Release Date: May 08, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Cloudflare Inc (NET, Financial) achieved a revenue of $479.1 million, marking a 20% year-over-year increase.
- The company closed the quarter with 3,527 customers paying more than $100,000, a 23% increase year-over-year.
- Cloudflare Inc (NET) landed the largest contract in its history, a deal worth over $100 million.
- The company's gross margin was 77.1%, above the long-term target of 75% to 77%.
- Free cash flow was strong at $52.9 million, representing 11% of revenue.
Negative Points
- Dollar-based net retention was flat quarter-to-quarter at 111%, indicating no growth in customer spending.
- Gross margin decreased by 240 basis points year-over-year.
- The company faces a volatile macroeconomic environment, which adds uncertainty to future performance.
- There is increased pressure from AI-driven internet trends affecting media companies.
- Sales cycles are expected to potentially increase over time as deals become larger and more complex.
Q & A Highlights
Q: Could you comment on trends you're seeing through early May, especially with all the tariff rhetoric?
A: Matthew Prince, CEO, stated that they haven't seen any significant changes in internet traffic patterns due to tariffs. He noted that Cloudflare's business is less about media bit delivery and more focused on API requests, which are more valuable. He also highlighted a shift from a search-driven to an AI-driven internet, impacting media companies.
Q: How are you thinking about margins this year, and are you pre-spending for some demand that you're seeing?
A: Thomas Seifert, CFO, emphasized their commitment to the 40% rule over a rolling average of quarters. He mentioned that while there is more margin opportunity than revenue opportunity, they will continue to reinvest in the business, especially in go-to-market activities, as they see good returns.
Q: Can you comment on the extreme volume of DDoS attacks and how Cloudflare defends against them?
A: Matthew Prince explained that Cloudflare's network architecture allows them to absorb large-scale DDoS attacks without additional costs. Unlike competitors, Cloudflare's network doesn't rely on separate scrubbing networks, enabling them to handle attacks efficiently and refer customers from hyperscalers when needed.
Q: What trends are you seeing in the SASE market, and why is Cloudflare winning more large deals?
A: Matthew Prince highlighted that Cloudflare's network provides a better experience and performance compared to competitors. He noted that Cloudflare's ability to bundle solutions and deliver a comprehensive platform is a key differentiator, leading to more wins in head-to-head situations.
Q: Can you provide more details on the $100 million Workers-led deal and its use case?
A: Matthew Prince shared that the deal involved a customer initially considering a traditional hyperscaler but chose Cloudflare Workers for better performance, lower costs, and faster development. He emphasized that Cloudflare Workers has become a complete solution, attracting large deals due to its robust platform.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
