Does large-cap Data Processing Services company Cloudflare have a sustainably profitable business model? By studying its gross margins and comparing them to its operating margins, we can gain insight into quality of its business. With gross margins at 76.2%, you might be telling yourself the Cloudflare is profitable -- but there is more to the story.
Gross margins take into account only the cost of revenue, meaning the expenses directly related to each sale. So it's important to also look at operating margins, which take into account overhead costs. One way to look at it is that gross profit gives insight into Cloudflare's market and the viability of its business model. Operating margins, on the other hand, show you how efficiently the company is implementing this business model.
| Date Reported | Revenue ($ k) | Cost of Revenue ($ k) | Gross Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2023-02-24 | 975,241 | -232,610 | 76 | -2.56 |
| 2022-03-01 | 656,426 | -147,134 | 78 | 1.3 |
| 2021-02-25 | 431,059 | -101,055 | 77 | -1.28 |
| 2020-02-10 | 287,022 | -63,423 | 78 |
| Date Reported | Total Revenue ($ k) | Operating Expenses ($ k) | Operating Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2023-02-24 | 975,241 | -943,834 | -21 | -10.53 |
| 2022-03-01 | 656,426 | -636,976 | -19 | 24.0 |
| 2021-02-25 | 431,059 | -436,772 | -25 | 34.21 |
| 2020-02-10 | 287,022 | -331,545 | -38 |
The table above tells us that, on average, Cloudflare has not been profitable over the last four years, which should be a warning sign to prospective investors. One bright spot, however, is that the company's operating margins are growing at an average yearly rate of 14.2%.
