Cloudflare, Inc. (NET) Earnings

metirFinance

Sep 2026upcoming

Next quarter

Expected to report Oct 29, 2026 — estimated from last year’s reporting date.

Consensus is $0.02 EPS for Sep 2026 across 9 estimates, ranging -$0.02 to $0.04.

NET Jun 2026

Reported Aug 6, 2026 · after the close

: 66.67%
: +5.57%

: -$0.03
: -$0.05
: —
: $696.06M

Reported results

: $696.06M; from $512.32M
: 71.76%; from 74.88%
: -$205.70M; from -$67.26M
: -29.55%; from -13.13%
: -$169.98M; from -$50.45M
: -$0.48; from -$0.15

Highlights

Revenue: Second-quarter revenue was $696.1 million, up 36% year over year and 8.8% from $639.8 million in Q1 FY2026.
Customer expansion: Dollar-based net retention reached 120%, up from 114% a year earlier, while customers generating more than $100,000 of annualized revenue rose to 4,698 from 3,712.
Recurring demand: Current RPO grew 35% year over year, and remaining performance obligations totaled $2.732 billion at quarter-end, with 64% expected to be recognized within 12 months.
Adjusted profitability: Non-GAAP operating income increased to $96.1 million, or 13.8% of revenue, from $72.3 million, or 14.1%, a year earlier; non-GAAP diluted EPS was $0.29 versus $0.21.
GAAP loss: GAAP net loss widened to $170.0 million, or $0.48 per diluted share, from $50.4 million, or $0.15, due chiefly to $150.7 million of restructuring charges.
Workforce reset: Cloudflare reduced approximately 20% of its workforce under an agentic AI-first operating model, recording $150.7 million of restructuring charges and estimating total charges of up to $165 million.
Margins: GAAP gross margin fell to 71.8% from 74.9%, while non-GAAP gross margin declined to 73.1% from 76.3%, reflecting higher technology, co-location, bandwidth and depreciation costs.
Cash generation: Free cash flow increased to $56.4 million, or 8% of revenue, from $33.3 million, or 6%, and cash, cash equivalents and available-for-sale securities totaled $4.163 billion.
Outlook: Third-quarter revenue guidance is $736.0 million to $737.0 million and non-GAAP diluted EPS is $0.34; full-year revenue guidance is $2.864 billion to $2.870 billion and EPS is $1.25 to $1.26.

Analysis

Cloudflare’s second quarter was primarily a growth and operating-model transition quarter. Revenue of $696.1 million rose 36% from $512.3 million a year ago and 8.8% sequentially from $639.8 million, but reported EPS of negative $0.05 missed the negative $0.03 consensus by 66.67%. The company remained deeply loss-making on a GAAP basis, with a $170.0 million net loss, or negative $0.48 per diluted share, versus a $50.4 million loss, or negative $0.15, in the year-ago quarter and a $22.9 million loss, or negative $0.07, in Q1.

Underlying operating performance was stronger than the GAAP result suggests, although adjusted margin was broadly flat. Non-GAAP operating income rose 33% to $96.1 million, while margin eased to 13.8% from 14.1%; non-GAAP diluted EPS increased to $0.29 from $0.21. Demand indicators improved, with 120% dollar-based net retention, 4,698 large paying customers and 35% current RPO growth. The main near-term disruption was the workforce reduction of approximately 20%, which drove $150.7 million of restructuring charges and is intended to support an AI-first operating model. Guidance calls for $736.0 million to $737.0 million of Q3 revenue and $2.864 billion to $2.870 billion for FY2026.

Growth and customer expansion

Cloudflare sustained 36% revenue growth as new customer additions and expansion within existing accounts both contributed. The company emphasized record growth in total paying customers, large customers and developers, while the filing identified customer additions and expansion as the primary revenue drivers.

Large customers: Customers with more than $100,000 of annualized revenue increased to 4,698 from 3,712 in the year-ago quarter.
Retention: Dollar-based net retention was 120%, compared with 114% in Q2 FY2025, indicating expansion more than offset contraction and attrition among the prior-year customer cohort.
Contract visibility: Current RPO grew 35% year over year. Total remaining performance obligations were $2.732 billion, with 64% expected to convert to revenue over the next 12 months.
Channel mix: Direct customers represented 69% of revenue, or $478.4 million, while channel partners represented 31%, or $217.7 million; the comparable mix a year earlier was 75% direct and 25% channel.

