Will the Traction in SASE and Zero Trust Keep Driving Cloudflare?
Cloudflare NET signed its longest secure access service edge (SASE) contract in the first quarter of 2025 and has been gaining traction constantly as enterprises modernize and simplify their network security and connectivity.
Cloudflare combines its Zero Trust security products like Cloudflare Gateway, remote browser isolation and cloud access security broker with its Network Services like Magic WAN, Magic Transit and Magic Firewall, Cloudflare Network Interconnect and spectrum to provide an end-to-end cloud-based secured SASE solution that simplifies the adoption process for its clients, helping NET in winning larger deals.
Cloudflare has also partnered with industry giants like TD SYNNEX to expand the geographical reach of its managed security services across Latin America, including Zero Trust and SASE solutions, to support MSSP growth in the region. In the Zero Trust space, NET has been witnessing tremendous customer growth for its core application services portfolio, Zero Trust solutions and network services like Magic Transit in Cloudflare One.
NET has made Zero Trust integrations with companies like Atlassian, Microsoft and Sumo Logic, to enable small, medium and large-sized businesses to secure reliable tools and applications with enterprise-ready Zero Trust security. This strategy has expanded the reach of the Cloudflare One Zero Trust platform to more than 10,000 companies worldwide.
These factors have helped Cloudflare to achieve 250,819 paying customers at the end of the first quarter, up 27% year over year. NET added 30 new customers during the quarter who contributed more than $100,000 in annual revenues. The total count of such customers reached 3,527 at the end of the quarter.
How Competitors Fare Against Cloudflare
Cloudflare faces stiff competition from Palo Alto Networks PANW and Zscaler ZS in SASE and Zero Trust offerings. Palo Alto Networks' SASE platform has an active customer user base of more than 6,000. Palo Alto Networks achieved 36% year-over-year growth in SASE ARR and 16% growth in $1 million-plus deals in the third quarter of fiscal 2025, making it a dominant SASE player.
Zscaler, on the other hand, leads the Zero Trust space and also offers SASE solutions. The company offers Zero Trust Network Access solutions through Zscaler Private Access, which enables secure application access without VPN. ZS is now moving toward the Zero Trust Everywhere model, which secures cloud, endpoint and network. Zscaler also provides a full SASE platform by combining identity access, private access and cloud protection.
Since the competition in the SASE and Zero Trust space is high, this remains an investor's concern for Cloudflare's growth. However, since the SASE market is witnessing a CAGR of 23.6% and the Zero Trust Market is seeing a CAGR of 16.7%, Cloudflare has enough headroom to expand its business.
Cloudflare's Price Performance, Valuation and Estimates
Shares of NET have surged 68.6% year to date compared with the Zacks Internet - Software industry's growth of 13%.
From a valuation standpoint, NET trades at a forward price-to-sales ratio of 26.77X, higher than the industry's average of 5.68X.
The Zacks Consensus Estimate for NET's fiscal 2025 and 2026 earnings implies year-over-year growth of 5.33% and 31.64%, respectively. The estimates for fiscal 2025 earnings have been revised downward in the past 60 days, and the 2026 earnings have been revised downward in the past 30 days.
NET currently carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
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