NET, Cloudflare, Inc.
Cloudflare is a leader in this Connectivity Cloud category.
Read top to bottom, the owner's questions in the order an owner asks them: what the business is, whether the record holds, whether it survives and is any good, and what you would be paying. New to the questions? Start with the Method.
The business in brief
read the 10-K →What this business is and what moves its needle, drawn from its own SEC filings. The lens to bring to the numbers below, not the answer.
- What it is
- A software business, earning high margins on code once it is written.
- Situation
- Unprofitable growth. no operating profit yet, judge it on revenue growth, gross-margin trajectory, cash burn and runway, never on an earnings multiple. Distress / turnaround. thin interest coverage or cash-burning operations against real debt, the first questions are liquidity and the maturity wall, not growth.
- What moves the needle
- Retention and the cost of growth. What decides it: whether customers expand rather than churn, how much of revenue is spent winning the next one, and whether software's gross margin holds as it scales. On its own account, the filing leans hardest on customer concentration, set against the numbers in what the filing emphasizes, below.
- Is it a good business?
- Return on capital has rarely cleared the cost of capital (median −20%, above 15% in 0 of 7 years). Owner earnings, the cash-based check, have been thin too. This is price-taker territory, where the balance sheet and the cycle matter more than any multiple; the 10-K is where you look.
No model wrote a word of this. Every line is arithmetic on the company's filings, shown in full in the sections below; the judgment is yours.
Where the money comes from
read the 10-K →51% of revenue comes from outside the United States.
- United States49%$1.1B
- EMEA28%$599M
- Asia Pacific15%$330M
- Other8%$167M
From the segment footnote of the company's own 10-K. Shares are of total revenue; the profit bar shows each segment's share of segment operating profit, before unallocated corporate costs.
The record, 2017–2025
realized figures from each filing, no estimates| 2017’17 | 2018’18 | 2019’19 | 2020’20 | 2021’21 | 2022’22 | 2023’23 | 2024’24 | 2025’25 | TTMTTMMar 2026 | |
|---|---|---|---|---|---|---|---|---|---|---|
| RevenueRevenue | $135M | $193M | $287M | $431M | $656M | $975M | $1.3B | $1.7B | $2.2B | $2.3B |
| Gross marginGross mgn | 79% | 77% | 78% | 77% | 78% | 76% | 76% | 77% | 75% | 73% |
| Operating marginOp. mgn | −7.2% | −44.1% | −37.6% | −24.8% | −19.5% | −20.6% | −14.3% | −9.3% | −9.6% | −9.3% |
| Net incomeNet inc. | ($11M) | ($87M) | ($106M) | ($119M) | ($260M) | ($193M) | ($184M) | ($79M) | ($102M) | ($87M) |
| EPS (diluted)EPS | $-0.04 | $-0.29 | $-0.35 | $-0.40 | $-0.83 | $-0.59 | $-0.55 | $-0.23 | $-0.29 | $-0.25 |
| Owner earningsOwner earn. | ($16M) | ($69M) | ($82M) | ($74M) | ($28M) | ($20M) | $140M | $195M | $287M | $321M |
| Owner earnings marginOE mgn | −11.8% | −35.7% | −28.6% | −17.1% | −4.3% | −2.1% | 10.8% | 11.7% | 13.3% | 13.8% |
| ROICROIC | — | — | -15% | -12% | -20% | -38% | -22% | -14% | -32% | -29% |
| Cash & investmentsCash+inv | — | $25M | $139M | $109M | $314M | $204M | $87M | $148M | $944M | $932M |
| Net debt / (cash)Net debt | — | ($25M) | ($139M) | ($109M) | ($314M) | ($204M) | ($87M) | ($148M) | ($944M) | ($932M) |
| Book value / shareBVPS | $-0.21 | $-0.38 | $2.42 | $2.73 | $2.60 | $1.91 | $2.29 | $3.06 | $4.19 | $4.33 |
Owner’s Scorecard
Will it survive?
- Can it pay its interest? -23.6×Does not cover its interestOperating income ($207M) ÷ interest expense $9M
A full year of operating profit didn't cover the interest bill. This is the zombie zone: the business depends on refinancing, asset sales, or forbearance to service its debt.
- Debt-freeNo interest-bearing debt reported
The business doesn't depend on lenders, the strongest position to negotiate, wait, or weather a bad year from.
