Cloud Stocks Started The Week Lower, Should Investors Buy Them On The Dip?
Cloud stocks are getting hot in the stock market recently. Among them, Fastly (FSLY Stock Report) and Cloudflare (NET Stock Report) are the two darlings of cloud computing companies. The use of content delivery networks (CDN) and edge computing services are skyrocketing this year. More seamless connectivity in the internet and web applications are more important than ever. These combinations of services positioned both companies to excel in the work-from-home environment amid the coronavirus pandemic. It is not surprising then, to see how these stocks have performed this year.
Key Differences Between Fastly and Cloudflare
I know what you are thinking. Aren’t they the same thing, you ask? Well, both essentially provide the same services to their clients. The key difference between the two, aside from the differences in their specific software related technologies, is that Fastly targets mostly medium sized businesses and up. Many see Fastly’s edge computing language as the best of the CDN universe. With many investors starting to realise the potential of the company, the market has traded FSLY stock to astronomical levels. The stock is up 300% year to date.
Meanwhile, Cloudflare offers a turn-key solution, which powers many small businesses. By turn-key solution, it means Cloudflare’s dashboard has an extensive array of prebuilt solutions for individuals or businesses to simply click and go. The truth is, Fastly’s employment of its specialized Varnish Coding Language (VCL) appears to be more superior in the sense that it prompted Cloudflare to follow in its footsteps with the creation of its own offering known as “Workers”.
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Covid-19 Serves As A Catalyst For Cloud Computing Stocks
Cloud stocks have proven to be coronavirus resistant in comparison to the broader markets. In fact, the pandemic accelerated cloud computing adoption in the first quarter. Cloudflare’s clients include JD.com (JD Stock Report) and Dell (DELL Stock Report), while Fastly has Shopify (SHOP Stock Report) and TikTok. Shopify also announced a new partnership with Walmart (WMT Stock Report), indirectly benefiting Fastly as investors saw the Walmart deal as a bigger game-changer for Fastly than it is than Shopify.
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Revenue And Growth Margins To Determine Which Is A Better Cloud Stock
No matter how superior one’s technology is, it all boils down to revenue and growth rates. These two metrics would ultimately be the driver of stock performances. In terms of growth rates, Cloudlare has grown faster than Fastly over the last two years. From the latest quarter, Cloudflare revenues were up 48% year over year while Fastly’s revenues were up 37% during the same period.
When it comes to gross margin, Cloudflare also has the upper hand with a gross margin of approximately 77% compared to Fastly’s 57.6%. That could simply be due to Cloudflare’s data center network being significantly more mature and more robust. Perhaps, having a more global presence could help lower the operational costs of running a cloud computing company.
Fastly and Cloudflare are both very interesting companies to watch and to own in the long run. After all, the edge cloud computing space is set to massively grow in the coming decades in the ever-increasing digitized space. Despite recording positive growth rates, investors should note that both companies are yet to be profitable. Since the coronavirus market crash in March, FSLY stocks have climbed around 700% while NET stock only doubled in the same period. This makes FSLY an expensive cloud stock to buy relative to NET stock. Of course, both stocks aren’t cheap by any conventional measure. But then again we are not in conventional times. With the clouds of the pandemic still hovering above our heads, will these cloud computing stocks continue their rally?