TSP Weekly Tech Stock Update—Nov 16, 2024
This Week: PANW/SNOW earnings previews, AVGO's big Q3 buyers, NET ramps up enterprise sales, OpCo likes NTNX, NOW's new agents, TEAM's new AI offering, Apple's smart home push, HUBS 52-wk high & more.
Hello from Rob…
—Shares of Cloudflare (NET, $89.77) have gained 32% since the beginning of June, when I wrote about the stock’s underperformance despite the company’s continued strong fundamentals.
In Q3, the cloud platform provider delivered top-line growth of 28% and free cash flow of $45.3 million (11% margin). Total revenue of $430.1 million beat the consensus estimate by 1.4%, while EPS of 20 cents topped the consensus by two cents.
Cloudflare in Q3 added a record 219 new large customers (paying more than $100k a year), bringing the total large customer base to 3,265, up 28% year over year. These large accounts represent 67% of total revenue. Cloudflare also noted that it now has 35% of the Fortune 500 as paying customers.
On the Q3 earnings call, Cloudflare CEO Matthew Prince praised Mark Anderson, named the new president of revenue in February, saying he has brought discipline and focus to the sales team.
Sales productivity has continued to improve and is now back around the best levels seen in 2022, according to Prince. He said Q3 “felt like we hit the inflection point in the rebuild of our go-to-market team.”
Led by Anderson, Cloudflare has shifted more account executives to enterprise sales with higher quotas and the ability to sell bigger deals.
More from Prince:
Starting in 2025, we expect the number of ramped reps will begin to increase meaningfully again, but with a shift toward more real sluggers who can bring in more enterprise deals.
To make it tangible, nearly 70% of new sales hires this year are in the enterprise segment compared with 40% on average over the prior two years.
As you may recall from Mark's presentation at Investor Day earlier this year, momentum in ACV growth is a product of sales capacity times productivity. We've made solid improvements in productivity.
The good news is that with our team in Europe, which has seen the most consistent sales productivity over the last eight quarters, it had sales productivity increase by 22% year over year in Q3. They are running the playbook that we're running now in North America. It's a smaller team, so it's faster for us to be able to make those changes, but that's worked. Same thing in Asia, where they saw a sales productivity bump of 40% over the past three quarters. And they've had the highest AE productivity of any region this year.
Now we're about to start to see the capacity of our sales force reaccelerate. I'm excited to be coming out the other side of our go-to-market transformation, and we expect these initiatives will deliver improving ACV momentum in the coming quarters.
*Inside This Issue: Monday Shares Sell Off Following Q3 Report
—Paid subscribers will receive the December 2024 PDF of Tech-Stock Prospector (TSP #274) via email on Tuesday, December 10.
—Paid subscribers have access to the TSP Market Overview and TSP Portfolio Updates sections inside this issue.