- Debt, net of cash +$944MNet cash, debt-freeCash $944M − debt $0
Cash and short-term investments exceed every dollar of debt by $944M, on net the company owes nothing, and can act from strength when others can't. Net debt is the leverage figure that matters; the gross ratio above ignores the cash already set against it. Strategic or illiquid investments aren't counted here.
- TightDSO 64 + DIO 0 − DPO 56 days
Days cash is tied up between paying suppliers and collecting from customers. Lower is better; a long cycle means growth itself eats cash. (Little or no inventory, a services / asset-light model, so the inventory leg is ~0.)
Is it a good business?
- Below averageNOPAT ($164M) ÷ invested capital $516M (debt + equity − cash)
The rate the business earns on the money tied up in it, Buffett's north star, because over time a stock tracks the ROIC beneath it. Above ~15% sustained hints at a moat; below ~8% the company may destroy value as it grows. Asset-light businesses (R&D expensed, little capital) read artificially high, pair this with Owner Earnings.
- SolidOwner Earnings $287M = operating cash $603M − capex $316M
What an owner could take out without starving the business. That's 13% of revenue. Treating stock comp as the real expense it is (less $451M of SBC) leaves ($164M). Honest caveat: capex here blends maintenance and growth, so steady-state Owner Earnings may run higher (see capex vs. depreciation).
- Loss, but cash-generativeNet income ($102M) · cash from operations $603M
The company reported a net loss, so a conversion ratio isn't meaningful. What matters then is whether operations still threw off cash, here, they did.
How is the cash used?
- Reinvests most of itDividends + buybacks $0 ÷ Owner Earnings $287M
Of $287M Owner Earnings, $0 (0%) went back to shareholders, $0 dividends, $0 buybacks. Returning most of it signals a mature cash machine; reinvesting most could mean a long runway, or empire-building. The split doesn't say which; the return earned on it (see ROIC) does.
- Investing or harvesting? 1.66×ExpandingCapex $316M ÷ depreciation $190M
Descriptive, not a grade. Above ~1× means investing faster than assets wear out (growth, or, sustained for years, today's earnings carrying less depreciation than tomorrow's will). Below means spending less than it's wearing out (efficiency, or a melting asset base). The ratio won't tell you which; the filings will.
Durability & moat, 2017–2025
A moat is a high return that doesn’t fade, reinvested at high returns. Here is what the record says, judgments, not another chart of the numbers.
- Profitable years 0 of 9
Lost money in 9 year(s), look at what happened there before trusting the average.
- Operating margin −7% (FY2017) → −10% (FY2025)
Margins slipped over the record, competition or costs are biting in.
- Reinvestment, incremental ROIC returns capital
The capital base barely grew: this business returns cash through dividends and buybacks rather than reinvesting. Judge it on the cash returned, not on compounding.
- Worst year 2018 · −44.1% op. margin
Operations went underwater in 2018, understand why before trusting the good years.
Solvent is not the same as cheap; growing is not the same as good. These are vital signs, not a verdict, the judgment is yours, and the filing is one click away.
How the cash was used, 2017–2025
Over the record, the business generated $1.3B of operating cash, and how management split it is, as Buffett insists, the job that matters most. Here it reads as a reinvestor, most operating cash is plowed back into the business.
- Reinvested$996M · 75%
- Buybacks$747K · 0%
- Retained (debt / cash)$333M · 25%
It reinvested $996M (75%) back into the business and returned $747K (0%) to owners, $0 in dividends, $747K in buybacks.
Buybacks are gross of stock issued to employees; net of that, the real return to owners is lower (see Management & pay). And the mix alone doesn't grade management, what matters is the return earned on the dollars reinvested (see incremental ROIC in the durability report).
Management & pay
read the proxy →Two questions Buffett actually asks about pay: is stock compensation, a real expense, whatever the income statement pretends, quietly large, and is the top wildly out of line with the floor. He's no populist about it; he just wants pay that's rational and earned, and comp committees that aren't lapdogs.
- CEO pay ratio387:1
What the chief earns for every dollar the median employee makes, per the 2026 proxy. A high ratio isn't proof of anything, some businesses are genuinely top-heavy in scarce skill, but a runaway figure is where Buffett starts asking whether the board is doing its job or just keeping the chair company.
- Stock-based compensation$451M
The slice of the business handed to employees in shares this year, 21% of revenue. Buffett's oldest accounting fight: this is compensation, compensation is an expense, real whether or not the headline earnings admit it. And note the trap, the cash-flow statement adds SBC back, so the operating cash, and the owner earnings drawn from it, are flattered by exactly this amount; counted as the cost it is, what an owner keeps is lower.
