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Cloudflare sits at the intersection of some of the most powerful trends in technology: cloud security, Zero Trust networking, edge computing, and AI workloads at the network edge. On paper, it looks like the kind of structural “compounder” growth investors dream about: roughly 30% revenue growth, 70%+ gross margins, and a business increasingly throwing off free cash flow.

But from a value-investing angle, the story gets much more complicated.

Our team at DeepValue has been digging through Cloudflare’s latest 10-K, 10-Q, DEF 14A, and 8‑K filings, plus industry coverage and technical write‑ups, to answer a simple but high‑stakes question: is this a high‑quality business at a fair price, or a fantastic business priced for perfection?

In this article, we’ll walk through what the numbers actually say, where the growth is coming from, what could go wrong, and how we’d think about Cloudflare as part of a disciplined, valuation‑sensitive portfolio.

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Cloudflare’s Investment Case: A High-Quality Franchise With Real Moats

Cloudflare’s stated mission is “to help build a better Internet,” and that’s not just marketing language. According to its latest 10‑K, the company operates a global network spanning 335+ cities in over 125 countries, interconnecting with more than 13,000 networks around the world (10‑K (2025), p.9). This infrastructure underpins a broad suite of services:

Application security (WAF, DDoS, API security, bot management)
CDN and performance (caching, optimization, Argo smart routing)
DNS and network services (Magic WAN, Magic Transit, Magic Firewall)
Zero Trust/SASE (Access, Gateway, CASB, DLP, RBI, Zero Trust SIM)
Developer and AI platform (Workers, Workers AI, R2, KV, D1, Durable Objects, Workflows, Containers, Vectorize, AI Gateway)
Consumer tools (1.1.1.1, WARP, Registrar)

Cloudflare reports a single operating segment as a “connectivity cloud” provider, but under the hood you have a security vendor, an edge CDN, and an emerging developer/AI platform rolled into one (10‑K (2025), pp.3 & 11–13).

This breadth matters for the moat: customers can consolidate multiple point solutions into one network, enforce unified policies globally, and run code directly on Cloudflare’s edge using Workers and related services. According to Wikipedia (2025), about 19.3% of websites use Cloudflare for web security—evidence of deep ecosystem penetration.

On the customer front, Q3 2025 numbers were strong:

295,552 paying customers, up from 221,540 a year earlier
4,009 customers with over $100k in annual recurring revenue (ARR)
119% dollar-based net retention, indicating healthy expansion within the existing base

These figures, disclosed in the Q3 2025 10‑Q, suggest not only growth in logos but also consistent upsell and cross‑sell into the installed base (10‑Q (2025), pp.37, 40 & 44).

From a structural point of view, we see three key moat elements:

1. Scale network effects: A massive, globally distributed network with millions of free users and hundreds of thousands of paying customers lowers unit bandwidth and co‑location costs and improves routing efficiency (10‑K (2025), pp.9 & 17).

2. Integrated platform breadth: Security, performance, SASE, and developer services in one control plane can replace multiple vendors, which is especially attractive as enterprises move to single‑vendor SASE and Zero Trust architectures (ComputerWeekly, Jan 2023).

3. Developer lock‑in and AI optionality: By embedding application logic in Workers, Durable Objects, D1, Workflows, and Containers, Cloudflare makes itself the execution layer for customer applications, including AI inference through its Workers AI and edge GPU initiatives (InfoQ, 2019–2025, TechRepublic, 2023).

We don’t see this as an unassailable moat—hyperscalers like AWS, Azure, and GCP can bundle comparable services, and large security players have deep pockets—but it’s a real, execution‑dependent advantage, not just marketing spin.

Financial Performance: Strong Growth, High Margins, and a Cash-Flow Inflection

Where the story really shines is on the top line and at the gross margin level.

