san francisco Since the beginning of the Russian invasion of Ukraine, an app from the USA has been at the top of the download charts in Russia. The application called 1.1.1.1 from the San Francisco-based company Cloudflare helps bypass Internet controls. “We want information to continue to be freely accessible,” Cloudflare CFO Thomas Seifert told Handelsblatt. The company is sticking to its business in Russia.
Ukraine thinks that’s wrong. Deputy Prime Minister Mykhailo Fedorov criticized the management of the start-up, which is valued at around 35 billion dollars, as selfish. “At a time when Russia is attacking Ukraine and its missiles and tanks are killing defenseless children, Russia’s web resources must also remain defenseless,” Fedorov demanded.
The reason for the special attention for Cloudflare is the business model of the company. The 1.1.1.1 app is just a by-product that is now proving particularly useful in Russia. Cloudflare’s core business is a network of servers in more than 270 cities around the world. This allows the company to offer its customers faster access to their websites.
At the same time, the company also promises to protect its customers’ sites from hacker attacks. Cloudflare is both an accelerator and a protective shield that fends off unwanted requests and attacks before they reach customers.
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“We block 82 million to 85 million attacks a day. That’s an incredibly large number,” said Seifert. Even before the start of the Russian attack in Ukraine, Cloudflare protected many organizations in Ukraine with its service. “We had brought much of the critical infrastructure in Ukraine behind our network prior to the invasion. With government websites, critical infrastructure, and the media, a number have been added,” said Seifert.
Cloudflare: App to give Russians access to the Internet
The company’s strategy looks different in Russia, said Seifert. “We do not protect large critical infrastructure in Russia. Our turnover in the country is minimal. It’s really about giving the population access to the Internet.” Cloudflare continues to offer the app 1.1.1.1 in the country.
Cloudflare claims to handle more than ten percent of global internet traffic. Cloudflare’s concept is called the Content Delivery Network, or CDN for short.
Cloudflare is not the only provider. Important competitors include Akamai and Fastly. And the largest cloud providers in the world – Amazon, Microsoft and Google – also operate CDNs.
But Cloudflare is considered a particularly good provider. “Cloudflare is undoubtedly a great company, with an excellent management team that is driving the development of new products at a fast pace,” summarized analyst Keith Weiss from the US bank Morgan Stanley.
Cloudflare is growing at a rapid pace
Analyst Axel Herlinghaus from DZ Bank even goes one step further in his analysis of the annual figures presented in February: “Cloudflare has ended a top year with top figures, accelerated growth and a strong outlook, with the latter for us – whether it’s buzzing at all levels Business – still ‘expandable’ appears.”
Cloudflare has already presented a forecast of revenue growth of 41 percent to 42 percent to $927 million to $931 million.
The company made $656 million last year. At the same time, however, it reported a net loss of $260 million. Cloudflare had announced that it would focus on rapid growth and not put profitability first. In the third and fourth quarters, however, the company reported a positive operating result (EBIT) earlier than initially announced.
Seifert said: “It is important to us that we do not burn any money.” Amazon is a role model for the further strategy. After a few years, the company managed to become profitable and, with a minimal profit, invested everything in growth instead of paying it out. Seifert: “As long as we see the opportunity to grow enormously fast, we will invest every additional dollar of profit that we make in our products.”
The manager has been CFO at Cloudflare since 2017.
Cloudflare has had a public exchange of blows with Amazon for years. Amazon is by far the largest cloud company in the world. Cloudflare had accused the company of abusing its dominant position.
The company makes it easy for its customers to move data to their cloud. Amazon, however, charges excessive fees to export the data from the cloud again when changing, Cloudflare criticized. “There is a big door in, but no door out,” Seifert criticized Amazon’s approach. The group rejects the presentation and defends its financing model.
Cloudflare stock has potential but is likely to remain volatile
Most recently, however, Cloudflare had lost a lot of its value on the stock exchange. In mid-November, the company still had a market capitalization of around $70 billion. Since then, the rating has fallen by around 50 percent. Seifert is still relaxed. The data of his company are solid. He was convinced that the slump in the stock market had nothing to do with a weakness in Cloudflare.
Analyst Herlinghaus also shared this assessment: “This had nothing to do with the first-class cloud core business, but is due to the changed valuation environment.”
>> Also listen: Cloudflare CFO Thomas Seifert on the Handelsblatt Disrupt podcast
Overall, most analysts think Cloudflare’s valuation should rise significantly. The average target price reported by analysts is $154, according to data from the S&P Global Market Intelligence service. Cloudflare’s stock is currently trading at around $114.
Cloudflare is already working on the next step to expand the business model. Currently, the company is focused on opening up cities with its server locations. “We have just launched the Cloud Office program, which we are using to bring our infrastructure into buildings,” said Seifert. Business customers can expect even higher speeds.
The future scenarios went even further. “There’s actually no reason why we couldn’t also have a SIM card that sits in a device.” Cloudflare still has some new ideas for future business models, announced Seifert.
More: Four reasons why companies should fear Russian hackers