Can Cloudflare’s IPO Succeed Despite Past Controversies?

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Cloudflare joins the ranks of 2019’s tech companies to offer an initial public offering…

Cloudflare Inc. is set to be the next big tech company to go public in 2019. Here’s what the company offers: “Cloudflare provides a scalable, easy-to-use, unified control plane to deliver security, performance, and reliability for on-premises, hybrid, cloud, and SaaS applications.”  That’s according to the company’s website.

In short, this company is all about the cloud. And some of its major clients include Zendesk, Udacity, DigitalOcean, and more.

MarketWatch reported on Tuesday that Cloudflare set terms for its upcoming IPO. According to the company’s filing with the Securities and Exchange Commission, Cloudflare plans to sell $35 million shares at $10 to $12 per share. At $12 per share, the company would raise $420 million.

The company expects to trade on the New York Stock Exchange under the ticker NET. The IPO is led by Goldman Sachs, JP Morgan, and Morgan Stanley.

Widening Losses

Like many other high-value startups — like Uber and Lyft — Cloudflare faces widening losses … and concerns about those losses.

Cloudflare reported a loss of $86.1 million with revenue of $192.7 million in 2018. That’s compared to a loss of $10.7 million with revenue of $134.9 million in 2017. Based on these numbers, the cybersecurity company’s expenses are growing at a much faster pace than its revenue.

In the company’s filing with the SEC, it indicated that these growing expenses are necessary for growth, stating, “We expect our operating expenses to increase over the next several years as we continue to hire additional personnel, expand our operations and infrastructure both domestically and internationally, and continue to develop our products.”

The company continued, “If we fail to increase our revenue to offset the increases in our operating expenses, we may not achieve or sustain profitability in the future.”

Cloudflare also warned that its future results depend on its ability to attract new paying and free customers. If the company is unable to do so, its growth potential may be harmed.

Funding & Valuation

After raising $72 million in funding in 2012, Cloudflare received a significant $1 billion valuation. In 2014, the company raised an additional $110 million in funding from a group of investors that included Microsoft Corp, Baidu, and Qualcomm.

Earlier this year, Reuters reported that Cloudflare had raised $150 million in its latest Series E funding round, which was led by the investment firm Franklin Templeton. Based on this report, the company’s IPO could value it at more than $3.5 billion.

Cloudflare Controversies

Earlier this year, Cloudflare was the subject of controversy due to providing its services for the online message board 8chan. Following a shooting in El Paso, Texas, it was discovered that the shooter had posted a screed to the message board before the attack.

In response to the discovery, Cloudflare terminated 8chan’s account, stating, “We just sent notice that we are terminating 8chan as a customer effective at midnight tonight Pacific Time. The rationale is simple: they have proven themselves to be lawless and that lawlessness has caused multiple tragic deaths.”

The company faced a similar situation in 2017 when it made the decision to terminate the Daily Stormer, a neo-Nazi website, in response to events that occurred in Charlottesville, Virginia.

Due to Cloudflare’s decision to stop servicing these websites, the company states that it’s getting “significant adverse feedback for these decisions from those concerned about our ability to pass judgment on our customers and the users of our platform, or to censor them by limiting their access to our products, and we are aware of potential customers who decided not to subscribe to our products because of this.”

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