QS Research · Michael Burry's Scion Capital analyst template · 2006
Cloudflare, Inc. (NET)
As of 2026-11-06 · 12/15 boxes filled from SEC filings and market data
Conclusion: SHORT
Conviction medium · base case -42% · downside -70% · upside +15%
At $270.75 the market pays 34.66x TTM EV/sales (N21) for $2.73B revenue (N8) while TTM EBIT is -$384.9M (N10), net income is -$239.1M (N12) and FCF is $359.5M, a 0.4% FCF yield (N15, N22); there is no normalized earnings base to support the price. A generous 20x EV/sales on the same TTM revenue gives 20 x $2.73B = $54.6B EV, plus $1.97B cash less $0.27B leases = $56.3B equity, or about $158/share, -42% from today; 10x gives about $81/share, -70%. The only path to today's price is roughly three years of ~26% growth to $5.46B revenue at 20x, which yields about $311/share, only +15%, so the upside is capped while the base and downside are far below. Q3 2026 revenue growth of 39.2% and raised guidance are real, but gross margin fell to 71.2% and FCF margin to 10%, so growth is not converting into value fast enough to justify the multiple; this is a short, not a deep-value long.
Key numbers
- Share price: $270.75
- Market cap: $96.69B
- Latest financial period: TTM to Sep 30, 2026
- Revenue (TTM): $2.73B
- Price / book: 66.01x
The 15 boxes
- ✓ 1. Long-form business notes
Cloudflare sells cloud-delivered network services across application services, a SASE platform, developer/AI solutions, and consumer offerings. FY2025 revenue was $2.17B with operating income of -$207.2M and net income of -$102.3M, while operating cash flow was $603.1M. The paying base was about 332,000 customers at Dec 31, 2025, including 4,298 large customers, and no customer was over 10% of revenue in 2023-2025. Since FY2020, revenue grew from $431.1M, the network expanded from 200+ to 330+ cities, and the product set shifted toward a Connectivity Cloud/SASE and AI developer platform.
- ✓ 2. Competitive advantage
Cloudflare has a credible network-scale and cost advantage: at FY2025 its network spanned more than 330 cities in over 125 countries and interconnected with over 13,000 networks, and it uses idle capacity for a free tier that it says lowers co-location and bandwidth costs. It competes with on-premises network hardware, point solutions and subsets of public cloud, and argues integration and cloud independence are differentiators. But the return history does not yet prove durability: gross profit grew to $1.62B FY2025, while operating income and net income were negative every year FY2020-FY2025, even as operating cash flow turned positive FY2021 and reached $603.1M FY2025.
- ✓ 3. 10-Q takeaways
Q3 2026 revenue rose to $782.5M from $562.0M in Q3 2025, but gross margin fell to 71% from 74% and GAAP operating loss widened to $(67.9)M; non-GAAP operating income was $137.1M, an 18% margin. Q3 2026 free cash flow was $82.1M, a 10% margin, and nine-month 2026 free cash flow was $222.5M. The quarter included $11.0M restructuring and $10.7M legal reserve, while management flagged tariff and macro risk and a May 2026 plan that cut about 20% of the workforce. No explicit revenue or EPS guidance, buyback data, or period-end cash balance appeared in the excerpt.
- ✓ 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.
Sign in with a QuantSignals Premium or Gold plan to read every box: each point linked to the SEC filing it came from, the bull and bear case, and the comparables. QS Research powers the signals behind FST, our autonomous trading agent.