According to the 2025 DEF 14A and 10‑K:

2024 revenue: $1.67B, up 29% year over year (DEF 14A (2025), p.27)
2024 gross margin: 77%, consistent with a high‑margin software and services model (10‑K (2025), p.102)
2024 GAAP net loss: $78.8M
2024 non‑GAAP operating income: $230.1M
2024 free cash flow: $166.9M

By Q3 2025, the trajectory was similar or better:

Q3 2025 revenue: $562.0M, up 31% YoY
Gross profit: $415.7M, 74% gross margin
GAAP operating loss: $37.5M; net loss just $1.3M
Non‑GAAP operating income: $85.9M (15% margin)

For the first nine months of 2025:

Revenue: $1.553B
GAAP operating loss: $158.0M
Operating cash flow: $412.7M
Free cash flow: $161.1M (roughly 10% FCF margin)

All of this is sourced from the Q3 2025 10‑Q (10‑Q (2025), pp.9, 15 & 37).

From a cash‑flow perspective, that’s a meaningful inflection: the company is increasingly funding its growth from internally generated cash rather than relying solely on external capital. For growth investors, this is typically a big milestone.

For value‑oriented investors like us, two things stand out:

1. The business economics are attractive: high‑70s gross margins, strong net retention, and improving free cash flow signal underlying operating leverage.

2. GAAP profitability is still not there: the company remains GAAP loss‑making, and the move to sustained GAAP earnings is not yet complete.

The gap between non‑GAAP and GAAP results is largely driven by stock-based compensation (SBC) and other non‑cash items—SBC alone was $338.5M in 2024 (10‑K (2025), pp.78, 98 & 102). That’s a significant ongoing dilution lever that shareholders need to weigh when looking at non‑GAAP margins.

Is NET Stock a Buy in 2025–2026?

From a pure quality lens, it’s easy to be impressed. The harder question is valuation and risk‑reward.

According to market data from FMP:

Recent share price: $196.02
Market cap: ~$68.7B
GAAP P/E: about ‑651x (still loss‑making)
EV/EBITDA: roughly 1,146x
Net debt / EBITDA: about 21.2x
Interest coverage: around ‑26.25x (FMP, 2026)

Those multiples are extreme by any traditional measure. The stock has risen ~82% over the past 12 months, dramatically outpacing its roughly 30% revenue growth (FMP, 2026; DEF 14A (2025), p.27; 10‑Q (2025), p.9).

Our DCF anchor, using conservative assumptions, pegs intrinsic value at roughly $7.82 per share, implying the stock trades at a staggering ~2,400% premium to that estimate (FMP, 2026). The DCF uses:

10% discount rate
2.5% terminal growth
5‑year forecast horizon
~15.2% free‑cash‑flow CAGR from a volatile historical base

We fully acknowledge those inputs may be too conservative given Cloudflare’s optionality in AI and edge developer services. But they’re intentionally framed from a margin‑of‑safety, value‑investing standpoint rather than a blue‑sky growth scenario.

On that basis, our stance is:

Business quality: High. Real moat elements, strong secular tailwinds, and credible management execution.
Valuation: Very demanding. The market is effectively pricing in sustained high‑20s / low‑30s revenue growth, significant margin expansion, and near‑flawless execution on outages, competition, and regulation.
Risk‑reward: Skewed toward growth‑style investors comfortable underwriting execution risk at a premium multiple. For classic value investors, the margin of safety is thin to non‑existent.

In other words, Cloudflare looks like a “wait and watch” name at current levels, not a clear‑cut buy.

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Will Cloudflare Deliver Long-Term Growth?

The bull case on Cloudflare is all about the next 2–5 years and beyond. Management’s long‑term vision is to become the core connectivity cloud—the layer through which enterprises route, secure, and accelerate essentially all of their traffic across users, applications, and networks (10‑K (2025), pp.8–9 & 15–16).

Near-Term Outlook (0–6 Months)

For Q4 2025, Cloudflare’s guidance, via its October 2025 8‑K, calls for:

Revenue: $588.5–$589.5M
Non‑GAAP operating income: $83–$84M
Non‑GAAP EPS: $0.27 on roughly 377M shares

This implies continued ~30% revenue growth and mid‑teens non‑GAAP operating margins (8‑K (2025)).

