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01/10 16:00
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
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.
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 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, or diluted net income per share of $0.16.
Remaining Performance Obligations (RPO) $1,864 million, up 39% year-over-year.
Current RPO 66% of total RPO, increasing 29% year-over-year.
New Product Launches: Cloudflare achieved significant growth in its Workers AI inference requests, which are up nearly 4,000% year-over-year, and requests through its AI gateway are up more than 1,200% year-over-year.
Product Expansion: Cloudflare's workers developer platform was highlighted as a key driver for the largest contract in the company's history, valued at over $100 million.
Market Expansion: Cloudflare's revenue from the APAC region increased by 54% year-over-year, indicating strong growth in this market.
Customer Growth: The company closed the quarter with 3,527 customers paying more than $100,000, a 23% increase year-over-year.
Operational Efficiency: Cloudflare maintained a gross margin of 77.1%, above the long-term target of 75% to 77%.
Sales Productivity: The company reported a double-digit year-over-year improvement in sales productivity and improved sales cycles.
Strategic Shifts: Cloudflare is focusing on long-term contracts, with the longest duration contract in its history signed during the quarter.
Market Positioning: Cloudflare is positioning itself as a mission-critical partner for customers, emphasizing its unique value proposition compared to traditional hyperscalers.
Earnings Expectations: Cloudflare missed earnings expectations with a reported EPS of $0.16, below the expected $0.1637.
Macroeconomic Volatility: The company acknowledged that the world is more volatile than before, impacting their unique view of the global economy.
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 reduced pricing pressure from competition, but the company remains cautious about external influences.
Foreign Exchange Variability: Variability in foreign-exchange rates resulted in unrealized losses of $2.7 million, negatively impacting diluted net income per share.
Customer Retention and Churn: While dollar-based net retention was stable at 111%, the company is aware of potential headwinds from increased traction with pool of fund contracts.
Operational Efficiency: Despite external volatility, Cloudflare is focused on operational excellence as a long-term competitive advantage.
Largest Contract: Cloudflare landed the largest contract in its history, exceeding $100 million, driven by the workers developer platform.
Longest Duration Contract: Closed the longest duration contract in Cloudflare’s history for Zero Trust.
Sales Productivity: Achieved double-digit year-over-year improvement in sales productivity.
Customer Growth: Added a record number of customers spending over $1 million and $5 million, increasing 48% and 54% year-over-year respectively.
AI Growth: Cloudflare Workers AI inference requests increased nearly 4,000% year-over-year.
New Pipeline Attainment: New pipeline attainment was ahead of forecast.
Q2 2025 Revenue Guidance: Expected revenue in the range of $500 million to $501 million, representing a 25% year-over-year increase.
Q2 2025 Operating Income Guidance: Expected operating income in the range of $62.5 million to $63.5 million.
Full Year 2025 Revenue Guidance: Expected revenue in the range of $2,090 million to $2,094 million, representing a 25% year-over-year increase.
Full Year 2025 Operating Income Guidance: Expected operating income in the range of $272 million to $276 million.
Full Year 2025 Net Income Guidance: Expected diluted net income per share in the range of $0.79 to $0.80.
CapEx Guidance: Network CapEx expected to be 12% to 13% of revenue for full year 2025.
Free Cash Flow: $52.9 million in Q1 2025, representing 11% of revenue.
Cash and Cash Equivalents: $1.9 billion at the end of Q1 2025.
Remaining Performance Obligations (RPO): $1,864 million, an increase of 39% year-over-year.
Guidance for Q2 2025 Revenue: Expected in the range of $500 million to $501 million, a 25% year-over-year increase.
Guidance for Full Year 2025 Revenue: Expected in the range of $2,090 million to $2,094 million, a 25% year-over-year increase.
Diluted Net Income per Share for Full Year 2025: Expected to be in the range of $0.79 to $0.80.
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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