What is NET's Intrinsic value?

Cloudflare Inc (NET) Intrinsic Value Analysis

Executive Summary

As of June 9, 2025, Cloudflare Inc's estimated intrinsic value ranges from $0.05 to $0.05 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Dividend Discount Model (Multi-Stage) $0.05 -100.0%

Is Cloudflare Inc (NET) undervalued or overvalued?

With the current market price at $179.67, the stock appears to be significantly overvalued.

Understanding Intrinsic Value

Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate Cloudflare Inc's intrinsic value, including:

  1. Dividend Discount Model (DDM): Values the company based on expected future dividend payments

Weighted Average Cost of Capital (WACC)

The cost of capital is a critical factor in valuation models, representing the required return for investors.

WACC Component Low High
Long-term bond rate 3.9% 4.4%
Equity market risk premium 4.6% 5.6%
Adjusted beta 1.24 1.28
Cost of equity 9.6% 12.0%
Cost of debt 4.0% 7.0%
Tax rate 4.1% 4.7%
Debt/Equity ratio 0.02 0.02
After-tax WACC 9.4% 11.9%

Valuation Methods

2. Dividend Discount Model (DDM)

The DDM values a company based on its expected future dividend payments. We used two approaches:

Multi-Stage DDM:

  • Current payout ratio: 0.0%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 10.8%
  • Long-term growth rate: 4.0%
  • Fair value: $0.05 (-100.0% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 12.0% (Low) to 9.6% (High)
  • Long-term growth rate: 3.0% (Low) to 5.0% (High)
  • Fair value range: $(2) to $(5)
  • Selected fair value: $-3.25 (-101.8% from current price)

Key Financial Metrics

Metric Value
Market Capitalization $62275M
Enterprise Value $63359M
Trailing P/E 0.00
Forward P/E 0.00
Trailing EV/EBITDA 20.70
Current Dividend Yield 0.00%
Dividend Growth Rate (5Y) 0.00%
Debt-to-Equity Ratio 0.02

Investment Decision Framework

To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:

  1. Forecast Certainty: DCF methods rely on long-term projections, while earnings power value focuses on current normalized earnings
  2. Business Model Alignment: Dividend models are more appropriate for mature companies with established dividend policies
  3. Historical Accuracy: How well each method has predicted fair value historically

Valuation Weight Matrix

Valuation Method Weight Weighted Value
Dividend Discount Model (Multi-Stage) 100% $0.01
Weighted Average 100% $0.05

Investment Conclusion

Based on our comprehensive valuation analysis, Cloudflare Inc's weighted average intrinsic value is $0.05, which is approximately 100.0% below the current market price of $179.67.

Key investment considerations:

  • Strong projected earnings growth (-5% to 2% margin)
  • Consistent cash flow generation
  • Conservative capital structure (Debt/Equity of 0.02)

Given these factors, we believe Cloudflare Inc is currently significantly overvalued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.