Graham’s defensive-investor test
2 of 5 metGraham gave the defensive investor seven numerical criteria in The Intelligent Investor. Here they are, run mechanically on the filings, his framework, not our verdict. Meeting them is a floor of safety, not a reason to buy; missing one is no veto, since many fine modern businesses fail his strictest liquidity tests by design. The worth is in seeing exactly where a company stands against the canon, every number sourced.
- Adequate size PassRevenue ≥ $2B · $2.2B
Big enough to weather a storm. Graham's 1972 floor was ~$100M of sales (≈ $700M today); we use a $2B revenue line as a conservative modern stand-in.
- Strong liquidity NearCurrent ratio ≥ 2× · 1.98×
Current assets at least twice current liabilities, near-term bills covered without touching the business. Strict by design: many cash-rich modern firms run leaner and miss it, holding their cushion in longer-dated securities.
- Conservative debt PassDebt ≤ working capital · $0 vs $2.3B WC
Graham's rule that borrowings not exceed net current assets. Capital-heavy and buyback-heavy firms routinely fail it, read it next to interest coverage, not alone.
- Earnings stability MissA profit every year (9-yr record) · 9 loss years
Graham wanted earnings in each of the past ten years, the stability a defensive owner leans on.
- Dividend record MissUninterrupted dividends · none paid
An unbroken dividend was Graham's mark of durability. He wanted twenty years; the filings show about ten, and a single suspension breaks the streak. Non-payers, many fine modern compounders, fall outside his defensive net by design.
- Earnings growth —Earnings +33% over the record · —
Earnings were negative early in the record, a growth rate isn't meaningful.
- Moderate price —P/E ≤ 15 and P/E × P/B ≤ 22.5 · decided by the price
Graham's valuation gate, the wall he kept between a sound business and a sound investment. Earnings are $-0.29/share and book value $4.19/share. Enter a price in “What the price implies” just below for the P/E, P/B, and whether it clears. But this is the rule Buffett outgrew: there's no hard P/E law, and a wonderful business can deserve a far richer multiple if the thesis holds, treat it as the bargain-hunter's floor, not a verdict on the price.
Graham would be the first to say a checklist is a starting point, not an answer. These are his defensive, bargain-hunter's tests, the cigar-butt lens. Buffett and Munger grew past it, paying fair prices for wonderful businesses; that lens lives in the moat and owner-earnings work above, and both still matter. Clearing Graham’s tests earns a closer look; failing them earns harder questions, not a dismissal.
What the price implies
reverse-DCFA price is the one input we don't pull, you bring it. Type today's close (read it off any broker or quote site) and see the owner-earnings growth you'd have to believe to justify it, set beside what Cloudflare, Inc. has actually delivered. Nothing is stored; the number stays in your browser.
Enter a price above to run it.
Graham capped the multiple at 15×; Buffett and Munger let that rule go, a wonderful business can deserve 50× if the thesis holds. Read it as the bargain-hunter's floor, not a ceiling on good sense.
The discount rate is your interest rate, what a dollar years from now is worth today, anchored to the long-term Treasury yield (~4–5% today, plus whatever premium you want for risk). Drag it toward the risk-free rate and watch how much growth the price suddenly “needs”: interest rates are gravity on valuations.
Owner earnings $321M on 353M diluted shares; net cash $932M. This is a lens, not a price target, it says what you'd have to believe, not what the company is worth, and it runs on one year of (noisy) owner earnings at assumptions you can see and change.
What the filing emphasizes, FY2025
read the 10-K →Each year a 10-K must name what could go wrong, in the company's own words. Here are the ones Graham and Buffett would stop on, each set against the figure from the same filings that bears on it, anchored to a period you can find in the record above. We point; the judgment is yours.
- Customer concentrationMD&A
Who the revenue leans on. When one buyer is a large slice of sales, that buyer holds the pricing power, and its troubles become the company's.
“International markets represented 51%, 49%, and 48% of our revenue in the years ended December 31, 2025, 2024, and 2023, respectively, and we intend to continue to invest in our international growth as a strategy to expand our customer base around the world.”
From the recordRevenue exposed (TTM)$2.3B - Pricing power & competitionMD&A
Whether the company sets its price or takes it. Durable pricing power is the surest mark of a moat; price competition is the surest mark there isn't one.
“The markets for our network and products are intensely competitive and characterized by rapid changes in technology, customer requirements, industry standards, and frequent introductions of new, and improvements of, existing products.”
