Cloudflare (NYSE:NET) Posts Quarterly Earnings Results, Beats Estimates By $0.04 EPS

Key Points

• Cloudflare beat quarterly estimates, reporting adjusted EPS of $0.38 versus $0.34 expected and revenue of $782.5 million versus $737.2 million expected. Revenue grew 39.2% year over year.
• The company raised its full-year revenue outlook to approximately $2.96 billion. Management also cited strong customer demand and expects to reach GAAP profitability in Q4.
• Shares fell about 8.5% despite the strong results and outlook, amid broader weakness in cybersecurity and AI-related stocks and ongoing valuation concerns.

Cloudflare (NYSE:NET - Get Free Report) announced its quarterly earnings data on Thursday. The company reported $0.38 EPS for the quarter, beating analysts' consensus estimates of $0.34 by $0.04, FiscalAI reports. The business had revenue of $782.51 million during the quarter, compared to analyst estimates of $737.16 million. Cloudflare had a negative net margin of 8.21% and a negative return on equity of 3.88%. The firm's revenue for the quarter was up 39.2% on a year-over-year basis. During the same quarter in the prior year, the business earned $0.27 earnings per share.

Here are the key takeaways from Cloudflare's conference call:

• Cloudflare reported Q3 revenue of $782.5 million, up 39% year over year, its fastest growth in nearly four years. Large-customer momentum remained strong, with dollar-based net retention rising to 122% and more than 5,000 customers now spending over $100,000 annually.
• Profitability improved alongside growth: adjusted operating income rose 60% to $137.1 million, and operating margin expanded to a record 17.5%. Management also expects to reach GAAP profitability in Q4, earlier than previously anticipated.
• Demand indicators were robust, including a record 158,000 net new paying customers, record additions across large-customer cohorts, and RPO growth of 34% year over year. Management said consumption-based revenue and customers drawing down pool-of-funds contracts faster helped drive the quarter’s upside.
• Q4 guidance calls for revenue of $845 million–$846 million, up 38% year over year; full-year 2026 revenue is expected to grow 37%. Management attributed momentum to broad demand across industries, including for security and its Workers developer platform.
• Gross margin fell 290 basis points year over year to 72.4%, which management linked in part to strong growth in the Workers platform; free-cash-flow margin also declined to 10% from 13% a year earlier. Management expects full-year network capital expenditure to remain elevated at 14%–15% of revenue.

Cloudflare Trading Down 8.5%

NET traded down $22.79 during midday trading on Thursday, reaching $243.79. 8,454,470 shares of the company's stock were exchanged, compared to its average volume of 3,293,286. The company has a quick ratio of 1.82, a current ratio of 1.82 and a debt-to-equity ratio of 1.22. The business has a 50-day simple moving average of $319.02 and a two-hundred day simple moving average of $249.31. Cloudflare has a one year low of $158.83 and a one year high of $370.35.

Analyst Upgrades and Downgrades

Several equities analysts recently issued reports on NET shares. Mizuho boosted their price target on Cloudflare from $260.00 to $310.00 and gave the company an "outperform" rating in a research note on Wednesday, July 15th. KeyCorp raised their price objective on Cloudflare from $300.00 to $375.00 and gave the stock an "overweight" rating in a research report on Friday, August 7th. UBS Group started coverage on Cloudflare in a report on Tuesday. They set a "buy" rating on the stock. Piper Sandler boosted their price objective on Cloudflare from $250.00 to $333.00 and gave the company an "overweight" rating in a research report on Friday, August 7th. Finally, Jefferies Financial Group lowered their price objective on Cloudflare from $350.00 to $320.00 and set a "hold" rating on the stock in a research report on Monday. Twenty-four investment analysts have rated the stock with a Buy rating, eight have given a Hold rating and five have issued a Sell rating to the stock. Based on data from MarketBeat.com, the company currently has a consensus rating of "Moderate Buy" and a consensus price target of $333.21.

Insider Activity

In related news, insider Michelle Zatlyn sold 33,003 shares of the firm's stock in a transaction that occurred on Wednesday, October 7th. The stock was sold at an average price of $348.29, for a total transaction of $11,494,614.87. Following the completion of the transaction, the insider owned 69,775 shares in the company, valued at $24,301,934.75. This trade represents a 32.11% decrease in their position. The transaction was disclosed in a filing with the Securities & Exchange Commission, which is available through the SEC website. The transaction was executed under a pre-arranged Rule 10b5-1 trading plan. Also, Director Carl Ledbetter sold 5,000 shares of the business's stock in a transaction on Monday, October 19th. The shares were sold at an average price of $304.40, for a total value of $1,522,000.00. Following the completion of the sale, the director directly owned 868,073 shares in the company, valued at approximately $264,241,421.20. This represents a 0.57% decrease in their position. Additional details regarding this sale are available in the official SEC disclosure. The transaction was executed under a pre-arranged Rule 10b5-1 trading plan. In the last ninety days, insiders have sold 259,057 shares of company stock worth $79,516,905. Company insiders own 10.66% of the company's stock.

Key Stories Impacting Cloudflare

Here are the key news stories impacting Cloudflare this week:

• Positive Sentiment: Cloudflare reported quarterly earnings of $0.38 per share, above analyst estimates, while revenue rose 39.2% year over year to $782.51 million and also topped expectations. Zacks earnings article
• Positive Sentiment: The company raised its full-year revenue outlook to about $2.96 billion, up from its prior range of $2.86 billion to $2.87 billion, signaling confidence in continued growth. Wall Street Journal outlook article
• Neutral Sentiment: Cloudflare appointed Christian Smith as President of Revenue to lead its worldwide go-to-market organization and support its growth ambitions. Appointment announcement
• Negative Sentiment: Cloudflare fell alongside other cybersecurity stocks amid a broader pullback in AI-related shares, suggesting sector-wide selling contributed to the decline. TIKR market article
• Negative Sentiment: Valuation concerns and recent share-price weakness had weighed on sentiment ahead of earnings. This may help explain why strong results and guidance did not prevent a pullback. Invezz article

Cloudflare Company Profile

Cloudflare, Inc NYSE: NET provides cloud connectivity, security and performance services for websites, applications, corporate networks and other internet-connected resources. Its global network is designed to help organizations improve the reliability, speed and security of digital services while reducing the complexity of managing internet infrastructure.

The company's offerings include content delivery and authoritative domain name system services, distributed denial-of-service protection, web application and application programming interface security, bot management, and network security tools.

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