Near‑term catalysts we’re watching:

Demonstrated resilience and improved metrics following late‑2025 outages that impacted key services (ComputerWeekly, Nov 2025 & Dec 2025).
Continued strength in large‑customer growth and net retention at or above 120% (10‑Q (2025), pp.37, 40 & 44).
Early monetization evidence for Workers AI, Workflows, Containers, and other developer features (InfoQ, 2024–2025).
Confirmation that free-cash-flow margins stay at or above 10% while GAAP losses narrow.

Medium-Term (6–18 Months)

Over the next year to year and a half, Cloudflare’s strategy emphasizes:

Moving upmarket with larger enterprise accounts and deeper wallet share
Expanding across the SASE and Zero Trust stack (Cloudflare One, Zero Trust SIM, IoT security)
Scaling its developer and AI platform (Workers, R2, KV, D1, Durable Objects, Workflows, Containers, Vectorize, AI Gateway)
Deploying GPUs across the network to become a low‑latency inference layer for AI‑enhanced applications (10‑K (2025), pp.9 & 12–13; InfoQ, 2019–2025; TechRepublic, 2023; Wikipedia, 2025)

Key metrics we would track to gauge if the medium‑term thesis is playing out:

Sustained ~25–30%+ revenue growth with stable or improving gross margins.
Clear evidence that AI and developer services are contributing meaningfully to revenue.
Wins in SASE against established vendors—e.g., traction for Cloudflare One, Zero Trust SIM, and IoT security offerings.
Concrete steps on managing the 2026 convertible notes without heavy dilution (10‑Q (2025), pp.25–26 & 71).

Longer-Term (2–5 Years)

For the longer term, multiple secular drivers support the bull narrative:

Migration from on‑prem hardware to cloud‑delivered security and networking (10‑K (2025), p.8).
Rising adoption of Zero Trust and SASE with increasing preference for integrated, single‑vendor deployments (ComputerWeekly, Jan 2023).
Growth in distributed workforces, IoT endpoints, data‑intensive edge apps, and AI workloads that benefit from low‑latency edge execution (10‑K (2025), p.9; TechRepublic, 2023; InfoQ, 2025).

For the equity story to justify today’s valuation over 2–5 years, we think Cloudflare needs to:

Maintain high‑20s to low‑30s revenue growth.
Expand non‑GAAP margins and eventually achieve sustainable GAAP profitability.
Grow free cash flow to fund operations and deal with convertibles without strain.
Avoid major security incidents, outages, or regulatory blows that damage the brand.

Management’s full‑year 2025 guidance of $2.142–$2.143B in revenue is broadly consistent with this trajectory, implying continued high‑20s to low‑30s growth from the 2024 base (8‑K (2025); DEF 14A (2025), p.27; 10‑Q (2025), p.9).

The crux: those assumptions are plausible but aggressive, especially in a world with macro headwinds and fierce competition.

Key Risks: What Could Break the Story?

We view Cloudflare as a high‑quality but high‑risk compounder at current prices. Several risk buckets stand out.

1. Competitive and Macro Pressure

Cloudflare competes with:

On‑prem hardware vendors in security and networking
Cloud‑based point‑solution providers (CDN, DNS, WAF, DDoS, email security, SD‑WAN)
Hyperscalers like AWS, Azure, and GCP, which can bundle and discount aggressively

Many of these rivals have deeper wallets and can outspend Cloudflare on R&D and sales, or underprice to retain share (10‑K (2025), p.16; 10‑Q (2025), p.61).

At the same time, Cloudflare notes that macro conditions—geopolitical conflicts, inflation, FX, and tighter credit—have lengthened sales cycles, slowed new customer acquisition, and increased churn (10‑K (2025), pp.77–78; 10‑Q (2025), p.37). Because revenue is recognized over time on subscriptions, any slowdown in bookings takes a few quarters to fully show up in reported revenue (10‑K (2025), p.34).

