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Comment by nickysielicki | Hacker News Reader

Down 6% after hours, for reasons that I don't understand.

Personally, I'm more-sure that Cloudflare will be around in 25 years than I am that Facebook will be around in 25 years. Their customers are real-valuable customers paying for a real-valuable service, and that's not going away anytime soon. Meanwhile, their serverless stuff is very cool and unique. I think their durable objects are going to go mainstream someday. They work on hard/interesting/real technology, that's gotta be worth something.

I predict that one day, we'll see a C somewhere in "FAANGM".

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The stock market is not about buying ownership in long-term stable, profitable companies, unless you zoom wwaaaaaaaaaaay out on the charts.

Day to day it's about riding hype up and jumping off before anyone else.

CISCO was a great example of this back in the day. https://www.fool.com/investing/2020/12/27/2020-incredible-st...

> The stock market is not about buying ownership in long-term stable, profitable companies

Good - CloudFlare has never been profitable once.

That's all of FAANGM. Their last year looked pretty good.

> Down 6% after hours, for reasons that I don't understand.

Not trying to be snarky, but this is how I feel about pretty much all AH movement after earnings, for any company. Do you usually not feel this way?

I think this is the most accurate way to feel about market movement. People who give you explanations might be right, but how would they even know? Stock narratives are post hoc divination a without much exploration of alternative explanations.

I tell myself that any explanation might be a neat story, but what evidence is there that isn’t just someone’s opinion? (Not much, usually.)

It pretty much comes down to how expected or unexpected the guidance and exceeds/misses are on the metrics of interest.

If you know that FB, GOOG, PINS are all having amazing quarters, you might see SNAPs price rise in advance of their earnings because if some other big ad/social network giants are doing well, surely SNAP will too!

Then there are truly amazing beats or misses by companies and the street tracks those as well.

A more recent example might be Lyft & Uber. Lyft actually came in at the top end of QoQ rev growth and cut losses well. Uber's options market and stock immediately reflected Lyft's earnings report even though Uber was still 24 hours away from reporting. Uber's report was good not great but the stock had already gained in the day prior and thus not much left to squeeze up.

Just my 2 cents on how some of these things happen

That's why you remain neutral and sell premium, especially on ER with insane volatility crush.

The stock has had a 25% run up to earnings in the past month. It's a classic buy the rumor sell the news.

Here's your opportunity to buy the dip.

and if it was up you would have said "new information that the market was not able to price in" or "the forward guidance was good" or just congratulate the leadership

And it would still likely be correct. The market reacts to news - not met expectations.

and useless for all existing investors and people trading off of predicted price movements

My feeling is that the price had risen expecting a more stellar result or bullish guidance. When the street didn't get that they took their profits and ran.

You can watch the same thing happen to CRM and ZM now in the days leading up to their next earnings call.

What does it mean “the street took their profits and ran”? Who did they sell the stock to?

To buyers who had placed orders way lower than what the stock was worth.

Folks like the OP who believe CloudFlare is a good long-term buy but weren't paying attention before the earning's announcement.

There's usually some subsegment of investors that believe that earnings are going to be really good, bid up the price beforehand, and figure they'll sell after earnings. If that group is smaller than the folks who see the earnings and figure it actually is a really good buy that they want to own, you get a stock pop after earnings. If the former group is larger than the latter, you get a stock drop. This cycle the former was bigger than the latter for CloudFlare. It's gone the other way both other cycles for CloudFlare and this cycle for other stocks. (Google and Disney, for example, got large after-hours pops after earnings.)

Sure but most volume is already institutional, and especially during after hours, there is nearly no retail activity.

So, if "the street" took their profits after the earnings release, a different part of said street was buying.

Traders to other investors. Usually Wall Street traders have some valuation model based on revenue. If the target isn't met, that reduces their model's price.

Some people are less sophisticated and will just buy CloudFlare because they want to buy into the company. It's also possible that the price just adjusts to the new level (though usually there is some volume at every pip)

Does Cloudflare have any defensible moat? If Google or Microsoft decided to muscle Cloudflare out of business tomorrow, what’s to stop them? In comparison, we already know that Google can’t take out Facebook.

