San Francisco Since the beginning of the Russian invasion of Ukraine, an app from the USA has been ranking at the top of the download charts in Russia. The application called 1.1.1.1 from the company Cloudflare from San Francisco helps to bypass Internet controls. “We want information to continue to be freely accessible,” Cloudflare Chief Financial Officer Thomas Seifert told Handelsblatt. The company is holding on to its business in Russia.
Ukraine thinks this is wrong. Deputy Prime Minister Mykhailo Fedorov criticized the management of the start-up, valued at about $ 35 billion, 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 urged.
The reason for the special attention to Cloudflare is the company’s business model. The app 1.1.1.1 is just a by-product, which is now proving to be especially useful in Russia. Cloudflare’s main business is a network of servers in more than 270 cities around the world. As a result, the company offers its customers that their websites can be accessed faster.
At the same time, the company also promises to protect the pages of its customers from hacker attacks. Cloudflare is at the same time an accelerator and a shield that fends off unwanted requests and attacks before they reach customers.
“We fight off 82 million to 85 million attacks a day. That’s an unlikely number,” Seifert said. Even before the start of the Russian attack in Ukraine, Cloudflare had already protected many organizations in Ukraine with its service. “Before the invasion, we had put a large part of the critical infrastructure in Ukraine behind our network. With government websites, critical infrastructure, media, a number have been added“” said Seifert.
Cloudflare: app should give Russians access to the Internet
In Russia, the company’s strategy looks different, Seifert said. “We are not protecting a large critical infrastructure in Russia. Our turnover in the country is minimal. It’s really about giving the population access to the Internet.” For this, Cloudflare continues to offer the app 1.1.1.1 in the country.
According to its own data, Cloudflare handles more than ten percent of global Internet traffic. The concept of Cloudflare is called Content Delivery Network, or CDN for short.
Cloudflare is not the only provider. Major competitors include Akamai or Fastly. And the world’s largest cloud providers – Amazon, Microsoft and Google – are also collecting CDNs.
But Cloudflare is considered a particularly good provider. “Cloudflare is undoubtedly a great company, with an excellent management team that drives the development of new products at a high pace,” said analyst Keith Weiss of 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 peak year with top figures, accelerated growth and a strong outlook, the latter of which still seems ‘expandable’ for us – regardless of the booming business at all levels.“
Cloudflare has already provided a forecast of revenue growth of 41 percent to 42 percent to $ 927 million to $ 931 million.
Last year, the company raised $656 million. 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 money.” Amazon is a role model for the further strategy. The company had managed to become profitable after a few years and had invested everything in growth with a minimal profit, instead of paying it out. Seifert: “As long as we see the opportunity to grow incredibly fast, we will invest every additional dollar of profit we make in our products.“
With Amazon, Cloudflare has been delivering a public exchange of blows 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. However, Amazon is charging excessive fees to export the data back from the cloud if it changes, 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
Recently, however, Cloudflare had lost a lot of value on the stock exchange. In mid-November, the company still had a market capitalization of about $ 70 billion. Since then, the valuation has fallen by around 50 percent. Nevertheless, Seifert is relaxed. His company’s data is solid. The slump in the stock market had nothing to do with a weakness of Cloudflare, he was convinced.
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.“ He saw the slump as an entry opportunity, but warned of high volatility in the short term.
Overall, most analysts expect Cloudflare’s valuation to rise significantly. On average, the price target reported by analysts is $ 154, according to data from the S&P Global Market Intelligence service. Currently, Cloudflare’s stock stands at around $114.
Cloudflare is already working on the next step to expand its business model. Currently, the company is focused on developing cities with its server locations. “We have just launched the Cloud Office program, with which we are bringing our infrastructure into buildings,” Seifert said. This allows corporate customers to expect even higher speeds.
The future scenarios went even further. “There’s really no reason why there couldn’t also be a SIM card from us sitting in a device.” Cloudflare still has some new ideas for future business models, Seifert announced.
