Cloudy (NYSE:REPORT) appears to remain in an unattractive category despite its superior quarterly results. The NET stock has since fallen 28% after its earnings announcement on May 5. Although the revenue forecast has been raised, the company expects earnings to be below or remain the same as previously forecast levels.
For the first quarter of 2022, management said it expects to post an adjusted loss of 1 cent per share or break even with revenue between $226.5 million and $227.5 million. Consensus estimates for the quarter were $0 per share on revenue of $217.9 million. Although revenues are likely to be above expectations, profits could be lower than forecast.
The full-year revenue forecast was raised to $955-959 million from an earlier estimate of $927-931 million. But the earnings outlook remained intact in a range of 3 cents to 4 cents per share.
The outperformance in the first quarter of 2022 was completely overshadowed by disappointing earnings forecasts. I expect this drop in the share price and the resulting valuation to present a buying opportunity for savvy investors.
My view is further supported by consensus analyst ratings. Based on 15 Wall Street analysts, seven called the stock a “buy.” The average price target is $104.46 with a high of $200 and a low of $60. That’s 7% upside potential even for the lowest price target. The average target represents an 88% upside from today’s price.
More recently, Forrester Research rated the company’s cloud platform better than offerings from other tech players, including giants like Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) and Amazon (NASDAQ:AMZN).
This is already reflected in the company’s growing number of paying customers, which grew 29% in the first quarter of 2022 to 154,109. Additionally, customers spending more than $1 million per year increased by 72 % compared to last year.
The net dollar retention rate increased to 127%, reflecting an average consumer paying 27% more. This ratio has steadily improved from 125% in fiscal year 2021 to 119% in fiscal year 2020.
Cloudflare’s ability to innovate and consolidate powering multiple large-scale network services to improve connectivity and speed gives it a competitive advantage over its peers.
More recently, the company launched a service that allows users to turn any fixed application into a programmable platform. Therefore, a developer can build and customize their platform using the latest open API standards without having to invest in external servers.
Another innovation was Cloudflare D1, which will allow developers to build database-driven applications using Cloudflare Workers with just a few clicks. Launch will eliminate any complexity associated with installing or managing a traditional database.
I believe the NET stock is poised to grow at an accelerated rate with these innovations. The company’s stock price will skyrocket as it expands its services.
As of the date of publication, Sakshi Agarwalla had (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.