The major Cloudflare products (namely the CDN, WAF, DDoS protection, DNS management, and even serverless workers) are already replicated in AWS, GCP, and Azure. AFAIK the main thing that draws people to Cloudflare instead is "it's easier to use than bloated AWS/etc." And while that might be a completely valid value proposition, I'm not sure if it's a long term winner, especially as more and more companies migrate to the big 3 cloud providers.

It reminds me a lot of Dropbox and the situation where for years Dropbox's value proposition was "yea OneDrive and iCloud provide the same service, but people like Dropbox because it is independent, unbloated, and simpler to use". But over time that's become less true, and as more and more companies move to using O365, they end up getting OneDrive as part of the deal anyway. And once you're already working in an environment with OneDrive, why continue using Dropbox?

I wouldn't call Cloudfront bloated. It is under featured if anything, the product has seen little change in the past few years.

However unlike Cloudflare it does support multiple origins with a IMO pretty simple to understand nginx like location x maps to origin b and location c maps to origin... This feature alone is one reason I stopped looking further into Cloudflare...

I don't dispute the point you're making, but Dropbox for my purposes is way ahead of OneDrive. In particular, OneDrive offers only "eventual sync," whereas in Dropbox, you change a file and it's quickly replicated on other systems. Also, OneDrive has a fixed ceiling of ~ 200K files per OneDrive. Dropbox allows you way more than that.

So, while I see your point that eventually OneDrive could displace Dropbox entirely, I believe that Dropbox still has plenty to offer at the moment.

But are you in the majority? Timmy is happy with Google Drive, OneDrive, DropBox or iCloud. He will pick whichever is cheaper and android/office 365/apple environment may weight in each specific case, what's drop box edge? The tech savvy may already go with a personal ftp server, aws, rsync, and other custom solutions.

I would like to see data, but from my pov, dropbox is only losing market.

I'd head onedrive was bad a 200k file limit?! I have 800k in google drive right now and no issues.

The thing that draws me to Cloudflare over AWS is AWS bandwidth charges. CF charge $20/mo for a basic business plan; fronting our domain with CF reduced our AWS egress bill by over $2500/mo.

Cloudflare is the "unlimited storage" of the CDN world. They are giving away investors money today with the hopes that down the road they can... something something.

In 3-8 years activist investors are going to realize that Cloudflare is the man-in-the-middle data collection point for a percentage of the internet and that a merger with $adnetwork would produce a money printing machine. A handful of "good guys" in engineering and management will be powerless to stop it when the time comes.

They’re cheap because they have to buy tons of ingress for their ddos protection product, and bandwidth is sold symmetrically at those volumes, so the egress is functionally free to them.

Here is another way to think about it: reset the Cloudflare bank account balances to $0 at the beginning of the month. They provide services and collect payments from customers. At the end of the month when bills come due, all the hand waving and "functionally free" in the world doesn't change the fact they spent more than they made.

It makes sense to use AWS/GCP offerings if you are already using many of their other services. Also it means you have a ton of cash to burn.

There are hundreds of thousands of companies that choose not to pay ridiculous price of AWS or not to use Amazon and Google at all - they use smaller providers, many of them manage their infrastructure themselves.

For them there is 0 reason to us CDN, DDoD protection etc from Google or Amazon. Cloudflare is one of the best choices for them. It makes sense even for AWS/Google clients that don't want to be changed millions for bandwidth like its gold or something.

> In comparison, we already know that Google can’t take out Facebook.

That's funny because in the late 2000s, people said that FB was doomed as soon as Google would decide to compete.

One thing that, while possible, would take time and be non-trivial is their network hardware distribution. They are have more compute locations globally than Amazon, and it's not close. And one of the main focuses Cloudflare has worked hard at doing is driving down peering prices and offering IX services to get into competitive centers.

Google could replicate this, as could Amazon (that would be more my bet personally), but Cloudflare has no vendor lock allowing customers to use any infra. Google could do the same, but it would almost always have better and more robust support on GCP, and that would create a disconnect. Same for Microsoft and Azure. They're incentivized to vendor-lock you into their compute services. Cloudflare isn't.

