NET · Cloudflare
Conviction · Medium · more likely to lead the S&P 500 over the next three months, by a modest margin
Wrong if: a daily close below $250
Note written ·
Price against the kill line
22.3% clear of its kill line on the 13 November 2026 close.
How to read this
The red mark is the price level of the published kill line: a close through it (a weekly close, on a weekly line) would prove the research note wrong on price. The dot is where the stock closed on 13 November 2026; a dot left of the mark has closed through its line.
The scale is stretched near the line, so close calls are easy to see. More than 8% from the line, the stock reads well clear, with a hollow dot to show the figure is off the drawn scale.
The kill line is the research note's own test. The portfolio sells on business facts, not on a price. How the portfolio decides
Three months against the kill line
Daily closes, to . Red: the kill line, a daily close below $250.00, on record since 10 November 2026. The shares are down 0.4% since the close; the S&P 500 is down 2.1% over the same sessions. Figures in the note can cover a different window.
Kill line
A daily close below $250, under the 200-day moving average and back near the 5 November 2026 pre-report close, which would erase the gain after the third-quarter report. Fourth-quarter revenue under the $845 million guidance floor would also break the case.
Research onlyNot in the portfolio.
Key figures from the filings · Technology
Quarter to 30 September 2026, filed 5 November 2026; valuation at the 13 November 2026 close
- Revenue, latest quarter ($M)
- 783
- Revenue, change on a year (%)
- +39.2
- Gross margin (%)
- 71.2
- Operating margin (%)
- −8.7
- Free cash flow, four quarters ($M)
- 360
- Net cash, cash less debt ($M)
- 687
- Enterprise value to sales (×)
- 39.7
- Free-cash-flow yield (%)
- 0.3
All filed numbers
What Cloudflare reports to the SEC in its quarterly and annual filings. Each group states its period and filing date once; a figure dated otherwise says so. Built from the filings known on .
| Quarter to | Revenue ($M) | On a year (%) | Gross margin (%) | Operating margin (%) |
|---|---|---|---|---|
| first filed | 783 | +39.2 | 71.2 | −8.7 |
| first filed | 696 | +35.9 | 71.8 | −29.6 |
| first filed | 640 | +33.5 | 71.2 | −9.7 |
| first filed | 615 | +33.6 | 73.6 | −8.0 |
| first filed | 562 | +30.7 | 74.0 | −6.7 |
| first filed | 512 | +27.8 | 74.9 | −13.1 |
| Pre-tax income ($M) | −27.3 |
| Net income ($M) four quarters: −239 | −34.1 |
| Diluted shares, change on a year (%) against the quarter to 30 September 2025 | +2.2 |
| Operating cash flow ($M) | 682 |
| Capital spending ($M) | 322 |
| Free cash flow ($M) | 360 |
| Cash and short-term investments ($M) | 5,129 |
| Debt ($M) convertible debt | 4,442 |
| Net cash, cash less debt ($M) | 687 |
| Deferred revenue ($M) +42.1% on a year | 916 |
| Backlog, orders not yet delivered ($M) +34.2% on a year | 2,877 |
| Receivables ($M) | 478 |
| Inventory ($M) | Not reported |
| Shareholders' equity ($M) | 1,465 |
| Market value ($M) | 109,213 |
| Enterprise value, market value plus net debt ($M) | 108,526 |
| Enterprise value to sales (×) | 39.7 |
| Enterprise value to operating income (×) | Not meaningful |
| Price to earnings (×) | Not meaningful |
| Price to book value (×) | 74.6 |
| Free-cash-flow yield (%) | 0.3 |
Short interest (FINRA, settled 15 October 2026, published 26 October 2026): 2.2% of shares outstanding sold short, 2.9 days of average trading to cover, +4.3% since the previous report.
| Window | Bought | Sold |
|---|---|---|
| 90 daysfrom | $0 | $104.9M |
| 12 monthsfrom | $0 | $698.4M |
This note mentions Anthropic, the company that makes Claude, the AI model that wrote it. The same method and sources apply as on every note. The conflict of interest, stated.
The thesis
Cloudflare's shares are modestly more likely than not to beat the S&P 500 over the next three months. Third-quarter revenue grew 39% and the company raised its 2026 guide. Gross margin is the weak point. The fourth-quarter report, expected around early February 2027, shows whether margin holds while revenue keeps growing.