From the recordOperating margin−9.3% now (TTM), off a −7.2% peak (FY2017) - Supplier & input dependenceMD&A
A choke point upstream. A sole or limited supplier can dictate terms, and a single shortage can stop the line.
“We rely on a limited number of suppliers for several components of the equipment we use to operate our network and provide products to our customers.”
From the recordGross-margin cushion (TTM)73% - Concentrated dependenceMD&A
What the whole business leans on, a product, a platform, a partner. Concentration cuts both ways, and the filing is where management has to admit it.
“We derive a portion of our revenue from contracts with government organizations, and we believe the success and growth of our business will in part depend on adding additional public sector customers.”
From the recordOwner-earnings margin at stake (TTM)14% - Debt terms & refinancingMD&A
The fine print behind the debt. Covenants and near-term maturities decide who is really in control when a year goes badly.
“In addition, the credit agreement for our Revolving Credit Facility contains restrictive covenants that limit us, and any of our future debt agreements may contain restrictive covenants that may limit or prohibit us, in each case from adopting any of these alternatives.”
From the recordBalance sheet (TTM)+$944M net cash, debt-free · operating profit doesn't cover interest - Litigation & contingenciesMD&A
Claims an owner inherits. Most disclosure is boilerplate; this fires only on an actual matter, a named suit, a settlement, a contingency, a number.
“For example, we are a defendant in lawsuits, both in the United States and abroad, seeking injunctive relief and/or damages against us based on claims of alleged patent infringement and claims of alleged copyright infringement through content on our customers' websites.”
A judgment, not a number, weigh it against the filing yourself. - DilutionMD&A
Whether your slice quietly shrinks. New shares fund the company at the existing owner's expense.
“Volatility or lack of performance in our stock price has in the past, and may in the future, affect our ability to attract and retain our key employees or require us to increase the number of shares that we include in employee equity awards, which has and may continue to affect our outstanding share…”
A judgment, not a number, weigh it against the filing yourself.
What changed, FY2025 vs FY2024
read the 10-K →Most of a 10-K is boilerplate carried over verbatim; the signal is in what's new. These lines appear this year and weren't there last, figure updates filtered out, so only the language shift remains.
- “The remainder of the increase was primarily due to an increase of $8.5 million in professional fees for third-party accounting, consulting, and legal services, an increase of $6.8 million in travel-related expenses, an increase of $5.6 million in bad debt expense, an increase of $5.4 million in thir…”
- “Additionally, future tariffs could cause the costs of the equipment we use to operate our global network to increase, corporate spending to become delayed or curtailed, increase rates of inflation, reduce economic growth rates, create an economic downturn or recession, or result in other similar or …”
- “In addition, in response to the tariffs implemented or threatened by the United States, many of the countries subject to these tariffs have themselves implemented or threatened to implement tariffs, taxes, or other retaliatory measures on U.S. goods or services or U.S. companies, or have restricted …”
- “These anticipated shortages, driven by factors such as the reallocation of manufacturing capacity to support artificial intelligence infrastructure and increased demand from hyperscale data center operators, and other shortages or similar supply constraints in the future may disrupt and increase the…”
- “Any of the negative impacts of conflicts and geopolitical tension around the world or any worsening or expansion of those conflicts or tensions, other geopolitical events such as elections and other governmental changes, and any related challenging macroeconomic conditions globally and in various co…”
Classic text analysis over the filing itself, no model wrote a word of this, and every quote is the company's own.
Peers, Enterprise software
The same industry, side by side on owner economics, compare, don't rank by a single number.● marks best in the group.
| Company | Revenue | Gross margin | Op. margin | ROIC | Owner earn. margin |
|---|---|---|---|---|---|
| RBLXRoblox Corporation | $4.9B | 78% | -25.2% | -534% | 28% |
| CRWDCrowdstrike Holdings, Inc. | $4.8B | 75% | -6.1% | — | 27% |
| PINSPinterest, Inc. | $4.2B | 80% | 7.6% | 8% | 30% |
| MTCHMatch Group, Inc. | $3.5B | 73% | 25.0% | 27% | 29% |
| DDOGDatadog, Inc. | $3.4B | 80% | -1.3% | -1% | 29% |
| TTDTrade Desk, Inc. | $2.9B | 79% | 20.3% | 22% | 27% |
| ZSZscaler, Inc. | $2.7B | 77% | -4.8% | -18% | 30% |
| NETCloudflare, Inc. | $2.2B | 75% | -9.6% | -32% | 13% |