But, there is room for multiple competitors across the space. For instance Akamai is still a dominate player in the CDN space and Fastly has been strong. Luckily there are plenty of businesses available that they all can eat. Google muscling in might hurt Cloudflare down the line, but it wouldn't necessarily reduce the staying power of Cloudflare. Again, it's hard to achieve and undo their physical network distribution.

I don’t get why people still say FAANG, even. Netflix is doing great and has some great tech, but these days it seems like they’re way more of a TV megastudio with a really great engineering dept than a tech giant like Apple, Amazon, Facebook and Google.

Sure, they’re no slouches, but it feels like any acronym that includes Netflix needs to also include Microsoft for sure. In fact, by the time you get to Netflix I feel like you’d have to have included Salesforce, Tesla, maybe even Twitter, and probably half a dozen names that aren’t coming to me right now.

Most times I see faang it's in the context of tech jobs, and Netflix is notorious for its wages - just my perspective as an outsider in Australia...

Much of that's historical reputation, though. Netflix actually underpays compares to some of its peers in the valley now. As of early 2020 my perception (somewhat based on levels.fyi data, as well as personal & friends' salary data) is that the ordering is roughly FaceBook > Snap > AirBnB > Google > Lyft > Stripe > Uber > Netflix > Microsoft > Apple > Amazon > (old-line tech like IBM, Oracle, HP, Juniper, Cisco). This was pre-COVID and tends to move around a lot with stock prices though.

I think if you compare based on sign-on offers offered to candidates with comparable experience, rather than compensation with multiple years of differential stock movement factored in, you get an ordering more like:

Snap > Netflix > Pinterest > (Airbnb, Uber, Lyft) > Facebook > Google > Amazon > Apple > Microsoft. Stripe isn't publicly traded, but if we took for granted their RSU valuation without any discount, it'd be up there with Netflix.

Lack of refreshers may knock Netflix down one or two spots, I suppose, but they do have a practice of giving substantial raises for performance, so maybe not.

After all, the interesting thing to a prospective candidate isn't how much money the engineers working at those companies are making now, it's what sort of offer(s) they can expect.

(Also, all cash comp > 50%+ RSU, imo, even if you bake in an implicit growth factor to equity. The volatility should probably carry a significant penalty.)

I haven't really thought about it much, Netflix engineering hype seems to have died down? Or maybe I'm just oblivious. They seem more regular than they used to be? All their open source was hyped up, I even got stuck using some of it because of people following fads.

And yeah agree Twitter always seems to be missing from engineering hype. I guess their open source and engineering out in the open is a shell of what is was.

Tesla pays low, software isn't the main focus. Salesforce is a b2b company, that i don't think most people actually like? Do they pay like other companies or have unusual or interesting software engineering problems?

I'm fond of "MAGA" for "Microsoft, Apple, Google, Amazon". That's the 4 largest tech companies on the market, and they're the ones really making America great again.

that is quite the synchronicity.

that rebrand may be daunting but i support it.

If you throw in Facebook, you can make it

F MAGA

I chuckled

Well, people say FAANG mostly due to the high valuations and exponential growth. Another popular acronym is FANGMAN: Facebook; Apple; Netflix; Google; Microsoft; Amazon; Nvidia.

Net loss is increasing, operating expenses increasing, cash flow looks bad. Not sure there is anything to like about this stock other than speculation. And it's already a 12yo company

Worth $28B and only have revenues of $450M a year, that should explain, this compagny is overevaluated.

The whole market is overvalued. It has become a kind of bitcoin. Fundamentals don't matter anymore. It's positioning and volume.

> The whole market is overvalued.

This is actually fake news and I'll tell you why.

Bond yields have never been this low. No other alternatives to park capital if you are seeking yield/return.

The market is actually correctly valued if you take M2 money circulation/supply into account as well. Something like that. I read it on r/investing. You have to sift through the weed/penny stock posts to find the good information.

I've been thinking about this for a while. Let's say that the USD is indeed 40% devalued and the market melted up significantly as a result of this -- does this not make "value" stocks a massive bargain? That is, if something was at a PE of 10 before the money printing, has maintained reasonable fundamentals, and remains at a PE of 10, isn't it stunningly undervalued if the same money printing is used to justify "growth" stock rallies?