For a stock priced for near‑perfect execution, even a modest deceleration—from ~30% growth to mid‑teens, for example—could trigger a harsh re‑rating if not offset by sharply higher margins.

2. Profitability, SBC, and Dilution

As mentioned, Cloudflare is non‑GAAP profitable with healthy free cash flow, but GAAP profits remain elusive. The company explicitly warns in its filings that it has a history of net losses and may not achieve or sustain profitability (10‑K (2025), pp.34 & 98; 10‑Q (2025), p.37).

Stock‑based compensation is a big part of that gap:

2024 SBC: $338.5M, a large number relative to revenue and free cash flow (10‑K (2025), pp.78 & 102).

SBC can be a powerful tool for attracting and retaining talent, especially in a competitive field. But when you’re paying a premium valuation on the equity, each incremental share granted matters. For long‑term shareholders, the combination of high SBC and a sky‑high stock price amplifies dilution risk.

3. Balance Sheet and Convertible Debt Overhang

Cloudflare’s balance sheet shows substantial zero‑coupon convertible notes:

$1.29B of 2026 notes
$2.0B of 2030 notes
A $400M revolving credit facility (10‑K (2025), p.65; 10‑Q (2025), pp.25–26 & 71)

Market data indicates net‑debt‑to‑EBITDA of about 21.2x and negative interest coverage, underscoring how much of the capital structure is tied to these convertibles rather than traditional interest‑bearing debt (FMP, 2026).

In 2025, Cloudflare monetized its 2025 capped calls for about $309.6M in cash, which shows management can navigate complex capital markets structures (10‑Q (2025), pp.25–26). But the 2026 convertibles still loom as a key event:

If the stock remains strong, conversion might be manageable but dilutive.
If equity markets weaken or operations disappoint, refinancing could be expensive or forced at unattractive terms.

Either way, investors should treat the convertibles as a material refinancing and dilution overhang over the next few years.

4. Operational, Reputational, and Regulatory Risk

For a company selling security and reliability, outages are particularly damaging. Cloudflare has experienced multiple outages and misconfigurations, with notable incidents in late 2025 that disrupted major web services (10‑K (2025), p.37; 10‑Q (2025), pp.71–72; ComputerWeekly, Nov & Dec 2025).

The company is also under scrutiny for misuse of its infrastructure by piracy, counterfeiting, and cryptojacking operations, which raises reputational and regulatory concerns (ComputerWeekly, 2019–2023). And as a global cloud intermediary, it faces evolving regulations around:

Privacy and data protection (GDPR‑style regimes)
Cybersecurity and critical infrastructure
AI governance, scraping, and content protection

Cloudflare’s decision to default‑block AI crawlers reflects attempts to balance its role as an AI infrastructure provider with protection of publisher content (ComputerWeekly, Jul 2025; 10‑K (2025), pp.5 & 50–51). But any misstep here—major breach, regulatory fine, or forced changes to its model—could dent both growth and the premium multiple.

How We’d Approach Cloudflare as Value-Oriented Investors

When we apply a Buffett‑style lens focused on capital preservation and margin of safety, our view is straightforward:

Cloudflare is a strategically important, high‑quality franchise with real moats.
The business is executing well on growth and free cash flow, though GAAP profitability and SBC dilution remain open questions.
The stock price already discounts a long runway of strong growth and improving margins, leaving limited room for disappointment.

As value investors, we’d categorize Cloudflare as:

A top‑tier “watchlist” name worth tracking quarter by quarter.
Potentially attractive on a pullback or in a scenario where growth slows but valuation resets dramatically.
Less suitable as a new, large position at current levels if your primary goal is downside protection rather than maximizing upside in high‑beta growth stories.

For more growth‑tolerant investors, the key is to be honest about what you’re underwriting: you are paying up for strong execution on multiple fronts—AI/developer monetization, SASE share gains, outage reduction, and clean refinancing of convertibles. That can work, but it’s not a “heads I win, tails I don’t lose much” setup.

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Cloudflare (NET) Deep Research Report: Priced for Perfection or Just Getting Started?