If you don’t work in the technology space, investing in software stocks can be confusing. For instance, Cloudflare (NYSE:NET) and Fastly (NYSE:FSLY) both provide content delivery networks for customers, but they approach the market very differently. This may leave many investors wondering what to do.
On this Motley Fool Live episode, recorded on Feb. 13, Fool analyst Tim Beyers contrasts these two innovative companies with Fool contributor Brian Withers and recommends which one investors should own.
Brian Withers: I don’t know if this is a good place to compare to Fastly, but I’ve always felt like Cloudflare has a broader set of tools and platforms. They’re a little ahead of Fastly in the innovation game and the services they offer. Is that a fair assessment?
Tim Beyers: I wouldn’t say they’re ahead in innovation. I would say that they have a broader set of services, and that’s intentional. Because the type of customer that they deal with, remember, they can start dealing with a customer from the get-go, when they’re brand new, a brand new website, a very small business.
That’s not what Fastly does. Fastly isn’t the type of solution for you if you’re just getting started, they’re just not. They’re a much more sophisticated platform of services that requires developers to be doing much more enterprise level jobs. Fastly has deliberately limited its market, and Cloudflare has not. Neither one of those choices is bad.
Brian Withers: Bad, right. There’s plenty on market here for everybody.
Tim Beyers: Right. I just want to draw the distinction that they do cross paths, they attack the markets in different ways, but they start at different places. Fastly starts up here, Cloudflare starts down here, and it can get up there. When you look at the number of customers, and we’re going to get the number wrong here, but just around it, Fastly is something like 3,500 customers, might be 4,000 customers now, and roughly 8-10 percent of those are their largest customers. Really big customers. Cloudflare has over 100,000 customers.
Brian Withers: Yeah.
Tim Beyers: Then it has a lot more enterprise customers as well. Again, neither isn’t inherently bad strategy, and we will talk about the difference in the business model too. Because they also have different pricing models, and they have different business models. They attack different parts of the market with different products that are similar but different, and they have different business models as well. This is, by the way, Brian, I’m going to stop here so I can let you [laughs] keep you going.
Brian Withers: You could go all afternoon, Tim.
Tim Beyers: I really could [laughter] go on all afternoon, [laughter] and I want to shut up about this, so you could keep going. What I just described, this is why fundamentally, I love owning both. I wish I had owned both from the beginning. I wish I had recommended both from the beginning, I didn’t. My affection for Cloudflare, does not affect my affection for Fastly.
In fact, what I am seeing is that I don’t know why anybody wouldn’t want to own both of these.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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