It depends on how inflation affects the business. A lot of value companies don’t really have pricing power, and will likely have to eat some of the inflation.

Edit: but yes. If we see inflation coming, it’s better to have a dollar now than a dollar in the future, so I guess that should favor value. Hm. Investing is tricky.

If we see inflation coming, it's complicated for value vs. growth. On one hand, value benefits because they are usually more debt-laden companies and the debt is debased more over the years, which is generally good for value.

On the other hand, if interest rates are the same (basically 0; dollar now is only better if you can immediately gain interest on it), then inflation isn't great for value because the growth companies have most of their dollars to be made in the future where it's inflation-adjusted.

I used to care more about PE, but I came to realize that stock valuations are largely about near future expectations. To accurately capture this, you can't just look at the velocity of revenue, but the acceleration as well.

That said, I currently think "value" stocks are out of fashion because of FOMO of the high-PE stocks.

*Current revenues of $450M a year. However, $28B for revenues of $5b a year, 10 years out? Undervalued with ZIRP.

I could see Cloudflare grow at least another 4X in the next 4-5 years without any other product. That put it at ~2B Revenue.

That isn't too bad. And considering they are still innovating and working on products that directly competes with AWS and EC2, all of a sudden $28B valuation isn't so crazy. AWS is $40B revenue alone and still growing 33% YoY. The whole Cloud industry still have room to grow with no ceiling in sight.

While the whole stock market is definitely bubbling at the moment. I wouldn't say Cloudflare is overvalued on its growth factor.

> Down 6% after hours, for reasons that I don't understand.

I think the street was hoping for a rosier outlook on profitability next quarter.

Revenue is $125m this quarter, about 50% over last year. P/S is around 60, which might be too high to many people and therefore the correction.

Before 0% interest and euphoria, 20-40x was a good SaaS NTM/Revenue multiplier. SNOW is upwards of 200x at this point I believe

The valuation is based on hyper-aggressive growth expectations that compound over time. If you shave even a few percent off the growth projections stock takes a hit.

It’s hard to switch your CDN provider in the short term, but it’s feasible that Amazon, MSFT or Google could bump them out of every large enterprise in the long term.

> It’s hard to switch your CDN provider in the short term, but it’s feasible that Amazon, MSFT or Google could bump them out of every large enterprise in the long term.

That's what I'd worry about, too: for a large company, there's a fairly large cost to dealing with each new vendor. Once Amazon, Microsoft, Google, etc. has a CDN which is competitive for your needs someone is going to ask whether the extra benefits are greater than the cost of managing a contract, security, training, etc.

So next step for cloudflare is to provide a cloud.

They’re already starting that with Workers & similar but it’s a LONG way from what enterprise customers want. Even if they have some modern stuff they’ll almost inevitably ask for the ability to run some old Windows 2008 server they’ve been meaning to get rid off.

It’s a huge investment. Look at how hard it’s been for Google and Oracle.

> Down 6% after hours, for reasons that I don't understand.

A stock doesn't go up or down based on whether it does well or poorly, it does so based on how it performs relative to the expectations that were already priced into it. If it does well, but not as well as the market was expecting, then it will still go down.

The stock is up 400% from a year ago. Is CloudFlare really 400% more valuable than a year ago?

No that's why you buy the stock a year ago. Because it was undervalued by the market.

No argument there but my response was to the rhetoric that falling 6% after hours was nonsense.

If the last few years should have thought us anything it's that stock prices don't matter. The only time they become material to the business is if they urgently needs to raise capital, and are for some reason unable to access capital markets (unlikely in the current era of quantitative easing).

They are on the other hand a very easy indicator of sentiment around the business and therefore attract way more attention than they deserve.

Cloudflare like many other companies is pretty volatile. 6% is nothing for them. It happens from time to time without any reason.

Revenue is up 50%, but profit margin is down a bit, 76.6% in 2020 versus 77.9% in 2019. Plus, the upper range of their expected 2021 revenue is ~$593 million, which would be about 40% revenue growth if I did that math right ($431 * 1.38 = $594). So less growth, decreasing margins = sell I guess?

Genuine question, why are you looking at the gross profit margin? .

