Cloudflare NYSE: NET reported a strong first quarter of 2026, with revenue rising 34% year over year to $639.8 million, as executives said demand tied to AI, agentic workloads and its Workers developer platform continued to accelerate.
Co-founder and CEO Matthew Prince said the company began the year with “very strong” momentum, citing gains in large customers, sales productivity and new pipeline generation. Cloudflare ended the quarter with 4,416 customers paying more than $100,000 annually, up 25% from a year earlier. Revenue from those large customers grew 38% year over year and accounted for 72% of total revenue, compared with 69% in the prior-year period.
The company’s dollar-based net retention rate was 118%, down 2 percentage points sequentially but up 7 percentage points year over year. Gross margin was 72.8%, and Cloudflare reported operating income of $73.1 million, representing an 11.4% operating margin. Free cash flow was $84.1 million, or 13% of revenue.
Cloudflare Announces AI-Driven Restructuring
Alongside the earnings results, Cloudflare announced a significant workforce reduction as part of what Prince described as a shift toward an “agentic AI-first operating model.” Prince said the company is reducing the size of its team by more than 1,100 people. CFO Thomas Seifert later described the reduction as approximately 20% of the workforce, across all functions and geographies.
Prince said the decision was not a cost-cutting exercise or a reflection of individual performance, but rather an effort to redesign internal processes around AI and Cloudflare’s Workers platform. He said AI and agents are “no longer pilot projects” at the company and are now core to its workforce.
“At Cloudflare, the way work is done has fundamentally changed,” Prince said. He added that the company’s internal AI usage increased by more than 600% in the last three months, and that 97% of employees in research and development use AI coding tools powered by the Workers developer platform.
Seifert said the restructuring will result in severance and other restructuring charges of $140 million to $150 million for full-year 2026, with about $40 million of that non-cash and the majority concentrated in the second quarter. He said the company’s free cash flow expectations for 2026 remain unchanged.
AI and Developer Platform Drive Momentum
Executives repeatedly pointed to AI as a key driver of growth. Prince said Cloudflare is seeing “hundreds of billions of agentic requests per month,” with the number growing exponentially. He said the company’s positioning in front of application programming interfaces, applications and other essential internet traffic has differentiated it from traditional content delivery network providers.
Seifert said AI is driving “a fundamental re-platforming of the Internet” and described it as the biggest tailwind Cloudflare has seen for both its network and Workers developer platform. Developers on Cloudflare’s platform increased to more than 5.5 million at the end of the quarter, including 1 million new developers added during the quarter. Seifert noted that the company added 1.5 million developers during all of 2025.
Prince said Cloudflare’s developer tools are being used to build and run agentic workloads more efficiently, including through products such as Dynamic Workers and AI Gateway. In the Q&A portion of the call, he said one large AI studio went from essentially zero Dynamic Workers to more than 1 million running on Cloudflare’s platform in 15 days, without naming the customer.
Customer Wins Include AI, Security and SASE Deals
Prince highlighted several customer expansions during the quarter. A leading technology platform signed a two-year, $10 million pool-of-funds contract covering application services and the Workers developer platform. A rapidly growing technology company in APAC signed a two-year, $8.7 million contract for application services and Workers, with Prince saying the customer selected Cloudflare over a hyperscaler due to its unified platform and low-latency security.
Cloudflare also expanded with a Fortune 100 technology company through a two-year, $8 million contract for its Privacy Proxy solution. Prince said the company delivered a fully operational solution within one week to support user-initiated agentic traffic at scale.
In security, Prince said a leading insurance company in EMEA signed a five-year, $5.1 million contract for application services and Cloudflare’s full SASE portfolio. A Fortune 500 aerospace and defense company signed a three-year, $5 million contract for Zero Trust products after a major security breach and compliance concerns with an incumbent vendor’s browser isolation solution.
Cloudflare also disclosed expansions with two AI companies: a one-year, $4.1 million contract for application services with one AI company, and a 10-month, $2 million contract for Argo Smart Routing with another. Prince said the latter customer reduced average global latency by 30% after deploying Argo.
Margins, Expenses and Balance Sheet
Seifert said first-quarter gross margin declined 210 basis points sequentially and 130 basis points year over year to 72.8%. He attributed the decline in part to paid traffic growing relative to free traffic, which shifted some network costs from sales and marketing into cost of revenue. He also said Workers developer platform products currently carry lower gross margins than the company average, though they have a lower cost to book.
Operating expenses as a percentage of revenue declined 3 percentage points year over year to 62%. Sales and marketing expenses were $227.5 million, or 36% of revenue, down from 38% a year earlier. Research and development expenses were $101.5 million, or 16% of revenue, while general and administrative expenses were $63.6 million, or 10% of revenue.
Net income was $94 million, or $0.25 per diluted share. Cloudflare ended the quarter with $4.2 billion in cash, cash equivalents and available-for-sale securities. Remaining performance obligations were $2.543 billion, up 36% year over year.
Guidance Points to 30% Revenue Growth
For the second quarter, Cloudflare expects revenue of $664 million to $665 million, representing 30% year-over-year growth. The company forecast operating income of $90 million to $91 million and diluted net income per share of $0.27, assuming approximately 377 million shares outstanding.
For full-year 2026, Cloudflare expects revenue of $2.805 billion to $2.813 billion, representing 30% growth at the midpoint. The company forecast operating income of $418 million to $421 million and diluted net income per share of $1.19 to $1.20.
Seifert said Cloudflare still expects growth in net capacity of its quota-carrying sales force to accelerate in 2026, despite the restructuring. In response to an analyst question, he said the company “hardly” touched quota-carrying account executive capacity and expects productivity gains in support ratios to allow more sales capacity within the same spending envelope.
Prince closed the call by emphasizing that the restructuring was not about downsizing or saving costs, but about aligning roles with Cloudflare’s future. “Our mission is to help build a better internet,” he said. “It’s never been more important as the internet goes through all of the transitions with AI and agents.”
About Cloudflare NYSE: NET
Cloudflare, Inc is a global web infrastructure and security company that provides a suite of services designed to improve the performance, reliability and security of internet properties. Its core offerings include a content delivery network (CDN), distributed denial-of-service (DDoS) protection, managed DNS, and a web application firewall (WAF). Cloudflare also provides tools for bot management, SSL/TLS, load balancing and rate limiting to help organizations maintain uptime and protect web applications from attack.
In addition to traditional edge and security services, Cloudflare has expanded into edge computing and developer platforms.
This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.
Before you consider Cloudflare, you'll want to hear this.
MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Cloudflare wasn't on the list.
While Cloudflare currently has a Moderate Buy rating among analysts, top-rated analysts believe these five stocks are better buys.
View The Five Stocks Here
Enter your email address and we’ll send you MarketBeat’s list of ten stocks set to soar in Spring 2026, despite the threat of tariffs and what's happening in Iran. These ten stocks are incredibly resilient and are likely to thrive in any economic environment.
Get This Free Report
