Cloudflare Q4 Earnings Call Highlights

Key Points

• Cloudflare posted Q4 revenue of $614.5 million (up 34% YoY) with operating profit of $89.6 million, free cash flow of $99.4 million, a gross margin of 74.9%, and a dollar-based net retention rate of 120%.
• Enterprise momentum accelerated: new ACV bookings grew nearly 50% YoY, the company closed its largest TCV (a $130 million five‑year deal) and largest annual ACV ($42.5 million), and large-customer adoption (>$100k and >$1M cohorts) expanded markedly as AI/agent-driven traffic raised demand.
• Guidance and financial posture: Cloudflare expects 2026 revenue of $2.785–$2.795 billion (28–29% growth) and Q1 revenue of $620–$621 million, while noting pool-of-funds deals (~20% of Q4 ACV) increase variable revenue and potential quarter-to-quarter volatility and network CapEx of ~12–15% of revenue.

Cloudflare NYSE: NET executives highlighted accelerating growth and what they characterized as strong enterprise momentum on the company’s fourth-quarter 2025 earnings call, pointing to record new annual contract value (ACV) bookings and increased demand tied to AI-driven internet traffic and “agentic” workloads.

Quarterly results and customer metrics

CEO Matthew Prince said Cloudflare delivered fourth-quarter revenue of $614.5 million, up 34% year-over-year. The company reported gross margin of 74.9%, slightly below its long-term target range of 75% to 77%.

On profitability and cash generation, Cloudflare posted operating profit of $89.6 million, or an operating margin of 14.6%, and generated free cash flow of $99.4 million during the quarter.

Prince said the company ended the quarter with 4,298 customers paying more than $100,000 per year, up 23% year-over-year. Revenue from these large customers grew 42% year-over-year and accounted for 73% of quarterly revenue, up from 69% in the prior-year quarter. Cloudflare’s dollar-based net retention rate was 120%, up 1% sequentially and 9% year-over-year.

Go-to-market execution and large deals

Prince emphasized Cloudflare’s shift from product-led growth toward enterprise sales execution, saying the company “blew away” its prior record for new ACV. He said new ACV bookings grew nearly 50% year-over-year in Q4, marking the fastest growth rate Cloudflare has delivered since 2021.

Among the go-to-market highlights management cited:

• Global sales productivity increased year-over-year for the eighth consecutive quarter, surpassing a prior high set in Q4 2021.
• Net sales capacity growth accelerated at its fastest pace since 2022.
• Quota attainment reached the highest level in the last four years.
• For the fifth consecutive quarter, Cloudflare added a record number of customers spending more than $1 million per year.

Prince said Cloudflare began 2025 by signing its largest total contract value (TCV) deal—$130 million over five years—and followed in Q4 by closing its largest annual contract value deal: $42.5 million per year.

Customer wins and product demand themes

Management highlighted multiple large customer expansions across its platform, including pool-of-funds arrangements and deals spanning Workers, Application Services, Zero Trust, and AI Crawl Control.

Prince cited several examples, including:

• A leading AI company signing a two-year, $85 million pool-of-funds agreement for Cloudflare’s full platform with 100% traffic allocation, following an RFP process in which Cloudflare was selected over hyperscalers.
• A Fortune 500 technology company signing a two-year, $45 million pool-of-funds contract, with Cloudflare displacing an incumbent for Workers and Application Services.
• A U.S. media company signing a three-year, $3.1 million deal for AI Crawl Control along with Application Services and Workers, citing increased AI scraping and infrastructure costs.
• A U.S. government entity signing a 2.5-year, $2.2 million Zero Trust expansion including Access, Gateway, DLP, CASB, and Email Security.

Prince said the common thread in these wins was a renewed sorting of vendors into “nice-to-haves” versus “must-haves,” and that Cloudflare is benefiting from increased demand as AI and agents change how the internet is used. He noted that in January, weekly requests generated by AI agents more than doubled across the Cloudflare network.

CFO detail: geography, expenses, margin drivers, and balance sheet

CFO Thomas Seifert reiterated fourth-quarter revenue of $614.5 million and said growth accelerated for the third consecutive quarter. By geography, he said the U.S. represented 49% of revenue (up 31% year-over-year), EMEA 27% (up 31%), and APAC 16% (up 50%).

Cloudflare reported approximately 332,000 paying customers in the quarter, including a record sequential addition of nearly 37,000, which Seifert attributed to an uptick in customers converting from free to small paid accounts, particularly for the Developer Platform.

Seifert said gross margin declined year-over-year as paid-versus-free traffic increased, resulting in the “highest allocation of network expenses to cost of goods sold versus sales and marketing ever,” while adding that the underlying network economics remained unchanged. Network CapEx was 13% of revenue in Q4, and Cloudflare expects network CapEx of 12% to 15% of revenue for full-year 2026.

Operating expenses as a percentage of revenue declined to 60%, down 3 points year-over-year. Headcount rose 21% year-over-year to approximately 5,200. Seifert reported net income of $106.8 million, or $0.28 diluted EPS, and free cash flow of $99.4 million, or 16% of revenue. Cloudflare ended the quarter with $4.1 billion in cash, cash equivalents, and available-for-sale securities.

Remaining performance obligations (RPO) were $2.496 billion, up 16% sequentially and 48% year-over-year, with current RPO at 63% of total and up 34% year-over-year.

2026 outlook, pool-of-funds mix, and AI/agent positioning

For the first quarter of 2026, Seifert guided to revenue of $620 million to $621 million (29% to 30% year-over-year growth), operating income of $70 million to $71 million, an effective tax rate of 20%, and diluted EPS of $0.23 on approximately 377 million shares outstanding.

For full-year 2026, Cloudflare forecast revenue of $2.785 billion to $2.795 billion (28% to 29% growth), operating income of $378 million to $382 million, a 20% effective tax rate, and diluted EPS of $1.11 to $1.12. Seifert said the company expects revenue to be weighted 46% in the first half and that the share count assumption reflects a cash settlement of its 2026 convertible notes.

On contracting trends, management discussed the growing role of pool-of-funds deals. Seifert said pool of funds represented about 20% of ACV in the fourth quarter and “mid-teens” for all of 2025. He said a higher pool-of-funds mix increases variable revenue and can introduce more volatility, adding that the company is trying to account for that in guidance and that it is “fair to say” larger Q4s and smaller Q1s may occur versus more linear revenue recognition.

In Q&A, Prince argued Cloudflare is positioned to benefit from agentic AI without matching hyperscaler spending, saying Cloudflare focuses on “getting work done” and on efficiency improvements, and that its model charges for work performed. He also said Application Services and Zero Trust are seeing increased relevance as agent-driven traffic rises and customers grapple with new security and access-control challenges.

Prince also discussed Cloudflare’s “Act 4” efforts around the future business model of the internet, including tools like AI Crawl Control and a broader goal of enabling content creators to control access and monetize usage by AI companies. He said Cloudflare’s position as a “neutral, honest broker” between AI companies and publishers is a differentiator, and that 2026 will be a period when the company begins “really talking” about what that future model looks like and how it could impact Cloudflare financially.

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.

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