I figure more margin is better than less, and it decreased from 2019 to 2020. Is that not a valid way to look at gross profit margin?

It definitely is.

I was just asking why are you focusing on gross profit margin and not opex or net margin.

I imagine that insiders are allowed to sell after earnings releases. My bet is there’s a blackout window that opens after earnings and insiders exercise their options, causing selling pressure. Just a guess though. It sure how to validate it.

What? There's more chance that Facebook will be much more part of your life in 25 years than Cloudflare. Internet technology comes and go, social networks are here to stay. More than that, VR is going to boom in the next 10 years.

> Internet technology comes and go, social networks are here to stay.

Like Google+, Friendster and Myspace?

Google+ was never here to stay, it came after Facebook and never grew.

I'm not sure what Friendster is, I guess it was never popular internationally?

Myspace got eaten by other social networks, so I'm not sure what you're trying to disprove?

Did any of them survive? Nope. Just because Facebook survived a decade doesn’t mean it will survive another.

Social networks != Facebook

That I don’t disagree. I thought you were talking about one particular social network.

Cloudflare seems like a promising stock, but the dual-class shares really put me off. It doesn't even look like Class B is even traded; at least for, say, Google, you can buy their Class B stock.

You can't buy class B google stock. It's owned solely by Larry Page, Sergei Brin, and a handful by Eric Schmidt and others. They're not traded on public markets and give Page and Brin alone 51 percent of all voting rights. Furthermore, if any class B shares are sold, they're converted to class A and lose their 10x voting power.

Interesting, I've always seen two stocks listed (GOOG and GOOGL) but upon further inspection, they are class A and class C. I assumed one was voting and one wasn't but i guess not!

You assumed correctly, but the privately held B class gives more votes. 10 per share to A's 1, iirc.

Class A shares (GOOGL) have one vote, Class C shares (GOOG) have 0 votes

Google public shares are class A and class C. And because the world is upside down, the class C shares which don't vote trade at a slight premium.

The stock ran up close to 20% in the last month. An even stronger earnings beat than reported was already priced in.

Even after the 7% decline, it's still higher than 1 month ago.

> Down 6% after hours, for reasons that I don't understand.

Well time to buy some on Friday near market close then before it reaches >$100.

It's a mantra of stock trading to buy on rumor and sell on news. This report was likely already priced in based on estimates.

> Down 6% after hours, for reasons that I don't understand

"Buy on the rumors, sell on the news". Sell on the news part I think

Three. Day. Rule.

Care to elaborate?

Wait 3 days to see the real price as a result of earnings.

this is typical behavior of stocks, even with stellar earnings many of them go down after hours, go checkout Corsair

MACFANG has a nice ring to it.

Better find a way to add the C In "GMAFIA".

CAMFANG?

FC'G A MAN

cloudflare has been talked about on WSB and /r/stocks for months. it's probably pumped a good bit already and this was a reality check.

To be concerned with any noise associated with WSB or others is dependent on your time horizon. If Im buying Cloudflare because I plan to own it in 5-10 years, that is likely moot. If you want to get rich quick, its a bet like any other.

>I predict that one day, we'll see a C somewhere in "FAANGM".

Honestly, this is such a stupid game. The original acronym was FANG. It included Netflix which at the time it was coined was orders of magnitude smaller than Apple, the acronym didn't include Apple, and now it has about 10 different deriviations which does and does not include Netflix (whose core business has been invaded by not only Apple and Amazon but also Disney and HBO), but does include Microsoft - which isn't whilst very successful, isn't dominant anywhere.

The whole value of FANG was that it spelt out the word fang - beyond that, it was completely devoid of meaningful value. It works in the same way that a big red button Jim Cramers' desk works. It doesn't.

FAANG was originally about companies that paid massive engineering salaries, which is why Netflix was included and Microsoft wasn't.

No it wasn't. Cramer coined it due to just FANG (not apple) being totally dominant in their markets and having meteoric rises in stock prices at that time.[0]

[0]https://en.wikipedia.org/wiki/Big_Tech#FAANG

I stand corrected, thanks for the reference!

It’s funny (but not unexpected of course) to see the list of variations on Wikipedia.

In Japan they call it GAFA, missing from this list.

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