Cloudflare, Inc. (NET) Earnings & Analysis

Latest quarter

Cloudflare reported Q3 FY2026 revenue of $782.5 million, up 39.2% from $562.0 million a year earlier and above the consensus. Its non-GAAP profit of $0.38 per share also exceeded the consensus.

In its filing, Cloudflare attributed revenue growth primarily to new paying customers and expansion among existing customers. The company reported that gross margin fell to 71.2% from 74.0%; its filing attributed the decline primarily to higher third-party technology, network and facility costs, as well as depreciation. Operating margin fell to −8.68% from −6.67%, while diluted earnings per share were −$0.10, compared with $0.00 a year earlier.

Cloudflare generated $82.1 million in free cash flow, compared with $75.0 million a year earlier. The company’s revenue also came in above its own Q3 guidance of $736.0 million to $737.0 million.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

Revenue came in within or above the company’s guide in 2 of the last 2 quarters it guided.

What management said on the call

CEO Matthew Prince said demand was coming from industries including financial services, government, manufacturing, healthcare and e-commerce, rather than being concentrated among AI companies. He said researchers were privately disclosing security vulnerabilities to Cloudflare and that the company had put protections in place for customers.

CFO Thomas Seifert said variable revenue was the primary contributor to the quarter’s revenue outperformance. In the Q&A, he explained that customers were joining pool-of-funds arrangements or consuming their commitments faster, prompting earlier renewals and larger commitments. He said the activity was spread across many customers and influenced the fourth-quarter forecast.

Prince said more than 158,000 paying customers joined during the quarter, with developers accounting for many of the additions. He also said larger businesses were bringing more developers onto the platform, contributing to faster consumption of pool-of-funds contracts. Seifert said Cloudflare added 308 large customers during the quarter and attributed the increase in its dollar-based net retention rate to expansion among large customers.

Discussing margins, Seifert said Workers products have lower gross margins than some other products but also lower costs to book business. He said engineering teams were working to use computing infrastructure more efficiently. Cloudflare reported non-GAAP operating income of $137.1 million for the quarter.

On competition and pricing, Prince said Cloudflare helps customers either attract agent traffic efficiently or block it without charging them for blocked traffic. He also described a cloud infrastructure provider that chose Cloudflare’s Magic Transit service after evaluating its ability to stop attacks.

For the quarter ahead, Seifert said the company’s forecast reflected demand across a broad customer base. He also said Cloudflare expected to reach GAAP profitability in the fourth quarter.

Guidance

For Q4 FY2026, Cloudflare expects revenue of $845.0 million to $846.0 million, non-GAAP operating income of $156.0 million to $157.0 million and non-GAAP earnings per share of $0.43. Seifert said the company also expects GAAP profitability in the quarter, earlier than its previous outlook.

For FY2026, Cloudflare raised its non-GAAP operating income forecast to $462.0 million to $463.0 million and its non-GAAP earnings-per-share forecast to $1.35.