Cloudflare stock price target raised to $160 by Needham

On Monday, Cloudflare Inc . (NYSE: NYSE:NET) saw its price target increased by Needham, from $110 to $160, with a continued Buy rating on the shares. The adjustment comes as the firm anticipates Cloudflare to show enhanced results following recent changes to its go-to-market strategy. Currently trading at $138.40, the stock has delivered impressive returns with a 28.53% gain year-to-date. According to InvestingPro analysis, the company appears to be trading above its Fair Value, with 16 additional ProTips available for subscribers.

The company’s adjustments to its sales structure have reportedly led to double-digit improvements in sales productivity, reflected in strong revenue growth of 30.04% and impressive gross profit margins of 77.53%. This is despite the fact that the growth in sales and marketing personnel, which saw an 11% year-over-year increase in the third quarter of 2024, has not kept pace with the overall employee growth, which was 18%.

Needham’s analysis indicates a strategic shift in Cloudflare’s hiring practices. Throughout 2024, approximately 70% of new sales hires were focused on enterprise selling, a significant uptick from the 40% average observed over the prior two years. The firm notes that Cloudflare has been hiring what it refers to as "stage-appropriate talent," aiming to improve its "slugging percentage," a metaphor indicating a focus on high-impact sales efforts.

The firm believes that the combination of sustained increases in sales productivity and a ramp-up in sales capacity will act as a catalyst for Cloudflare in the 2025 calendar year. This outlook has led Needham to raise its price target on the company’s stock to reflect these expectations.

Cloudflare’s upcoming earnings report, scheduled for February 6, is anticipated to provide further insights into the effectiveness of its go-to-market reorganization and whether the company’s internal measures have translated into tangible financial performance. The market will be looking to see if the company’s strategic focus on enterprise sales and increased sales efficiency support Needham’s positive outlook. For deeper insights into Cloudflare’s financial health and growth prospects, investors can access the comprehensive Pro Research Report available on InvestingPro, which covers over 1,400 top US stocks.

In other recent news, Cloudflare Inc. has seen several significant developments. Baird analysts adjusted their stance on Cloudflare, moving the stock rating from Outperform to Neutral, despite increasing the price target to $140. Truist Securities and JMP Securities also raised their Cloudflare stock targets to $140 and $135 respectively, both maintaining a positive outlook.

Citi analysts upgraded Cloudflare’s stock from Neutral to Buy, significantly increasing the price target to $145. RBC Capital Markets analyst Matt Hedberg increased the price target for Cloudflare shares to $123, maintaining an Outperform rating.

These revisions follow Cloudflare’s robust financial performance, including a 28% year-over-year increase in Q3 revenue reaching $430.1 million and a significant rise in its customer base, now standing at 3,265. The company’s anticipated continued growth in sales capacity and productivity, with Q4 2023 revenue projections indicating a 25% year-over-year increase, are noteworthy recent developments.

Analysts’ confidence is further bolstered by Cloudflare’s strategic advances, such as the success of its Workers AI platform, its expansion into the network security sector, and its effective reorganization of its sales force. Despite potential short-term negative effects on revenue, billings, and free cash flow from Cloudflare’s use of pool of funds deals, the firm’s projections for the full fiscal year 2025 are optimistic, forecasting revenue of $2.087 billion, representing a 25.6% year-over-year increase.

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