What Cloudflare’s Earnings Tell Us About High-Growth, Unprofitable Unicorns

Let’s quickly peek at the figures, examine the market’s reaction, and then tie the package back to our revenue multiple question and see what we can suss out for private companies.

In the third quarter, Cloudflare’s revenue grew around 48 percent to $73.9 million from a year-ago result of $50.1 million.

Its adjusted losses worsened as well, with the firm losing $18.5 million on an adjusted basis in the quarter, up from $13.4 million in the year-ago period.

Given that the company’s revenue growth came in ahead of expectations (Yahoo Finance’s tally had an average expectation of $69.7 million listed before the report) it’s doubtful that Cloudflare will be dinged too much for a small boost to its adjusted profit.

Going into earnings, YCharts data indicated that Cloudflare had a trailing revenue multiple of 16.

The lesson for late-stage companies eyeing Cloudflare’s recent IPO (a success in terms of pricing and initial market response) is that you can still lose increasing amounts of money in 2019 (on a GAAP and adjusted basis) provided that you have high gross margins and quicker growth than the market expects.

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