Exploring Cloudflare's Evolution as an Enterprise Platform

•

Acts of @Cloudflare: Pleased to share my deep dive exploring their evolution & challenges in becoming an enterprise platform My goal was to figure out why Cloudflare trades as one of the most expensive SaaS cos. If you only have 5mins, here's the bull v bear on $NET's next act:

Wanna jump right into the piece, here you go! softwareanalyst.substack.com/p/acts-of-cloudflare-an-evolution-toward Thread continues: Using @jaminball's benchmark, $NET consistently trades at a premium relative to peers, even during this macro slowdown. Mostly along $SNOW So, what do investors see? (End of Q2/Aug 11)

Well, @eastdakota + @zatlyn started Cloudflare to improve website performance + security To make this possible, they invested lots of capex in their early days to build out a global cloud network infrastructure that's given them the optionality to move into new markets Excerpts

They gave many of their early products for free to build usage on the network (sacrificing growth) This led to a moat where 20% of the internet runs on Cloudflare They're able to build multi-product (50+ products!) at a cheaper rate than competitors due to their network breadth

However, now is the seminal moment where they need to evolve and become enterprise-grade. Its not often we hear Cloudflare in the convo w/ $CRWD, $DDOG as 'platforms' Their evolution as a company can be broken down into 3 Acts: (I go deep into each of these areas in the piece)

Act 1, Application services (2010-Present): Refers to all the services they offer to developers/SMBs to optimize and protect Websites/Apps (see below) It's the bulk of the biz (75% of revenue) However, they're trying to diversify fast to new large *enterprise* categories...

Act 2 (2020-Present): They have 2 product lines to protect a company's internet network, employees, and SaaS apps. a) Networking: Enabling fast connections (think: Cisco for enterprises) b) Zero-trust security: This is 10+ cloud network security products and SASE (think $ZS)

Act 3, Developer & AI services (2022-Present) Refers to all the infrastructure for building, deploying, and scaling applications globally on the edge - Includes compute, storage, and how these new products are used to support AI startups. I explain everything in the piece!

They've leveraged the modularity + composability of their serverless edge network to build products that extend from storage to cybersecurity to app services.. However, with 50+ products now, they have a selling problem. This might hamper their ability to capture these markets.

First, GTM challenges: Historically, Cloudflare sold to developers (Act 1) - thrived on PLG freemium & bottoms-up GTM. However, now MOST of their newer products are geared toward the largest enterprises, requiring a top-down GTM. This requires re-architecting the sales team.

Additionally, they're facing issues slowing growth: - GTM turnover - Productivity - Product alignment - Lengthening sales cycle - Slowing customer growth These issues are going to take multiple qtrs. to solve, and the speed at which they solve them will determine their success.

I have no opinion toward the stock; this is purely a neutral piece aimed at understanding the premium valuation and its technology. I go deeper into each of these pieces in the report! Would appreciate it if you wanted to share it and RT! Thank you! softwareanalyst.substack.com/p/acts-of-cloudflare-an-evolution-toward