Cloudflare Gives Disappointing Revenue Outlook; Shares Tumble

Jamie Tarabay and Redd Brown, Bloomberg News

The Cloudflare headquarters in San Francisco. , Bloomberg

(Bloomberg) -- Cloudflare Inc. shares sank by 16.35% after markets opened Friday following the company’s second-quarter revenue projections, which fell short of analysts’ expectations.

The San Francisco-based security company estimated that revenue would total $393.5 million to $394.5 million in the second quarter, with the midpoint of the range missing analysts’ estimates of $394.5 million. The second quarter revenue outlook falling short of expectations sparks concerns about the company’s ability to maintain its current growth rate, Bloomberg Intelligence said in a note.

Shares had previously fallen by more than 13% in New York in premarket trading.

Cloudflare and its peers have faced headwinds in recent months as businesses scaled back IT spending.

For Cloudflare, the revenue projection overshadowed what was otherwise a solid beat in first-quarter results for the company. It posted adjusted earnings of 16 cents per share, up from a year earlier and beating analysts’ estimates of 13 cents.

Cloudflare’s first quarter sales of $378.6 million beat analysts’ estimates of $373.7 million.

Analysts have said that Cloudflare was taking share from rivals with cloud-based offerings on its content-delivery network, while a sales-force restructuring gained traction, which pointed toward improved momentum. New product launches and signing larger enterprise accounts may help the company steady revenue growth going forward.

Still, ongoing pressure on IT budgets and greater scrutiny of deals remain near-term threats, Bloomberg Intelligence analysts note.

The shares of cybersecurity company Fortinet Inc. were also down more than 6% Friday after it reported quarterly billings below the average analyst estimate. The Sunnyvale, California-based firm’s billings for the quarter that ended March 31 were $1.41 billion, according to a statement it released after markets closed. That was down 6.4% from the same period last year and below the average estimate of $1.43 billion.

Fortinet has seen challenges from slowing demand for its firewall products as well as competition from other security vendors, including Palo Alto Networks, Inc., on cloud computing security services, according to analysts.

--With assistance from Jake Bleiberg.

(Updates share prices iin first, third and ninth paragraphs.)