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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 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.
Revenue $562 million, up 30.7% year-over-year. The reacceleration of revenue growth is attributed to innovation and execution.
Large Customers 4,009 large customers, a 23% increase year-over-year. Revenue contribution from large customers grew 42% year-over-year, contributing 73% of total revenue, up from 67% last year.
Dollar-Based Net Retention 119%, up 5 percentage points quarter-over-quarter. This reflects strong customer retention and expansion.
Gross Margin 75.3%, within the long-term target range of 75%-77%. This represents a decrease of 100 basis points sequentially and 350 basis points year-over-year, attributed to increased paid versus free customer traffic.
Operating Profit $85.9 million, representing an operating margin of 15.3%, an increase of 50 basis points year-over-year.
Free Cash Flow $75 million, representing 13% of revenue, compared to $45.3 million or 11% of revenue in the same period last year.
Customer Growth Approximately 296,000 paying customers, a record net addition of nearly 30,000 paying customers sequentially, and an increase of 33% year-over-year.
Regional Revenue Growth U.S. revenue increased 31% year-over-year, EMEA revenue increased 26% year-over-year, and APAC revenue increased 43% year-over-year.
Operating Expenses Operating expenses as a percentage of revenue decreased by 4% year-over-year to 16%. Sales and marketing expenses decreased to 36% of revenue from 37% last year, R&D expenses decreased to 15% of revenue from 16% last year, and G&A expenses remained consistent at 10% of revenue.
Net Income $102.6 million, with diluted net income per share of $0.27.
AI-driven web platform: Cloudflare is building a platform to protect and manage content for the emerging AI-driven web, establishing itself as a forward-looking partner for customers.
Workers platform: Adopted by leading companies for running AI inference tasks, building AI agents, and full-stack applications.
Revenue growth: Achieved $562 million in revenue, up 30.7% year-over-year, with strong growth in the U.S. (31%), EMEA (26%), and APAC (43%).
Large customers: Increased to 4,009 large customers, a 23% year-over-year growth, contributing 73% of total revenue.
Sales productivity: Increased year-over-year for the seventh consecutive quarter, with close rates and bookings from partner-initiated opportunities doubling year-over-year.
Gross margin: Maintained at 75.3%, within the long-term target range of 75%-77%.
AI and Agentic Internet: Cloudflare is positioning itself as a key player in shaping the future of AI-driven commerce and the Agentic Internet, with 80% of leading AI companies relying on its platform.
Government contracts: Secured a $20 million contract with a U.S. cabinet-level agency, displacing over a dozen legacy solutions and generating $10 million in annual cost savings.
Leadership Transition: The departure of CJ Desai, President of Product & Engineering, poses a potential risk to Cloudflare's innovation and product development continuity. Leadership transitions can disrupt strategic initiatives and impact team morale.
Macroeconomic Conditions: Forward-looking statements highlight risks related to future macroeconomic conditions, which are beyond the company's control and could impact financial performance.
Customer Concentration: A significant portion of revenue (73%) comes from large customers, which could pose a risk if any major customer reduces or discontinues their business with Cloudflare.
Competitive Pressures: The company faces competition from hyperscale public cloud providers and other point solution providers, which could impact its ability to retain or grow its customer base.
AI-Driven Business Model Shift: The rise of AI is expected to fundamentally change the business model of the Internet, creating uncertainties about future revenue streams and competitive positioning.
Gross Margin Pressure: Gross margin decreased year-over-year due to increased allocation of expenses to cost of goods sold, which could impact profitability if the trend continues.
Regulatory and Compliance Risks: The company’s expansion into government contracts, such as the U.S. cabinet-level agency deal, increases exposure to regulatory and compliance risks.
Supply Chain and Operational Risks: The company’s reliance on its network infrastructure and potential disruptions could impact service delivery and customer satisfaction.
Revenue Guidance for Q4 2025: Cloudflare expects revenue in the range of $588.5 million to $589.5 million, representing an increase of 28% year-over-year.
Revenue Guidance for Full Year 2025: Cloudflare expects revenue in the range of $2.142 billion to $2.143 billion, representing an increase of 28% year-over-year.
Operating Income Guidance for Q4 2025: Cloudflare expects operating income in the range of $83 million to $84 million.
Operating Income Guidance for Full Year 2025: Cloudflare expects operating income in the range of $297 million to $298 million.
Net Income Per Share Guidance for Q4 2025: Cloudflare expects diluted net income per share of $0.27, assuming approximately 377 million shares outstanding.
Net Income Per Share Guidance for Full Year 2025: Cloudflare expects diluted net income per share of $0.91, assuming approximately 370 million shares outstanding.
Long-Term Revenue Target: Cloudflare aims to achieve $5 billion in annualized revenue by the fourth quarter of 2028, with a $3 billion annualized revenue run rate expected by the fourth quarter of 2026.
Capital Expenditures: Network CapEx is expected to be approximately 13% of revenue for the full year 2025.
The selected topic was not discussed during the call.
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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