AI operating-model reset

The quarter included a major organizational restructuring intended to accelerate Cloudflare’s transition to an agentic AI-first operating model. The plan reduced approximately 20% of the workforce, making the reported GAAP loss substantially worse even as adjusted operating income increased.

Restructuring charge: Cloudflare recorded $150.7 million in Q2 restructuring and other charges, including $121.3 million of severance and employee benefits, $27.9 million of stock-based compensation and $1.6 million of other costs.
Total cost: Management estimates total charges of up to $165 million, comprising $125 million of cash expenditures, $35 million of stock-based compensation and $5 million of other costs.
Timing: The majority of the charges were recognized in Q2, with the remaining amount expected in Q3 as the plan is substantially completed by September 30, 2026.
Execution risk: The filing warns that the changes could impair productivity, innovation, customer support and control processes if AI tools and reassigned responsibilities do not deliver the expected efficiencies.

Margins and earnings quality

The adjusted profit profile improved in dollars but not in margin, while GAAP profitability deteriorated because of restructuring and continuing stock-based compensation. The cost base also grew faster than revenue in infrastructure-related areas.

Non-GAAP operations: Non-GAAP operating income rose to $96.1 million from $72.3 million, while non-GAAP operating margin was 13.8% versus 14.1% a year earlier.
Gross margin: GAAP gross margin declined to 71.8% from 74.9%, and non-GAAP gross margin declined to 73.1% from 76.3%.
Cost drivers: Cost of revenue increased 53% to $196.5 million, driven by $30.1 million of higher third-party technology services costs, $20.9 million of higher co-location and network costs, and $10.1 million of additional depreciation.
Stock compensation: Stock-based compensation and related employer payroll taxes totaled $140.6 million in the quarter, up from $132.0 million a year earlier, and represented a major bridge from GAAP operating loss to adjusted income.

Cash flow and balance sheet

Cloudflare continued to generate positive operating cash flow despite the GAAP loss and funded network investment internally. Liquidity was substantial, although the company had a $1.293 billion current portion of convertible notes due August 15, 2026.

Cash generation: Operating cash flow was $117.6 million, or 17% of revenue, versus $99.8 million, or 19%, a year earlier. Free cash flow was $56.4 million versus $33.3 million.
Liquidity: Cash, cash equivalents and available-for-sale securities totaled $4.163 billion at June 30, 2026, including $1.664 billion of cash and $2.499 billion of available-for-sale securities.
Debt: The balance sheet carried $1.293 billion of 2026 convertible notes and $1.977 billion of 2030 convertible notes; no borrowings were outstanding under the $400 million revolving credit facility.
Capital investment: Property and equipment purchases were $50.0 million and capitalized internal-use software was $11.2 million during the quarter.

VoidZero acquisition

Cloudflare acquired VoidZero on June 1 for $164.2 million, adding high-performance toolchain technology to its developer and AI platform strategy. The deal was not material to the quarter’s consolidated results but increased goodwill and acquired intangibles.

Consideration: The purchase price consisted of $98.7 million in Cloudflare Class A stock and $65.5 million of cash, net of $11.3 million of cash acquired.
Purchase accounting: The acquisition added $143.0 million of goodwill and $26.5 million of acquired intangible assets, primarily customer relationships.
Additional compensation: Cloudflare entered into acquisition-related stock-based award arrangements valued at $106.4 million, with $98.8 million to be recognized over a future weighted-average period of 3.9 years, subject to continued service.

Financial outlook

Management expects growth to remain strong through the second half while restructuring costs largely roll off after Q3. The outlook implies continued sequential revenue growth and a step-up in adjusted EPS.

Third quarter: Revenue is guided to $736.0 million to $737.0 million, non-GAAP operating income to $129.0 million to $130.0 million, and non-GAAP diluted EPS to $0.34.
Full year: Revenue guidance is $2.864 billion to $2.870 billion, non-GAAP operating income is $443.0 million to $445.0 million, and non-GAAP diluted EPS is $1.25 to $1.26.
Share count: Full-year EPS guidance uses approximately 374 million diluted shares, versus 373.7 million shares used for Q2 non-GAAP diluted EPS.

Cloudflare, Inc.

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