Cloudflare is a company that provides IT infrastructure, and recently filed an IPO document. It is going public on the NYSE under the symbol ”NET”.
Matthew Prince and Lee Holloway who later founded the company, originally started a project called “Honey Pot” in 2004 which developed a system that enabled it to track how spammers harvested email addresses. Thousands of websites, from more than 185 countries, signed up to participate in the project
Then Matthew Prince went on to Harvard Business School to obtain an MBA and met Michelle Zatlyn. Together, they started Project Web Wall which would take Project Honey Pot to the next level: not just tracking Internet threats, but stopping them too. That business plan won the Harvard Business School Business Plan competition and they founded Cloudflare in 2009.
Cloudflare has raised over $300 million by issuing Redeemable Convertible Preferred Stock. A series D round, which included funding from Google and Microsoft, pushed the company to unicorn status, (a privately held startup valued at over US$ 1 billion).
Cloudflare reported $192 million in revenue in 2018 which is more than double compared to 2016. In FY2019, the company has grown steadily and already generated $129 million revenue in th past six months.
Cloudflare mainly provide a service called CDN.
A CDN (Content Delivery Network) is a highly-distributed platform of servers that helps minimize delays in loading web page content across different geographic locations by reducing the physical distance between the server and the user. This helps users around the world view the same high-quality content without slow loading times.
(Reference: CDN definition)
The Cloudflare platform also works as a security protection tool against DDoS (Distributed Denial of Service) attacks.
Interestingly, Cloudflare cancelled its services for the 8chan website, the famous online forum, in August 2019. This opened 8chan up to website server attacks, which demonstrates the importance of technologies like Cloudflare. Because company websites are vulnerable to attacks online and lack geographic distribution performance on their own, CDN is one of the most important infrastructures for truly commercial and high volume global websites.
Number of paying customers reached over 74,000 at the end of 2Q19. Customers paid $2,838 on average in 2018. More than 20 million web sites and API services are said to use Cloudflare.
According to Datanyze, Cloudflare has approximately 40% share of the CDN market by number of domains. Cloudflare attracts many websites as it offers a freemium model.
For individuals, uses can start from free plan and also have options to upgrade to Pro, Business and Enterprise.
The chart illustrates the growth in annualized billings for groups of customers that first became paying customers in each of the years from 2011 to 2018, and demonstrates how Cloudlfare attract new paying customers and expand their annualised billings with them over time.
Cloudflare has expanded its integrated solution to include components such as IoT security and bot management.
Customers spending more than $100,000 per year reached 400. Cross-selling new functions and up-selling to existing customers have driven the growth of Cloudflare.
The cost of revenue on sales ratio is 23% and sales and marketing on sales ratio is 52%. Cloudflare gained 18,754 new customers in 2018, while spending $94 million in sales and marketing activities. This means that the company spent $5,078 on average to acquire each customer. As average revenue per customer is $2,838, the current breakeven point is 1.8 years.
Cashflow from operating activities was negative at the end of 2Q19. Financing activities cover operating costs.
Cash and marketable securities equated to $124 million in total as Cloudflare raised fund through A Series E round ($150 million) in 2018.
Today Cloudflare have servers in 193 cities covering over 90 countries, which increases its property and equipment value to $84 million. It is notably higher than other internet companies.
The largest shareholders are NEA, a venture capital firm (20.4%) followed by Matthew Prince, Pelion Venture and Venrock.
Akamai is the largest player in the CDN market. Akamai reported $2.7 billion in revenue in 2018 which is 14 times bigger than Cloudflare. Fastly, which went public in April, reported $144 million in revenue.
Cloudflare predicts the market, that the company provides services including CDN and web security, is expected to grow to $47.1 billion by 2022 representing a compound annual growth rate of 10.5%.
Other than CDN provider companies, Google and Amazon have also been expanding the share in these markets. As 5G and IoT have become more popular, internet traffic demand has grown rapidly. Cloudflare is definitely one of the companies to be watching.
The original article was published by Stockclip, Inc. on 22/08/2019.
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