Despite investor worries about growth that sank its stock late last week, Cloudflare already has all the pieces it needs to achieve major acceleration in its revenue growth in coming years, according to co-founder and CEO Matthew Prince.
The company is poised to reach an annual revenue run rate of $5 billion within five years on the strength of its existing products and services, Prince said during the company’s recent quarterly call. Cloudflare, which now offers products and services across web performance, cybersecurity, and infrastructure, just hit the $1 billion annual revenue run rate during the last quarter. The projection would put Cloudflare at a $5 billion run rate by the end of 2027.
Reaching $1 billion in annualized revenue was a feat that took Cloudflare 13 years to accomplish, but the new forecast — which factors in promising emerging opportunities such as its R2 object storage service and zero-trust security portfolio — implies that it may not be long before Cloudflare is adding that much revenue in a single year.
Cloudflare is "on track" to pull off that feat, wrote Shaul Eyal, managing director at Cowen, in a note to investors following Cloudflare’s third-quarter report last Thursday.
"The company is executing well, in our view, and believes it has penetrated less than 1% of a $115B market for its existing portfolio," Eyal wrote. Nonetheless, Cloudflare’s stock price plunged 18% following the quarterly report, closing at $41.09 on Friday, in part due to concerns about the impact of the economic slowdown.
Regardless of the current economic conditions, “we can get to $5 billion of revenue in the next five years with the products that are in-market today," Prince said. The projection doesn't take into account any future acquisitions or new product introductions, he said.
Crucially, this growth is also not dependent on taking significant share from the cloud hyperscalers such as AWS, Microsoft Azure, and Google Cloud, he said during the call on Thursday.
"Our strategy is not to completely recreate every single thing that the hyperscalers do," Prince said. Instead, the company is looking to pick areas where it makes sense to compete in terms of developer services, like on object storage with the Cloudflare R2 service. "The hyperscalers don't have to fail for us to succeed,” he said.
Object storage is a sensible area for Cloudflare, Prince said, because the company can leverage its global network to offer low-latency storage for applications at a cheaper price than the competition. For certain applications, an organization might want to make certain parts of the application "as fast and as scalable and as reliable as possible. And so those parts can live inside of Cloudflare," he said.
While the primary goal is "to be the best network" that's available to customers, "there will be places at the margins where we absolutely will compete with [the hyperscale cloud platforms]," Prince said.
The hyperscalers don't have to fail for us to succeed.
"I think increasingly we're seeing that companies are able to build entire applications using the Cloudflare stack in a way which is much more modern and much more reliable," he said. "But we're never going to be the place that you can lift-and-shift SAP HANA — that's just not what we're building."
R2, which became generally available in late September, aims to stand out from other cloud storage services such as Amazon S3 in part by not charging data-egress fees. Cloudflare’s storage services also include a serverless option (Workers KV) and a storage service aimed at collaborative applications (Durable Objects).
Meanwhile, Cloudflare's first database product, D1, is expected to become available in open beta by the end of the current quarter.
In cybersecurity, where Cloudflare has been positioning itself to become a central player in enterprise network security with a focus on enabling zero trust, the company has been continuing to see "very strong" win rates against competitors such as Zscaler and Palo Alto Networks, Prince said on Thursday.
"The challenge, and the thing that I think we are continuing to work on, is just [getting] increased awareness in the market," he said.
While many customers know Cloudflare for its web security services, such as distributed denial-of-service mitigation and web application firewalls, zero-trust services are a newer area for the company. The promise of zero trust is to ensure that only legitimate users are able to access corporate applications and data, a growing priority for enterprises that realize traditional network security tools such as firewalls aren't sufficient in the era of distributed workforces.
Cloudflare’s portfolio of zero-trust services include secure application access, also known as zero-trust network access, as well as browser isolation and secure web gateway.
A major new executive hire should be helpful when it comes to raising awareness about Cloudflare's zero-trust security services, Prince said. The company announced Thursday that Marc Boroditsky, formerly the chief revenue officer at Twilio, has joined Cloudflare as president of revenue. Boroditsky succeeds Cloudflare CRO Chris Merritt, who has stepped down.
At Twilio, Boroditsky initially served as vice president for authentication, and before that he held the role of vice president of identity management at Oracle. With this background in identity and access management, Boroditsky “really understands that market, and I think he's going to help us increase the awareness [on zero trust]," Prince said.
All in all, Boroditsky is "uniquely qualified to take us to our next milestone," Prince said, pointing to Boroditsky's track record of growth at Twilio. Boroditsky was named CRO at Twilio in July 2020, and during his two years in the role, Twilio's quarterly revenue more than doubled to $983 million from $448 million.
Going forward, Cloudflare will continue to focus on using its broad portfolio of products to its advantage, Prince said, with its "land and expand" strategy of getting a foothold into an enterprise with one product and then expanding over time.
Cloudflare now counts 32% of Fortune 500 enterprises as customers, and "I see a clear path to nearly every Fortune 500 company using us for something in the next five years," Prince said. "A big part of Marc and the team's job, then, is to expand those relationships, and then get them to use us for everything."