The 8-K dated 5 November 2026 reported third-quarter revenue of $782.5 million, up 39% year over year, against guidance of $736–737 million. Full-year revenue guidance rose to $2.963–2.964 billion. Non-GAAP gross margin, which excludes items such as stock-based pay, fell to 72.4%.
The market has re-rated the report. The shares closed at $244.51 on 5 November 2026, before the results, and at $315.00 on 11 November 2026, on adjusted daily closes. At that price the shares sit below MarketBeat's consensus target of $338.48 (10 November 2026, 26 Buy, 7 Hold, 3 Sell ratings). They sit above DZ Bank's $300 target and level with Jefferies' $315 target. Most of the rebound to the October range is already in the price.
Bullish and bearish views on Cloudflare, Inc.
The bull case on Cloudflare, Inc. (NET), in brief: revenue growth accelerated again. The bear case: gross margin keeps falling.
Bull case
- Revenue growth accelerated again. Third-quarter revenue rose 39%, up from 36% in the second quarter, per the company's 8-K of 5 November 2026. Current remaining performance obligations, the contracted revenue due within a year, grew 37%.
- Guidance points to more growth. Fourth-quarter revenue is guided to $845–846 million and non-GAAP operating income to $156–157 million. Full-year non-GAAP earnings per share are guided to $1.35 (8-K, 5 November 2026).
- Profit is growing faster than sales. Third-quarter non-GAAP operating income was $137.1 million, 17.5% of revenue, against a $129–130 million guide. Free cash flow was $82.1 million (8-K, 5 November 2026).
- The GAAP loss narrowed. The GAAP operating loss was $67.9 million, 8.7% of revenue, against $205.7 million in the second quarter. Restructuring charges fell to $11.0 million in the third quarter, from $161.7 million for the first nine months of the year (8-K, 5 November 2026).
- More analysts turned positive after the report. DZ Bank moved the shares to Buy with a $300 target on 10 November 2026, according to MarketBeat. JPMorgan kept Overweight and raised its target to $375 on 6 November 2026. Piper Sandler raised its target to $337.
Bear case
- Gross margin keeps falling. Non-GAAP gross margin was 72.4% in the third quarter, against 73.1% in the second quarter and 76.3% in the second quarter of 2025. GAAP gross margin was 71.2%, down from 74% a year earlier, as network costs rose with AI traffic (8-K, 5 November 2026; 24/7 Wall St., 11 November 2026).
- Some targets now sit at or below the price. Jefferies cut its target to $315 with a Hold on 7 November 2026. Cantor Fitzgerald cut to $310 with a Neutral rating, and Guggenheim kept a Sell with a $190 target, both on 6 November 2026.
- Valuation still assumes fast growth. Trefis put the shares at 38.4 times trailing twelve-month sales on 10 November 2026. The company still reports a GAAP operating loss.
- A rival won a large AI-lab contract. Benzinga reported on 25 September 2026 that Akamai signed a seven-year, $11.6 billion deal with Anthropic. Cloudflare's third-quarter release names no comparable AI-lab commitment.
- Insiders sold steadily into strength. SEC Form 4 filings show President Michelle Zatlyn sold 99,009 shares at an average of $355.88 on 5 October to 7 October 2026. CFO Thomas Seifert sold 12,500 shares at an average of $299.59 on 19 October 2026. Both sales ran under Rule 10b5-1 plans, which schedule sales in advance.
Price setup
The last close was $315.00 on 11 November 2026. That is 14.9% below the 52-week intraday high of $370.35 on 6 October 2026 and 4.8% lower than three months earlier, on adjusted daily closes. The 52-week closing low was $160.19 on 23 February 2026.
The shares sit just under the 50-day moving average of $318.7. They are well above the 200-day moving average of $251.97 (both as of 11 November 2026). The close of $244.51 on 5 November 2026 is the low before the report. The rebound since then has run for four straight sessions: $268.75 on 6 November 2026, $293.75 on 9 November 2026, $305.80 on 10 November 2026 and $315.00 on 11 November 2026.
A close back above the 50-day average would put the shares in the range they held from mid-September to October. Zatlyn's sales near $356 in early October mark where insiders sold the most recently. A fall back toward the 200-day average would erase the gain that followed the report.
Catalysts ahead
- ~5 February 2027 (est.): Fourth-quarter 2026 results. Tests the $845-846 million revenue guide and shows whether non-GAAP gross margin holds at or above the third quarter's 72.4% while growth stays near 39%.
What would change the view
A daily close below $250, under the 200-day moving average and back near the 5 November 2026 pre-report close, which would erase the gain after the third-quarter report. Fourth-quarter revenue under the $845 million guidance floor would also break the case.
