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01/10 16:01
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call highlights strong financial performance, including a 27% revenue growth and increased contribution from large customers. Despite a slight decline in gross margin, the company maintains robust free cash flow and a positive outlook with 25% revenue growth guidance. The Q&A reveals improved sales productivity and competitive advantages in the SASE market. Although there are macroeconomic and supply chain risks, these are being managed effectively. The overall sentiment is positive, likely leading to a stock price increase of 2% to 8%.
Revenue $479.1 million, up 27% year-over-year.
Large Customers 3,527 customers paying more than $100,000, a 23% increase year-over-year.
Revenue Contribution from Large Customers 69% of revenue, up from 67% year-over-year.
Dollar-Based Net Retention 111%, flat quarter-to-quarter.
Gross Margin 77.1%, down 50 basis points sequentially and down 240 basis points year-over-year.
Operating Profit $56 million, up 32% year-over-year.
Operating Margin 11.7%, up 50 basis points year-over-year.
Free Cash Flow $52.9 million, or 11% of revenue, compared to $35.6 million or 9% of revenue year-over-year.
Net Income $58.4 million, diluted net income per share of $0.16.
Cash and Cash Equivalents $1.9 billion.
Remaining Performance Obligations (RPO) $1,864 million, up 39% year-over-year.
Current RPO 66% of total RPO, up 29% year-over-year.
New Product Launches: Cloudflare achieved a record number of customers spending over $1 million and $5 million, indicating strong demand for its products, particularly the workers developer platform.
Product Growth: Cloudflare Workers AI inference requests increased nearly 4,000% year-over-year, and requests through the AI gateway rose over 1,200% year-over-year.
Market Expansion: Cloudflare's revenue grew 27% year-over-year to $479.1 million, with significant growth in APAC at 54% year-over-year.
Customer Growth: Cloudflare added over 13,000 paying customers sequentially, totaling approximately 251,000, a 27% increase year-over-year.
Operational Efficiency: Gross margin was 77.1%, above the long-term target of 75% to 77%, and operating income increased 32% year-over-year to $56 million.
Sales Productivity: Cloudflare delivered a double-digit year-over-year improvement in sales productivity and improved sales cycles.
Strategic Shifts: Cloudflare signed its largest contract in history worth over $100 million, indicating a strategic shift towards larger enterprise deals.
Long-term Contracts: The company closed its longest duration contract in history for Zero Trust, showcasing a strategic focus on long-term customer relationships.
Macroeconomic Volatility: The company acknowledges that the world is more volatile than before, which may impact future performance.
Supply Chain Challenges: Cloudflare is managing supply chain risks by maintaining robust and diversified supply chains to mitigate tariff and trade risks.
Competitive Pressures: There is a noted reduction in pricing pressure from competition, but the company remains cautious about external influences.
Regulatory Issues: The company is aware of new Federal Zero Trust requirements that could impact their business, as seen in government contracts.
Foreign Exchange Risks: Variability in foreign-exchange rates resulted in unrealized losses of $2.7 million, impacting net income.
Customer Retention and Churn: While churn rates improved, the company is still facing near-term headwinds from increased traction with pool of fund contracts.
Revenue Growth: Achieved revenue of $479.1 million, up 27% year-over-year.
Customer Growth: Closed the quarter with 3,527 customers paying more than $100,000, a 23% increase year-over-year.
Large Customer Contribution: Revenue contribution from large customers grew 32% year-over-year, now contributing 69% of total revenue.
Record Contracts: Landed the largest contract in Cloudflare's history, a $130 million deal, and the longest duration contract for Zero Trust.
Sales Productivity: Achieved double-digit year-over-year improvement in sales productivity.
AI Product Growth: Cloudflare Workers AI inference requests up nearly 4,000% year-over-year.
Q2 2025 Revenue Guidance: Expect revenue in the range of $500 million to $501 million, a 25% year-over-year increase.
Full Year 2025 Revenue Guidance: Expect revenue in the range of $2,090 million to $2,094 million, a 25% year-over-year increase.
Operating Income Guidance: Expect operating income for Q2 in the range of $62.5 million to $63.5 million and for the full year in the range of $272 million to $276 million.
Net Income Guidance: Expect diluted net income per share for Q2 to be $0.18 and for the full year to be in the range of $0.79 to $0.80.
CapEx Guidance: Expect network CapEx to be 12% to 13% of revenue for full year 2025.
Free Cash Flow: $52.9 million in Q1 2025, representing 11% of revenue.
Shareholder Value Commitment: Ongoing commitment to creating significant shareholder value through disciplined execution, durable growth, and operational efficiency.
The earnings call reflects strong financial performance with a 43% RPO growth, transformation to enterprise sales, and strategic integrations like Oracle OCI. Although there are slight declines in operating margins, the company maintains strong guidance for revenue and income, supported by positive Q&A insights on sales productivity, strategic partnerships, and product differentiation. The optimistic guidance and strategic initiatives suggest a positive stock price reaction over the next two weeks.
Despite some uncertainties in the Q&A section, Cloudflare's earnings call highlighted strong financial performance with a 27% revenue growth, significant customer growth, and record contracts. The guidance for Q2 and full-year 2025 is optimistic, with expected revenue growth of 25%. The company's strategic shift to relationship-building has landed large deals, and investments in AI and Act products show promise. While some concerns were noted, the overall sentiment is positive, predicting a stock price increase of 2% to 8% over the next two weeks.
The earnings call summary presents a mixed picture. Financial performance shows strong revenue growth and improved operating profit, yet gross margin has declined. Guidance is optimistic, forecasting a 25% increase in revenue, but management's unclear responses in the Q&A raise concerns about transparency and sustainability of improvements. Additionally, macroeconomic volatility and foreign exchange losses could weigh on future results. While there are positive elements, such as strong customer growth and operational efficiency, the uncertainties and unclear guidance lead to a neutral sentiment for the stock price over the next two weeks.
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