Key Insights

• Significantly high institutional ownership implies Cloudflare's stock price is sensitive to their trading actions
• 52% of the business is held by the top 7 shareholders
• Insiders have been selling lately

To get a sense of who is truly in control of Cloudflare, Inc. (NYSE:NET), it is important to understand the ownership structure of the business. And the group that holds the biggest piece of the pie are institutions with 77% ownership. Put another way, the group faces the maximum upside potential (or downside risk).

And things are looking up for institutional investors after the company gained US$3.0b in market cap last week. One-year return to shareholders is currently 50% and last week’s gain was the icing on the cake.

In the chart below, we zoom in on the different ownership groups of Cloudflare.

View our latest analysis for Cloudflare

What Does The Institutional Ownership Tell Us About Cloudflare?

Many institutions measure their performance against an index that approximates the local market. So they usually pay more attention to companies that are included in major indices.

We can see that Cloudflare does have institutional investors; and they hold a good portion of the company's stock. This implies the analysts working for those institutions have looked at the stock and they like it. But just like anyone else, they could be wrong. When multiple institutions own a stock, there's always a risk that they are in a 'crowded trade'. When such a trade goes wrong, multiple parties may compete to sell stock fast. This risk is higher in a company without a history of growth. You can see Cloudflare's historic earnings and revenue below, but keep in mind there's always more to the story.

Since institutional investors own more than half the issued stock, the board will likely have to pay attention to their preferences. We note that hedge funds don't have a meaningful investment in Cloudflare. Capital Research and Management Company is currently the largest shareholder, with 10% of shares outstanding. Meanwhile, the second and third largest shareholders, hold 9.5% and 8.8%, of the shares outstanding, respectively. In addition, we found that Matthew Prince, the CEO has 8.3% of the shares allocated to their name.

We also observed that the top 7 shareholders account for more than half of the share register, with a few smaller shareholders to balance the interests of the larger ones to a certain extent.

Researching institutional ownership is a good way to gauge and filter a stock's expected performance. The same can be achieved by studying analyst sentiments. Quite a few analysts cover the stock, so you could look into forecast growth quite easily.

Insider Ownership Of Cloudflare

The definition of an insider can differ slightly between different countries, but members of the board of directors always count. Management ultimately answers to the board. However, it is not uncommon for managers to be executive board members, especially if they are a founder or the CEO.

Insider ownership is positive when it signals leadership are thinking like the true owners of the company. However, high insider ownership can also give immense power to a small group within the company. This can be negative in some circumstances.

It seems insiders own a significant proportion of Cloudflare, Inc.. Insiders own US$4.5b worth of shares in the US$41b company. That's quite meaningful. Most would be pleased to see the board is investing alongside them. You may wish to access this free chart showing recent trading by insiders.

General Public Ownership

With a 12% ownership, the general public, mostly comprising of individual investors, have some degree of sway over Cloudflare. This size of ownership, while considerable, may not be enough to change company policy if the decision is not in sync with other large shareholders.

Next Steps:

It's always worth thinking about the different groups who own shares in a company. But to understand Cloudflare better, we need to consider many other factors. Case in point: We've spotted 1 warning sign for Cloudflare you should be aware of.

But ultimately it is the future, not the past, that will determine how well the owners of this business will do. Therefore we think it advisable to take a look at this free report showing whether analysts are predicting a brighter future.

NB: Figures in this article are calculated using data from the last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.