Cloudflare and Amazon are two companies that are dedicated to providing infrastructure services in the cloud, well one of the businesses of the second. But what does the first one have on their hands that could be a serious blow to Amazon?
Cloudflare Rg-A is a firm dedicated to security and cloud networks , one of its latest announcements being what could put Amazon in check . Despite the increased offering of cloud services, the firm plans to reduce storage costs . What is he up to then? Herve Blandin asks in The Motley Fool .
Cloudflare has celebrated its 11th birthday with a battery of ads and one of them intends to go for the launch offer in the cloud of Amazon Web Services or ASW.
According to AlliedMarketResearch, the cloud storage market should grow at a compound annual rate of 22% by 2027 to reach $ 222 billion .
An innovative company in the sector
Cloudflare has been building a cloud network in more than 250 cities around the world to accelerate access to online services and provide cyber security services for the resources it hosts and manages .
Management highlighted during investor day in February that 88% of hired clients use at least four products , compared to 70% 18 months earlier. The innovative offerings have also attracted more than 126,000 paying customers, up 32% year- over- year, generating $ 152 million in revenue last quarter , up 53% year-over-year.
Last week it revealed many new products that will leverage your existing network infrastructure:
- A single solution that simplifies email security
- An expansion to more than 1,000 office locations to further accelerate access to your network
- A platform for developers to create streaming services
But what is the announcement that could affect Amazon?
Cloudflare revealed a cloud storage offering, Cloudflare R2 Storage , which will allow customers to host any type of file in the cloud. This does not seem anything new, but it is that the grace is in the price.
The firm will charge this service at $ 0.015 per gigabit (GB) of data stored per month.
Compared to the price AWS charges for the same service, $ 0.021 per GB per month for standard storage, it doesn’t seem like much of a difference. But Amazon also charges when they pull their files out of the cloud, at least $ 0.05 per GB to transfer data to the Internet for volumes greater than 1 GB per month. So the invoice can grow exponentially if the user has large files.
And this is where Cloudflare beats Amazon, it will offer the outbound traffic at no cost . It will leverage its existing infrastructure, agreements, and peerings (connectivity) with Internet service providers to support this initiative.
A priori, it seems that Cloudflare will beat Amazon. But the second has an ace up its sleeve, as it includes a broad ecosystem of products and services that complement its historical cloud storage capabilities, which will limit the outflow of customers to the competition. But Cloudflare’s offering could put pressure on Amazon’s high margins in the future.
What if we talk about numbers?
AWS reached 28% on $ 14.8 billion of revenue (Amazon does not disclose the individual performance of its cloud storage business). Meanwhile, Cloudflare has been running losses that ultimately make the operating margin an inappropriate comparison (negative operating margin of 19% last quarter). But this responds to the fact that it has been prioritizing its growth to gain scale and carry out these new products.
When considering Cloudflare’s current operating performance ( net loss of nearly $ 36 million last quarter ), the stock looks expensive. But the stock’s value has risen 200% in the last 12 months . It is trading at a high forward price to sell (P / S) ratio of 58 despite a 16% drop from September 23 in the context of the broader market sell-off in September.
So should we evaluate and invest in the firm?
The firm’s new initiative should continue to attract new clients and generate cross-selling opportunities. In addition, by using the existing infrastructure, it would reduce expenses in relation to income. There is plenty of room to grow in its addressable market that the administration estimated at $ 100 billion by 2024.