Why Cloudflare stock plummeted
Well for starters it doesn't help that Cloudflare insiders have been big sellers over the last 12 months. It might be one thing to say that insiders took advantage of the lofty valuations prior to the recent drop but the selling has continued in the last 3 months with sales occurring as soon as stock options have hit the books.
Personally I hate when insiders are selling stock at what appears to be deflated values. With the rare exception of when it is clearly communicated to the market, ie Elon selling up Tesla ($TSLA) stock to fund the Twitter ($TWTR) purchase, it very rarely sends a positive message to the markets and leaves investors asking a lot of questions.
Secondly, Cloudflare is not profitable on a EBITDA or Cash Flow basis, with the company reporting a first-quarter loss of $41.4 million. Even after than 50%+ sell-off Cloudflare still sits as a EV / Revenue of 23. I love a good growth story but to be tracking at such a high multiple in these volatile times might point to more volatility to come for Cloudflare.
Even insiders have acknowledges the lofty multiples by saying "there isn't much that Cloudflare could do to avoid the selling pressure", considering 20 of their closest peers have price-to-sales ratios of 6.5.
On the plus side, Cloudflare continues to grow rapidly which is precisely why it holds the multiples it currently does. Personally I think the pipeline for innovation is very strong with Cloudflare so I don't see the growth rate slowing any time soon.
Average Growth over the last 5 Years
