Cloudflare WACC - Weighted Average Cost of Capital
The WACC of Cloudflare Inc (NET) is 10.6%.
| Range | Selected | |
| Cost of equity | 9.5% - 12.0% | 10.75% |
| Tax rate | 4.1% - 4.7% | 4.4% |
| Cost of debt | 4.0% - 7.0% | 5.5% |
| WACC | 9.4% - 11.9% | 10.6% |
| Category | Low | High |
| Long-term bond rate | 3.9% | 4.4% |
| Equity market risk premium | 4.6% | 5.6% |
| Adjusted beta | 1.22 | 1.28 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 9.5% | 12.0% |
| Tax rate | 4.1% | 4.7% |
| Debt/Equity ratio | 0.02 | 0.02 |
| Cost of debt | 4.0% | 7.0% |
| After-tax WACC | 9.4% | 11.9% |
| Selected WACC | 10.6% | |
| Debt/Equity | Unlevered | |||
| Peers | Company Name | ratio | Beta | beta |
| NET | Cloudflare Inc | 0.02 | 1.84 | 1.81 |
| CRWD | CrowdStrike Holdings Inc | 0.01 | 1.91 | 1.9 |
| FTNT | Fortinet Inc | 0.01 | 1.39 | 1.37 |
| MSFT | Microsoft Corp | 0.02 | 1 | 0.98 |
| NLOK | NortonLifeLock Inc | 0.26 | 0.7 | 0.56 |
| NOW | ServiceNow Inc | 0.01 | 1.44 | 1.43 |
| ORCL | Oracle Corp | 0.16 | 1.5 | 1.3 |
| PANW | Palo Alto Networks Inc | 0.01 | 1.31 | 1.3 |
| VMW | VMware Inc | 0.17 | 0.95 | 0.82 |
| ZS | Zscaler Inc | 0.02 | 1.82 | 1.78 |
| Low | High | |
| Unlevered beta | 1.3 | 1.39 |
| Relevered beta | 1.33 | 1.42 |
| Adjusted relevered beta | 1.22 | 1.28 |
Cloudflare's CAPM model and how its cost of Equity is calculated
The Cost of Equity reflects the return a company needs to deliver to shareholders to justify the risk of investing in its shares. It’s computed using the Capital Asset Pricing Model (CAPM), which blends the risk-free rate, the stock’s beta, and the market risk premium.
This method evaluates the stock’s risk compared to a safe investment and the market’s overall volatility.
Here’s how we figure out the cost of equity for Cloudflare:
cost_of_equity (10.75%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (1.22) + risk_adjustments (0.25%)
We include the risk adjustments, which range from 0% to 1%, to keep our WACC conservatives, especially for companies traded in developing markets.