Note: I am not a financial advisor. This is not financial advice.

On Friday, September 13, Cloudflare ($NET) debuted on the NYSE. The first day of trading was quite successful for the tech company. The stock price opened trading at $19.00 at 11:48 a.m. Eastern Time, significantly higher than its $15.00 per share September 12 valuation. Afterward, the stock fell to $18.00 at market closing. Here’s what traders should know about the company’s IPO and its impact on the stock market.

2019: Year of the Cloud IPO

Going into the year, ride-sharing companies Uber and Lyft received most of the attention for their anticipated IPOs. However, their stock market debuts were marked by lackluster performances. In contrast, cloud-based technology companies didn’t receive nearly as much attention but have mostly performed above market expectations. Alongside Cloudflare, a number of other companies in this space held IPOs in 2019, including Zoom, Slack, CrowdStrike, and Medallia. With the exception of Slack, these three stocks all enjoyed early market success but tumbled in the first week of September after poor quarterly results announcements. Cloudflare’s successful IPO on the following week went against this trend. Still, it’s too early to tell whether or not Cloudflare can serve as a barometer for other cloud companies that made their stock market debuts earlier in the year.

As I write this article in September, it’s not too early to say that 2019 is shaping up to be “the year of the cloud IPO”. Yes, we’ve already seen a number of other IPOs in other tech verticals. Cloud companies have mostly trended downward in recent weeks. Still, the number of large cloud companies that have launched IPOs is higher than we’ve seen in recent years.

Comparing 2015 IPOs vs. 2016 through February 2017 for cloud companies, it’s clear that 2015 was also an important year. Can 2019 ultimately rival it? Source: Bessemer Venture Partners

Big-Name Strategic Investors and Clients

In Cloudflare’s IPO prospectus, there is no mention of its high-profile investors. Not many details are known about the nature of the investments. Nonetheless, the company’s website states that it received strategic investments from tech giants like Google, Microsoft, Baidu, and Qualcomm in 2015.

Cloudflare focuses on providing web content delivery network services, DDoS mitigation, Internet security, and distributed domain name server services. Essentially, the goal of the company is to enable clients to have faster, more secure websites and apps.

In total, its services are used by over 20 million internet properties. About 10% of Fortune 1,000 companies are paying Cloudflare customers. Clients span across a wide range of industries: government, non-profits, retail, finance, real estate, healthcare, transportation, hardware, software, media, and more. A few of Cloudflare’s many prominent clients include the FBI, Yale University, Adobe, and Walmart.

As of September 2019, Cloudflare has 30 Tbps capacity and 194 data centers distributed globally.

Revenues and Losses

The company’s revenues increased 43% year-over-year in FY 2018 to $192.7 million, but the net loss widened from $10.7 million in 2017 to $87.2 million in 2018.

Revenues for the first half of 2019 increased by 48% to $129.2 million. Net loss widened from $32.5 million to $36.8 million.

Although the company hasn’t made it to profitability, many people regard it as a tech giant in the making.

Getting Past Controversy/ Adding Transparency

Currently, the biggest obstacle to Cloudflare’s long-term success doesn’t appear to be anything related to technical limitations or product offerings. Rather, the company will likely need to focus on adding more transparency related to its customers and services. Cloudflare posts transparency reports every six months, but major issues still remain. According to the IPO prospectus, Cloudflare admitted that it may have violated US law by selling its services to entities blacklisted by the US government. Some potential customers included terrorists, narcotics traffickers, and sanctioned governments. The company may have broken additional US laws surrounding encryption hardware exporting.

In the past, the Cloudflare has faced criticisms over its customers. As a response, it terminated service for white supremacist websites like 8chan and The Daily Stormer. Solving challenges related to customer management isn’t just specific to Cloudflare. It is also a prevailing issue for other cloud companies. For example, earlier in 2019, 50 women sued Salesforce for allegedly facilitating sex trafficking. How exactly Cloudflare, Salesforce, and other cloud companies can be more proactive in preventing cases like these moving forward isn’t clear. Hopefully, the decision for Cloudflare to reveal potential legal breaches and terminate services when necessary will foster a more transparent future for the company.

Conclusion

Cloudflare’s IPO didn’t garner as much attention as other IPOs that have taken place this year. With a 20% increase on its first day of trading, however, this company has certainly made headlines. On the road ahead, Cloudflare aims to reach profitability while also carrying out its mission to build a better internet.