NET — Cloudflare, Inc.

Summary of Cloudflare Q4 2025 Earnings Call

1. Key Financial Results and Metrics:

• Revenue: $614.5 million, up 34% year-over-year.
• Large Customers: 4,298 customers paying over $100,000 annually, a 23% increase year-over-year. Revenue from these customers grew 42%, constituting 73% of total revenue.
• Dollar-Based Net Retention Rate: 120%, up 1% quarter-over-quarter and 9% year-over-year.
• Gross Margin: 74.9%, slightly below the target range of 75%-77%.
• Operating Income: $89.6 million, with an operating margin of 14.6%.
• Free Cash Flow: $99.4 million, representing 16% of revenue, up from 10% in the previous year.
• Net Income: $106.8 million, or $0.28 per diluted share.
• Remaining Performance Obligations (RPO): $2.496 billion, a 48% increase year-over-year.

2. Strategic Updates and Business Highlights:

• Cloudflare reported strong growth in its go-to-market strategy, transitioning from product-led growth to enterprise sales.
• Significant customer wins included large contracts with AI companies and Fortune 100 firms, emphasizing Cloudflare's role as a strategic partner.
• The company highlighted a shift towards AI-driven demand for its services, positioning itself as a critical infrastructure provider for the emerging "agentic Internet."
• The sales team achieved record productivity, with increasing quota attainment and a notable rise in large customer acquisitions.

3. Forward Guidance and Outlook:

• For Q1 2026, revenue is expected to be between $620 million and $621 million, reflecting a 29%-30% year-over-year increase.
• Full-year 2026 revenue guidance is projected to be between $2.785 billion and $2.795 billion, representing a 28%-29% increase.
• Operating income for 2026 is anticipated to be between $378 million and $382 million, with a diluted net income per share of $1.11 to $1.12.

4. Bad News, Challenges, or Points of Concern:

• Gross margin decreased by 270 basis points year-over-year, attributed to increased network expenses from higher paid customer traffic.
• There are potential challenges related to revenue volatility due to a higher share of variable revenue from pool of funds contracts, which could impact forecasting.
• The competitive landscape remains intense, particularly with hyperscalers increasing CapEx, which may affect Cloudflare's pricing and market share.

5. Notable Q&A Insights:

• Management expressed confidence in Cloudflare's positioning amidst AI disruption, stating that the company is well-suited to capitalize on the increasing demand for AI-related services.
• The discussion highlighted the importance of the channel strategy, with management indicating that it enhances rather than hinders nimbleness in operations.
• Insights into customer engagement revealed that many companies are transitioning from legacy systems to Cloudflare's platform for improved efficiency and cost-effectiveness.
• The management acknowledged the need for a new business model to support content creators in the age of AI, emphasizing Cloudflare's role as a neutral broker between content creators and AI companies.

Overall, Cloudflare demonstrated strong financial performance in Q4 2025, with significant growth in customer acquisition and revenue, while also navigating challenges related to margin pressures and competitive dynamics. The outlook for 2026 remains positive, with strategic initiatives in place to leverage emerging trends in AI and enterprise demand.