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Cloudflare latest quarter reported of $696.1 million, up 36%, which annualizes to $2.8 billion. Three months earlier, it had cut more than 1,100 roles, about 20% of the company, and the stock dropped 23%. In Q2 growth accelerated, and the stock jumped 17% after hours. Four days later Cloudflare raised $2.5 billion at a 0% coupon. Cloudflare’s stock is up 65% in a year, and its revenue multiple went from about 40x to 50x Let’s dig into … Why. Cloudflare closed at $355.01 on October 6, a market cap of about $126 billion. It ended September 2025 at $214.59. The path in between: - October 2025: $253.30 at month end. - February 2026: $172.19 at month end, with a 52-week low of $158.83, while revenue was growing 34%. - May 2026: down 23.6% on the layoff announcement. - August 6: $284.17 at the close before Q2, then up 17% after hours. - October 6: $355.01, up 25% from that pre-earnings close and within 4% of the 52-week high of $367.43. The multiple, on market cap to trailing twelve months revenue: - A year ago: about 40x, on roughly $75 billion of market cap and $1.88 billion of trailing revenue (my estimate). - End of 2025: 31.9x. - February low: roughly 26x - Now: about 50x, on $2.51 billion of trailing revenue. That’s 44x this year’s guided revenue. Over the year, trailing revenue grew about 34% and the multiple expanded about 25%. Together they account for the 65%. #1. Growth went from 27% to 36% in five quarters, and NRR went from 114% to 120% The quarterly growth series since Q1 2025 runs 27%, 28%, 31%, 34%, 34%, 36%. Revenue beat the $664.7 million consensus by $31 million. The expansion numbers moved with it: - NRR: 120%, up 2 points sequentially and 6 points year over year. - $100K+ customers: 4,698, up 27%, an acceleration from 25% the prior quarter. - Net adds: 282 in the quarter and a record 986 over twelve months, with records in every tier from $100K to $5M+. - Concentration: large customers are 73% of revenue, up from 71%. - Geography: US revenue grew 41%. The guide is lower. Q3 is guided to $736 to $737 million, or 31% growth, and the full year to $2.864 to $2.870 billion, or 32%. By my arithmetic that implies about 29% in Q4. The CFO said the contract mix now makes quarter-to-quarter revenue harder to forecast, so guidance stays prudent. #2. Cloudflare cut 1,100 people …. while growing 34%. And paid them through December The cut was announced May 7 alongside Q1 results. Cloudflare had 5,156 full-time employees at the end of 2025. Matthew Prince told employees internal AI usage had grown more than 600% in three months, and 97% of R&D was using AI coding tools. The memo said the move was “not a cost-cutting exercise.” What it cost: - Departing employees get full base pay through the end of 2026. - The initial estimate was $140 to $150 million in charges. Q2 alone booked $150.7 million. - The full-year figure is now up to $165 million, about $130 million of it cash. The CFO said they paid more to resolve it faster, particularly internationally. The first full quarter after the cut: - Headcount ended at 4,700. - Non-GAAP opex fell 3 points to 59% of revenue, with sales and marketing at 33%, down from 36%. - Sales productivity rose year over year for the tenth straight quarter. - The Q3 guide implies a non-GAAP operating margin of about 17.6%, against 13.8% in Q2. - Annualized revenue per employee is about $592K, up from roughly $477K at year end (my arithmetic). The internal tooling is now a product. Cloudflare OS gave finance, legal, and procurement the agent tools most companies limit to developers, wired into systems of record with audit and controls. Cloudflare open sourced it in August, and large systems integrators have asked to implement it. At Birthday Week on October 1, a waitlist opened for a fully managed version. We run SaaStr with 3 humans and 20+ agents, so we’re biased toward believing this model works. Q2 is one quarter of evidence that it can at $2.8 billion. #3. 2 million developers signed up in one quarter, more than in all of 2025 Cloudflare ended Q2 with 7.4 million developers. Nearly 2 million arrived in the quarter, against 1.5 million in all of 2025. Prince said he made the team triple-check the number. It also added more than 80,000 paying customers in the quarter, as many as it had in total at its 2019 IPO, for 74% year-over-year paying customer growth. The source is vibe coding. Prince named Lovable, Replit, and Base44 as platforms whose generated code often deploys to Cloudflare, and said his own executive assistant now ships household tools there. Workers only charges when code is doing work, which suits agents that spin up and down. The enterprise motion set records in the same quarter. Named deals included a five-year, $31.8 million contract with a media company, an 18-month, $15.9 million contract with a Fortune 1000 technology company, and a three-year, $11 million contract with a European Global 2000. Asked whether Cloudflare would drift back to pure PLG, Prince said that on $10 million-plus contracts, “no one’s putting it on a credit card.” Sales and channel stayed large through the self-serve surge: - GAAP sales and marketing was $276.1 million, about 40% of revenue. - Partners drove 31% of revenue, and Prince expects that to pass 50% and possibly 60%. #4. Three of the eight deals Cloudflare named were one-year pool-of-funds contracts A pool of funds is a dollar commitment the customer draws down across any product. The three named this quarter: - $7.5 million from a generative AI company, which chose Cloudflare for zero egress fees on heavy image and video workloads. - $4 million from an APAC technology company, on top of an $8.7 million application services contract signed one quarter earlier. - $6 million from