Analyst Note| Malik Ahmed Khan |
We are lowering our fair value estimate for narrow-moat Cloudflare to $60 from $82 primarily due to trimming of our long-term forecasts, which, in retrospect, were too bullish. Part of our fair value revision is also informed by our belief that, in the near term, Cloudflare’s clients will rein in certain spending as they optimize costs in a challenging environment. Despite the near-term challenges, we reiterate our confidence in Cloudflare’s strong foothold in cybersecurity and the opportunity the firm stands to benefit from in the burgeoning edge computing space. While our fair value estimate is above Cloudflare’s stock price, which dipped more than 10% after earnings, we’d caution investors against investing in Cloudflare unless they’re willing to tolerate the macroeconomy-induced volatility expected in the coming quarters.