Cloudflare, Inc. (NYSE:NET) closed at $349.07 on October 2, up 57.93% over twelve months.
The company reported a net loss over the past twelve months and positive free cash flow over the same period. Both statements are true, and the distance between them is where the argument about this stock lives.
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The Cash Is Real, and the Loss Is Real:
Start with what Cloudflare actually collected. Operating cash flow was $633.43 million, and levered free cash flow came in at $691.95 million. That is money in the bank, generated by a business with revenue of $2.51 billion growing at 35.90%.
The reported loss was $206.28 million, a net margin of negative 8.21%.
A company cannot lose money and generate cash at the same time unless something large sits between the two lines. At most software companies, that something is stock-based compensation.
Paying employees in shares is a genuine cost that reduces reported profit and never leaves the building as cash. Free cash flow therefore looks better than earnings by roughly the size of the payment. The question is not whether the cash is real. It is who ends up owning it.
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The Share Count Answers It:
There is a figure that settles this without any guesswork. Cloudflare has 322.62 million shares outstanding. Its implied share count, which includes everything already promised to employees and convertible holders, is 356.08 million.
The gap is 33.46 million shares, or roughly a tenth of the company. That is the bill. An existing shareholder owns about 10% less of Cloudflare than the basic share count suggests, and that dilution is the price of the cash flow looking as strong as it does.
So the free cash flow is real, but it is not free. It is being funded in part by handing over ownership. Whether that matters depends entirely on growth. If revenue keeps compounding above 35%, the business grows faster than the share count and existing holders still come out ahead.
If growth slows, the dilution continues, and the compounding does not. There is a software business generating cash without diluting its owners. You can find it here.
The Valuation Case:
Cloudflare sits in front of a large share of the internet, customers rarely move once integrated, and the AI build-out has given it a new category to sell into.
The price assumes all of it and more. At 49.34 times sales, an investor pays roughly fifty dollars for every dollar Cloudflare bills in a year.
That only works if growth in the mid-thirties runs for years rather than quarters. Add a tenth of the company arriving as new shares along the way, and revenue has to grow by more than that again, simply to keep revenue per share moving forward.
Nothing here is fragile in the short term. Cash of $4.16 billion against $3.53 billion of debt means the company funds itself, and short interest of just 2.71% says almost nobody expects it to break. We ranked the alternatives here.
Conclusion:
The cash flow is genuine. Cloudflare collected $691.95 million while reporting a loss; the growth rate is real, and the balance sheet carries no near-term risk. However, the share count tells you what it cost. An implied count a tenth above the shares outstanding means today’s owners are funding part of that cash flow by giving up ownership. At 49.34 times sales, there is no room for growth to slow. The number to watch is the share count, not the cash flow.
Market Sentiment:
Cloudflare, Inc. was held by 87 hedge funds with a combined stake value of about $3.98 billion at the end of Q2 2026 in the Insider Monkey database. This is up from 84 hedge fund holders with a cumulative investment value of around $3.55 billion in the previous quarter.
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This article is originally published at Insider Monkey.
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