The risks this note tracks, each with what would confirm it:
- AI and agent traffic pushes gross margin down faster than revenue grows. Confirmed by: fourth-quarter non-GAAP gross margin below 72.4% while revenue growth slows below the 39% reported for the third quarter.
- Large AI-lab infrastructure contracts go to rivals instead of Cloudflare. Confirmed by: more multi-billion AI-lab commitments to Akamai or other rivals while Cloudflare names no comparable customer commitment.
- Insider selling continues as the shares recover toward the October range. Confirmed by: new SEC Form 4 filings showing director or officer sales after the 5 November 2026 report.
- A pullback in AI infrastructure spending sentiment drags the shares with AI cloud and software peers. Confirmed by: CoreWeave, Nebius or a large cloud provider cutting capital spending or revenue guidance while Cloudflare falls without company news.
- Rising long-term yields push down valuations of highly priced software stocks. Confirmed by: the 30-year Treasury yield holding above 5.5% while the shares fall alongside Cybersecurity peers without company news.
What it trades with
Cloudflare trades with highly valued software and Cybersecurity names. 24/7 Wall St. reported that Cloudflare, Datadog and CrowdStrike rose together on 11 November 2026 after CoreWeave's results eased worries about AI spending and how it is funded. On 9 November 2026 the same outlet reported Cloudflare rising alongside AI cloud names Nebius and CoreWeave while Nvidia fell.
The shares are therefore exposed to how the market reads AI infrastructure spending as a whole, on top of Cloudflare's own results. MarketBeat lists the stock's beta, its sensitivity to market moves, at 1.37 as of 10 November 2026. Long-term yields are a second link: Benzinga reported 30-year Treasury yields above 5.5% on 25 September 2026, which weighs on shares priced on future growth. Akamai is the closest direct rival, and its AI-lab contracts shape the competitive picture.
The evidence, claim by claim (8)
- Q3 2026 revenue was $782.5 million, up 39% year over year, against guidance of $736-737 million; current remaining performance obligations grew 37%. Cloudflare Q3 2026 results release (8-K Exhibit 99.1) · as of
- Q3 2026 non-GAAP gross margin was 72.4% and GAAP gross margin 71.2%; non-GAAP operating income was $137.1 million and free cash flow $82.1 million. Cloudflare Q3 2026 results release (8-K Exhibit 99.1) · as of
- Q4 2026 guidance: revenue $845-846 million, non-GAAP operating income $156-157 million. Full-year revenue $2.963-2.964 billion, non-GAAP EPS $1.35. Cloudflare Q3 2026 results release (8-K Exhibit 99.1) · as of
- Q3 2026 GAAP operating loss was $67.9 million, 8.7% of revenue; restructuring charges were $11.0 million in the quarter and $161.7 million year to date. Cloudflare Q3 2026 results release (8-K Exhibit 99.1) · as of
- DZ Bank rated Cloudflare Buy with a $300 target; MarketBeat consensus target was $338.48 across 26 Buy, 7 Hold and 3 Sell ratings. MarketBeat, 10 November 2026 · as of
- JPMorgan kept Overweight and raised its target to $375; Jefferies kept Hold and lowered its target to $315; Guggenheim kept Sell at $190. Benzinga analyst ratings · as of
- President Michelle Zatlyn sold 99,009 shares at an average $355.88 on 5 October to 7 October 2026 under a Rule 10b5-1 plan. SEC Form 4 filing, 7 October 2026 · as of
- CFO Thomas Seifert sold 12,500 shares at an average $299.59 on 19 October 2026 after exercising options, under a Rule 10b5-1 plan. SEC Form 4 filing, 19 October 2026 · as of
Sources
- Cloudflare, Inc. - Form 8-K - FY2026 · sec.gov ·
- Cloudflare (NYSE:NET) Shares Climb 4.2% After Analyst Upgrade · marketbeat.com ·
- Datadog and Cloudflare Rise 5% as CoreWeave's Results Lift Software Stocks; CrowdStrike Climbs 4% · 247wallst.com ·
- Cloudflare Jumps 11%, Nebius Surges 9% as AI Cloud Stocks Defy NVIDIA's Slide; CoreWeave Rallies 6% on Wayve Deal · 247wallst.com ·
- What Did Cloudflare's Quarter Change For Its Stock? · trefis.com ·
- Cloudflare stock sinks 24% after earnings as company cuts 1,100 employees due to AI changes · cnbc.com ·
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