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That's a misunderstanding of how companies at this phase of growth work. They are only "loosing" money because they invest so much in growth. If they slowed dow

That's a misunderstanding of how companies at this phase of growth work. They are only "loosing" money because they invest so much in growth. If they slowed down growth, they could be profitable (they have 78% gross margins), but over time, it creates more value to keep investing at this phase of things and become profitable later, when they're more mature and the land-grab phase is over.

danShumway 6y ago
I'm not sure I understand how that's different than what GP is saying. Cloudflare is aggressively investing into growth during the 'land-grab' phase of development so that they can become one of, if not the, dominant player in regards to this kind of core Internet infrastructure. They view the 'land' of Internet infrastructure as a limited resource, and they want to own all of it. I'm seeing a comparison to Amazon, but that doesn't make me feel better. Amazon's aggressive expansion has been a net negative for multiple segments of the market -- particularly e-books and audio books. What makes Cloudflare's growth strategy less concerning when compared to companies like Amazon and Uber? Aren't they all still basically trying to become indispensable private monopolies within their given niches?
- treis 6y ago
  They make a profit of 30 million in 6 months before Sales and marketing expenses. So they charge more money than it costs to provide their services. When you look at Sales/Marketing expenses it changes depending on your perspective (and underlying facts). It could be that they are spending ~60 million a year to get ~100 million NPV worth of customers. In that case, they're not losing money. They're making an investment that will return cash in future years. On the other hand, that 60 million could represent a bunch of discounts and incentives. Then they'd be selling $1 worth of stuff for $0.90 and once they stop doing that their market share evaporates.

danShumway 6y ago

I'm not sure I understand how that's different than what GP is saying. Cloudflare is aggressively investing into growth during the 'land-grab' phase of development so that they can become one of, if not the, dominant player in regards to this kind of core Internet infrastructure. They view the 'land' of Internet infrastructure as a limited resource, and they want to own all of it. I'm seeing a comparison to Amazon, but that doesn't make me feel better. Amazon's aggressive expansion has been a net negative for multiple segments of the market -- particularly e-books and audio books. What makes Cloudflare's growth strategy less concerning when compared to companies like Amazon and Uber? Aren't they all still basically trying to become indispensable private monopolies within their given niches?

treis 6y ago
They make a profit of 30 million in 6 months before Sales and marketing expenses. So they charge more money than it costs to provide their services. When you look at Sales/Marketing expenses it changes depending on your perspective (and underlying facts). It could be that they are spending ~60 million a year to get ~100 million NPV worth of customers. In that case, they're not losing money. They're making an investment that will return cash in future years. On the other hand, that 60 million could represent a bunch of discounts and incentives. Then they'd be selling $1 worth of stuff for $0.90 and once they stop doing that their market share evaporates.