Thread by @juliey4

since I covered $FSLY's earnings call yesterday, I wanted to also cover $NET's today. recap of Cloudflare's Q2 -->

$100mm rev, up 48% YOY
Large customers up 60+% YOY
Have 16% of Fortune 1000, up 13% since Q1
Stock currently ~flat after hours
Substantially grew large customer accounts (accounts greater than 100k annualized rev), big increase due to covid
Mkt cap ~$12.5 bil (vs $FSLY ~$9bil)

They were concerned about customer concessions going into Covid-19. But it turns out that concessions peaked in early April and ultimately came in well below forecasts. They feel they have clear vis into the pandemic's effect on biz, and they are raising Q3 and annual guidance

They believe that the pandemic forced companies to sort vendors into "nice to haves" and "must haves." $NET is a must-have. they also saw many customers who were surprised by the large usage-based bills now coming to them for consistent pricing.

They noted that Covid forced customers who were slow to adopt the cloud to finally get on board. "We saw big growth in Europe, industrial companies, and small companies — these are not segments that you think would be first to cloud adoption. but they are now accelerating."

They discussed the massive uptick in cyber attacks. "May was the busiest month the internet has ever seen for distributed attacks." They blocked 37% more cyber attacks per day for the same cohort of customers in Q2 and Q1. If you include new customers, growth was 63% (!!!!)

$NET reported that in June, they saw an attack that lasted 4 days on one of their customers. "Our network did not flinch, and our infrastructure did not slow down... The client did not even know until we alerted them."

Gross margins remain > 76% despite an unprecedented increase in cyber attacks.

They also discussed their recent ramp-up of hiring efforts: "Great companies uses crises to focus on what’s most important and invest in the future. We did not slow down hiring - we hired 257 team members in Q2, our applications were up 750% YOY."

imo the key thing to watch with Cloudflare is their "Workers" serverless platform -- it provides a lightweight JS environment so devs can build apps without configuring or maintaining infrastructure. This allows devs to easily scale up or down based on demand.

it enables devs to spend more time writing the app itself rather than writing support code. (ex: Postmates is a customer).

Workers launched ~3yrs ago and ~20% of new large customer deals include it now (!!!!)

New Workers features:
- Raised CPU limits
- Pricing is 75% less expensive for same workload (compared to AWS Lambda)
- Expanded tools to support more languages

US was 49% of revenue. International growth was driven primarily by India, grew 52% YOY.

Q: Growth in customers was big. Who r u displacing?

C: We are replacing what is usually an existing on-premise hardware-based solution, as part of the digital transformation people are going thru in 2020 (whether they were planning to or not)

Q: Can you elaborate on Workers?

C: With Unbound, we [can solve a lot of problems] with serverless applications (ex: compliance). More and more customers are now wanting to have data localization (keeping citizens’ data inside their country) - that’s a huge opportunity for us.

Q: Can you talk about how your GTM is changing?

C: (1) we made Cloudflare so easy that it wasn’t clear what value a re-seller could add. (2) our suite is an extra tool for our channel partners — we can educate them about additional products over time

Q: Thoughts on China?

C: China revenue is low single digits of total revenue, so even in the worst case scenario - we don’t see it as a significant change to us. Long term, we can actually be the infrastructure that helps US companies better sell to Chinese customers

C: there are 2 directions (1) Chinese companies trying to sell outside of China (2) US companies that want to sell to China. The former we see continued strength. There is some uncertainty around the latter… The JD partnership is going very well. Same w Baidu over last 5 yrs

Q: Can customers benefit from new products without changing your infrastructure?

C: Our strategy is to get customers onto our network and then learn and migrate customers to use more and more of our platform.

C: We are technically able to recommend other products to customers (ex: we might be helping them with their firewall and see that they are having high bot traffic. We can do analysis on the bot traffic and then recommend a solution to them.)

C: we also build trust as a provider that offers a compelling ROI… our sales team is great. We think the secret of cloudflare is that 1 + 1 = 3. This same pattern happens over and over again, very quickly. Some of this is due to COVID.

Q: How many Teams customers?

C: We haven’t disclosed… but we had 2000+ companies sign up for our Covid promotion thru sept. now we are encouraged by the early convos about converting them to paying customers. It is one of those sleeper products that has really taken off

Q: You guys are the best connective tissue between domain to domain applications, and from applications to users. How do you view this broader picture as Kubernetes adoption accelerates?

C: Internally, we are a big Kubernetes fan and a user ourselves.

C: But Kubernetes is a step on the journey towards "developer nirvana," which is - can you get rid of the tech ops team entirely? Can you just write code that will scale up or scale down to what you are delivering?" This is the magic of Workers and the promise of serverless. $NET

Q: Why does $NET focus on isolates and how does that make you stand out vs competition?

C: First you had to buy a server. Along came VMs, but even that had a lot of overhead. So you had companies that became containers…

C: The serverless platforms today are building on top of those containers — but when you scale up, it takes a long time. So Lambda will spin up a new machine with a new container when there is load that demands it. But it takes more time and is inconsistent experience for users.

C: In order to make Workers as powerful as we want, we needed to make it more efficient than what you could get with containers… so that is why we moved to Isolates. Isolates is just next generation of this... again, as much as 75% less expensive than AWS for the same workload.

C: So we think isolates are the next step, in the same way that VMs were a revolution from bare metal. And containers were a step after VM…