a technology company scaling AI agent infrastructure. All three are for the Workers developer platform. The CFO described the model moving from purely ratable subscriptions toward a mix of pool of funds, consumption, and what Cloudflare calls T-shirt sizing. Customers are burning through commitments faster and renewing early, which raises the variance customer by customer. RPO was $2.732 billion, up 38%, with current RPO up 35%. Maximum deal size has stepped up with each product line: about $1 million for application services, double-digit millions for Zero Trust, and triple digits for the developer platform. CrowdStrike’s Falcon Flex works the same way. The cost Cloudflare accepted is a revenue number that’s harder to guide. #5. Bots passed humans on Cloudflare’s network in May, more than a year ahead of its own forecast In November 2025, Cloudflare’s data said non-human traffic would pass human traffic in the second half of 2027. In March 2026 the estimate moved to the first half of 2027. In May 2026 it happened. Prince’s current projection is that non-human traffic could reach 1,000 times human traffic in five years, with the caveat that he has been wrong at every step. Cloudflare is building a payments layer for that traffic. Monetization Gateway lets a customer sell any resource behind Cloudflare, such as a page, an API, a dataset, or an MCP tool. Wallets lets agents pay, and cloudflare.pay handles identity and trust. Prince’s rough math on the scale: - About half a billion requests per second cross the network, and 1% to 10% could carry a micropayment. - That means 10 million to 100 million financial transactions per second, against roughly 20,000 per second for Visa at holiday peak. - More than 20% of the internet sits behind Cloudflare, much of it on the free plan, and he floated paying those customers a share. The payments layer has no revenue yet. The CFO said Workers is still the fastest-growing line, followed by SASE. Blocking malicious bot traffic carries no extra charge. A few more interesting learnings - Gross margin fell 320 basis points. Non-GAAP gross margin was 73.1%, against 76.3% a year ago. It was the first sequential improvement in eight quarters. The CFO’s explanation is that paid traffic is growing relative to free, which moves network cost out of sales and marketing and into cost of revenue. - $2.5 billion at 0%, four days after earnings. Cloudflare issued $2.50 billion of 0% convertible notes due 2031, with a conversion price of about $496.94, a 60% premium to the $310.59 close and still 40% above today’s price. It already held $4.16 billion in cash and securities, with $1.29 billion of older converts classified as current. - Stock comp grew 6.5% while revenue grew 36%. Stock-based compensation and related payroll taxes were $140.6 million, against $132.0 million a year ago. That’s 20% of revenue, down from 26%. - Capex is back-half loaded. Network capex was 7% of revenue in Q2 against a full-year guide of 14% to 15%, which by my rough math puts the second half near 20%. - GAAP loss was about $18 million before restructuring. Reported GAAP net loss was $170.0 million. Management said it would have been around $18 million without the charges, and that it’s ahead of its target of GAAP profitability by 2028. Free cash flow was $56.4 million, 8% of revenue, after $99 million of severance cash paid in the quarter. How AI took Cloudflare from 27% growth to 36% For three years Cloudflare grew in the high 20s to low 30s. In Q1 2025 it was at 27%. Five quarters later it’s at 36%. - It bills on requests and compute, and agents generate more of both. More than half the traffic on the network is now non-human, and over 80% of the major AI companies are customers. Seat-priced vendors lose units as agents take over work. Cloudflare’s billing unit goes up. - Vibe-coded apps need somewhere to run. The 2 million developers added in Q2 came largely from code generated on platforms like Lovable, Replit, and Base44 and deployed to Cloudflare. Workers runs on lightweight isolates instead of containers and charges only while code is working. Prince said Workers has tipped from an adoption play into a meaningful revenue contributor. - AI companies are buying it to get out from under hyperscaler egress fees. The $7.5 million generative AI customer moves huge volumes of images and video. Hyperscaler egress pricing would have broken its economics and limited its choice of inference tools and GPUs. A second AI builder signed for $6 million to run agent containers. - The same bots drive security spend. The largest deal of the quarter, $31.8 million over five years, went to a media company fighting aggressive scraping. Prince said the top reason large companies call now is that they need to deploy AI more securely. A large UK government agency canceled a Zero Trust RFP with a first-generation vendor to re-evaluate with agents in scope. He said Cloudflare’s SASE and Zero Trust products have gained significant share in the last six months. - It got the demand without buying the GPUs. Network capex is guided to 14% to 15% of revenue for the year. On the same night as Cloudflare’s report, a competitor disclosed nearly $3 billion in AI infrastructure contracts. Prince said Cloudflare gets asked for that business and turns it down. His claim is up to 10 times the utilization per capex dollar in some cases, because Cloudflare sells completed work and schedules the hardware itself. How much of the 36% is AI can’t be measured from the outside. Cloudflare doesn’t break out Workers revenue, and both Prince and the CFO declined to size it on the call. The evidence is the developer count, the traffic mix, and the named deals. The guide implies about 29% growth in Q4.
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