QS Research · Michael Burry's Scion Capital analyst template · 2006
Cloudflare, Inc. (NET)
As of 2026-11-08 · 12/15 boxes filled from SEC filings and market data
Conclusion: WATCH
Conviction low · base case 0% · downside -32% · upside +28%
Cloudflare is a real secular grower — Q3 2026 revenue rose 39% to $782.5M and FY2026 guidance was raised to $2.963-$2.964B — but at a $95.98B market cap it still has no GAAP earnings power: TTM EBIT is -$384.9M, EBITDA -$141.7M and net income -$239.1M, while FCF is only $359.5M (0.4% yield). The market is paying 33.24x TTM EV/Sales, the highest in the comp set, and Q3 2026 gross margin fell to 71.2% from 74.0% while FCF margin fell to 10% from 13%. At today's 33.24x on TTM revenue of $2.73B: 33.24 × $2.73B = $90.75B EV + $4.86B net cash = $95.61B equity / 357.13M shares = about $268 (-0.4%); at PANW's peer-best 22.11x: 22.11 × $2.73B = $60.36B + $4.86B = $65.22B / 357.13M = about $183 (-32%); holding 33.24x on 30% revenue growth ($3.55B): $118.0B + $4.86B = $122.9B / 357.13M = about $344 (+28%). The risk/reward is negative but not enough for a short under the rule, so watch: the stock must keep both the premium multiple and the growth rate.
Key numbers
- Share price: $268.75
- Market cap: $95.98B
- Latest financial period: TTM to Sep 30, 2026
- Revenue (TTM): $2.73B
- Price / book: 65.52x
The 15 boxes
- ✓ 1. Long-form business notes
Cloudflare sells cloud-delivered security, performance, SASE/Zero Trust, developer/serverless and consumer services through enterprise direct/indirect sales and web self-service, with a free tier feeding paid Pro/Business and Enterprise plans. From FY2020 to FY2025 revenue rose from $431.1M to $2.17B and operating cash flow from -$17.1M to $603.1M, but FY2025 operating income and net income remained negative. The FY2025 10-K shows a larger network, about 332,000 paying customers, 4,298 large customers, and product expansion into AI/GPU developer services versus the FY2020 10-K.
- ✓ 2. Competitive advantage
The sources show a real network-scale and cost advantage plus an integrated-platform land-and-expand model, but not a proven earnings moat. FY2025 gross profit was $1.62B, yet operating income was -$207.2M and net income -$102.3M; the FY2025 10-K also cites intense and increasing competition from on-premises hardware vendors, point solutions and public clouds. Cash generation is positive, with $603.1M operating cash flow in FY2025, so the model scales in cash while GAAP operating returns remain negative.
- ✓ 3. 10-Q takeaways
Q3 2026 revenue was $782.5M, up 39% YoY, with Current RPO +37% and nine-month revenue $2,118.3M; GAAP gross margin fell to 71.2% from 74.0% while non-GAAP operating margin rose to 17.5% from 15.3%. GAAP net loss was $34.1M versus $1.3M, hit by $11.0M restructuring and other charges and a $10.7M legal reserve; Q3 operating cash flow was $215.4M and free cash flow $82.1M. Cash and investments were $5,128.7M at Sep 30, 2026, and management guided Q4 2026 revenue to $845.0-$846.0M and FY2026 revenue to $2,963.0-$2,964.0M.
- ✓ 4. Corporate governance
Filled; members read this box.
- ✓ 5. Overview of the prior 3 years of 8-K filings
Filled; members read this box.
- ✓ 6. Other significant filings
Filled; members read this box.
- ✓ 7. Chronology of significant news and events
Filled; members read this box.
- ✓ 8. Comparables valuation interpretation
Filled; members read this box.
- ✓ 9. Insider trading interpretation
Filled; members read this box.
- ○ 10. Earnings-call notes
- ○ 11. Impression of the shareholder letter
- ○ 12. Scuttlebutt overview
- ✓ 13. Valuation and risk/reward summary
Filled; members read this box.
- ✓ 14. Current price suppression and potential catalysts
Filled; members read this box.
- ✓ 15. Conclusions
The call above.
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