Cloudflare Stock Is Still Surging After the Facebook Outage

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Cloudflare (NYSE:NET) is a company that provides CDN (content delivery network), web infrastructure and online security services. When the pandemic hit in 2020, the company was in the perfect position to pick up a lot of business. Online shopping ramped up while remote work and learning suddenly became a necessity. Given the rapid growth in demand, it’s little wonder NET stock increased around 350% last year. And that growth story is showing no signs of letting up.

Close up of Cloudflare logo at the Company's headquarters

Source: Sundry Photography / Shutterstock.com

So far in 2021, investors have enjoyed a 138% return on NET stock. And just when it seemed like NET was running out of steam earlier this month, Facebook (NASDAQ:FB), Instagram, WhatsApp and Oculus went down.

That reminder of just how fragile the internet and connected services are lit a fire under NET, sending it back into growth mode. So, if you’ve been eying this stock for your portfolio, are you too late? This Portfolio Grader “B” rated name may be past its days of triple-digit yearly gains, but long-term growth is still in the cards.

NET Stock: A Social Media Disaster Brings the Spotlight

On Oct. 4, users trying to log into Facebook, Instagram, WhatsApp and Oculus found the services offline. And they remained down for hours. The global outage put the social media giant in the hot seat, but its root cause also brought renewed attention to companies like Cloudflare. These firms help keep the internet running smoothly, securely and responsively.

The outage was not Cloudflare’s fault, but it did stress on its systems as users repeatedly tried to access the offline services. The company reported a 30 times surge in traffic. Still, although this massive increase had the potential to disrupt other sites, Cloudflare held up quite well. It was also called upon for expert commentary on what had gone wrong. That brought renewed attention to the importance of CDNs like NET, while its resilience impressed tech analysts.

In the aftermath of the big outage, NET stock surged. It has gained 57% since Oct. 4.

Cloudflare’s Q2 Showed Continued Growth

So, the October event put Cloudflare in the spotlight. But the company’s most-recent quarter showed its business has staying power — it is not going to drop off just because people are returning to the office and brick-and-mortar stores. That’s critical to it keeping the momentum going.

In August, Cloudflare reported its second-quarter earnings results. In its “strongest quarter ever as a public company,” NET reported revenue with 53% growth year-over-year (YOY). It set a record for client retention. The company also signed up a record number of large clients, adding 140 six-figure customers during Q2 for a total of 1,088. 

Those results paint a picture of sustained growth. Combined with client retention, the NET stock growth potential also looks positive. The company is expected to report Q3 earnings in November and that should give a better picture of whether its business is slowing up or continuing to set a blistering pace.

Bottom Line on NET Stock

So, with top-of-mind relevance and strong results, there’s one last thing to ask here: is NET stock overvalued? You could make an argument for that assessment, sure. That would mean adding Cloudflare shares to your portfolio for long-term growth doesn’t make sense — at least not at current prices.

However, NET has had a pretty incredible run — and it has momentum. Yes, the pandemic helped push it higher, but the momentum has actually been building since the stock was first listed in 2019. If you had invested then, you would be looking at a 900% return. And over the past one month? Shares have increased by about 38%.

Still, potential investors do need to be aware that many investment analysts are in the overvalued camp. For example, those polled by the Wall Street Journal give NET an average price target of around $129. However, Cloudflare shares have undeniably been defying predictions. As such, I believe the stock’s momentum won’t run out any time soon. It remains a good pick for long-term growth. 

On the date of publication, Louis Navellier had a long position in NET. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article. The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.

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