The Week's Growth Wasn’t Enough For Wall Street

**Travis Hoium** (0:05)
We're in the heart of earning season, so what did we learn? Motley Fool Money starts now.

**Dan Boyd** (0:25)
Everybody needs money.

**Travis Hoium** (0:27)
That's why they call it money.

**Jason Moser** (0:37)
From Fool Global Headquarters, this is Motley Fool Money.

**Travis Hoium** (0:40)
Welcome to Motley Fool Money. I'm Travis Hoium, joined today by Jason Moser and Lou Whiteman. And guys, this is really when earning season kicks into high gear for a lot of the companies that we follow. So we want to do kind of a rapid fire look at some of the popular companies, you know, disruptive companies, and find out what we learned from the quarter. Jason, what did we learn from Cloudflare? And maybe first, what in the world does Cloudflare do?

**Jason Moser** (1:06)
That's a good question. It's kind of like, hey, what does Salesforce do, right? And I guess-

**Travis Hoium** (1:11)
Yeah, it's everywhere, but we don't necessarily see it.

**Jason Moser** (1:14)
The proper answer, it does a little bit of a lot of stuff, but primarily it's seen as a content delivery platform, focuses on application development, and most importantly, I think, in today's day and age, cybersecurity. There is a big cybersecurity dynamic to Cloudflare, and it's one we even talk a lot about with our Quantum Leap Service, thinking about beyond classical computing and into that post-quantum cryptography stage of life that we will ultimately hit. Travis, Cloudflare is a company that is working to protect us on that front as well, but that's the answer in a nutshell. And I think this was another good quarter that showed that the language we had been talking, we've been using over the last couple of years with Cloudflare, and with a number of enterprise software type companies, the elongated sales cycle, sort of the trepidation of their customers to commit to spending, those days seemed to be well past us. It was another very solid report. They grew revenue 34% for the quarter, well exceeding their own guidance, guiding for another tremendous year, 28% revenue growth. And again, they tend to under promise and over deliver, which is certainly priced into the stock. But I think the story with Cloudflare really continues to be large customers. Those customers that pay over $100,000 per year, they really continue to drive results.
Revenue contribution in that segment for the quarter was up 42% and now contributes 73% of revenue in total. And that's up from 69% from a year ago. And then just to top it all off, that dollar-based net expansion rate of 120%, that was up from 111% from a year ago. Very encouraging to see that not only do they sign on new customers, but they continue to really grow those relationships with customers as we've seen from that large customer data.

**Travis Hoium** (3:12)
Cloudflare is one of these companies that, if you go back to 2021, this is the first one of those high-flying stocks that I remember trading for 100 times sales, and then suddenly crashing in 2022 We're back to the point where they're trading for 30 times sales, which is still a very high number. And five-year growth rate is 38%. Is valuation ever a concern for Cloudflare? Or is this just one of those, hey, this is kind of a utility on the internet, and so they're not going anywhere. That's why the market pays a premium for them?

**Jason Moser** (3:43)
I think it's a little bit of both, to be fair. I mean, I always look at something like a Cloudflare and think one of the primary risks to a business like this, beyond some sort of security breach, is the valuation itself. And it has always really traded for a premium valuation. Save those couple of years, just a few years back, when we were talking about those elongated sales cycles and how committed their customers were. And we really saw the stock take a huge hit back then. But it has recovered, I think, based on these growth rates that we're seeing. And so as long as we see that top line continue to grow at the pace that we're seeing today, I think the market, the premium is fairly well earned. But that is a big risk if we see that tick down. I mean, we're going to absolutely see those shares pull back.

**Travis Hoium** (4:30)
Lou, what did we learn from Airbnb?

**Lou Whiteman** (4:32)
Yeah, so, you know, narrative-busting week for Airbnb because everything was down. Airbnb actually missed earnings and the stock is up post. And this week, that seemed really weird. Few things going on though, okay? For one, stock was already down 15% for the year and we're still just in mid-February. So there weren't a lot of expectations based in here. Also, they see double-digit revenue growth in 2026, which I think is better than some had feared, especially with all the macro concerns where things are going. This was a good report from a good company. I think, you know, the funny thing is, though, is like, what expectations, what should we expect from here? I don't know about you guys, but increasingly, when I look at Airbnb, I see Marriott. I see a mature lodging business, asset light, that can outperform but is not going to be a high-growth stock. I've kind of given up on experiences as kind of a new rocket ship.