI portfolio, and increased acceptance by U.S. federal agencies following FedRAMP certification [1][5] Valuation and Performance - Cloudflare is currently trading at a forward 12-month Price/Sales ratio of 27.72X, which is substantially higher than the Zacks Internet Software Industry's ratio of 5.7X, indicating a rich valuation [2][5] - Revenue growth has slowed, with guidance for 2025 indicating a growth rate of only 25%, down from previous years [5][9] Revenue Sources and Challenges - Approximately 49% of Cloudflare's revenues have come from outside the United States over the past five years, making it vulnerable to U.S. tariff policies [7] - The company is experiencing challenges with revenue recognition due to pool of funds deals, which can delay metrics like Dollar-Based Net Retention (DBNR) [8] Competitive Landscape - Cloudflare faces intense competition in both content delivery and cybersecurity sectors from companies like Amazon, Akamai, Palo Alto Networks, and Zscaler [10][12] - Competitors are leveraging advanced technologies and market expansion strategies, putting pressure on Cloudflare's market position [11][12] Financial Outlook - Cloudflare's operating margins are under pressure due to heavy investments in sales and marketing, particularly in international markets [14] - The company's bottom-line growth rate is projected to be in the mid-single digits for the full year 2025 [14] Earnings Estimates - Zacks Consensus Estimates for earnings per share (EPS) show a year-over-year decline of 10% for the current quarter, with a modest growth of 5.33% for the current year [15]