Cloudflare to Acquire Area 1 Security for $162M; Shares Sink 1%

Web infrastructure and website security company Cloudflare, Inc. (NYSE: NET) recently revealed that it has agreed to acquire cybersecurity company Area 1 Security, Inc. for $162 million. The deal is expected to close in the second quarter of 2022.

Following the news, shares of the company declined by about 1% to close at $90.40 in Wednesday’s extended trading session.

Cloudflare plans to fund a part of the acquisition with its Class A common stock and the remaining in cash.

Strategic Impact

With malevolent phishing campaigns increasing by the day, Area 1 Security’s expertise in blocking such attacks is expected to be beneficial to Cloudflare’s Advanced Email Security Suite, which it launched in 2021.

Further, the two companies can provide a holistic Zero Trust solution that customers can enable through Cloudflare’s global edge.

Management Commentary

The CEO of Cloudflare, Matthew Prince, said, “Email is the largest cyber attack vector on the Internet, which makes integrated email security critical to any true Zero Trust network. That’s why today we’re welcoming Area 1 Security to help make Cloudflare’s platform the clear leader in Zero Trust. To us, the future of Zero Trust includes an integrated, one-click approach to securing all of an organization’s applications, including its most ubiquitous cloud application, email. Together, we expect we’ll be delivering the fastest, most effective, and most reliable email security on the market.”

Stock Rating

Recently, JMP Securities analyst Trevor J. Walsh initiated coverage on the stock with a Buy rating and a price target of $175, which implies upside potential of 91.6% from current levels.

According to the analyst, the company remains attractive due to its proprietary networks that become “more cost-efficient and performant” as it expands, allowing for network effects related to both network reliability and cyber threat data, as well as the rise of Zero Trust frameworks and Secure Access Service Edge models. However, headwinds in the broader cybersecurity space and the overall technology sector remain concerns for the company.

Consensus among analysts is a Moderate Buy based on 10 Buys, 8 Holds and 1 Sell. The average Cloudflare stock prediction of $153.95 implies upside potential of 68.6% from current levels. Shares have gained 19.5% over the past year.

Positive Sentiment

TipRanks’ Stock Investors tool shows that investors currently have a Very Positive stance on NET, as 5.1% of portfolios tracked by TipRanks increased their exposure to NET stock over the past 30 days.

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