Internet security and content delivery network Cloudflare (NYSE:NET) reported revenue ahead of Wall Street’s expectations in Q1 CY2025, with sales up 26.5% year on year to $479.1 million. The company expects next quarter’s revenue to be around $500.5 million, close to analysts’ estimates. Its non-GAAP profit of $0.16 per share was in line with analysts’ consensus estimates.
Revenue: $479.1 million vs analyst estimates of $469.1 million (26.5% year-on-year growth, 2.1% beat)
Adjusted EPS: $0.16 vs analyst estimates of $0.16 (in line)
Adjusted Operating Income: $56 million vs analyst estimates of $55.14 million (11.7% margin, 1.6% beat)
The company reconfirmed its revenue guidance for the full year of $2.09 billion at the midpoint
Management reiterated its full-year Adjusted EPS guidance of $0.80 at the midpoint
Operating Margin: -11.1%, up from -14.4% in the same quarter last year
Free Cash Flow Margin: 11%, similar to the previous quarter
Net Revenue Retention Rate: 111%, in line with the previous quarter
Billings: $514.9 million at quarter end, up 32.8% year on year
Market Capitalization: $43.08 billion
StockStory’s Take
Cloudflare’s first quarter was shaped by significant traction among large enterprise customers and a series of major contract wins, including the largest deal in the company’s history. CEO Matthew Prince cited growth in $1 million-plus and $5 million-plus annual spend cohorts, which he attributed to improvements in Cloudflare’s go-to-market strategy and heightened demand for its Workers developer platform and Zero Trust security offerings. The company also highlighted a stabilization in customer churn and a reduction in pricing pressure from competitors, supporting a consistent net revenue retention rate.
Looking ahead, management maintained a cautious but constructive outlook for the remainder of the year, emphasizing disciplined investment in go-to-market and engineering while acknowledging a volatile macroeconomic environment. CFO Thomas Seifert described the guidance as “prudent in light of the uncertainty we see,” though leadership expressed confidence that Cloudflare’s expanding enterprise relevance and product innovation—particularly in AI and security—position the company to deliver on its long-term growth strategy. As Prince noted, Cloudflare’s scale and unified platform “redefine what’s possible for our customers, and reinvent the future of the Internet.”
Key Insights from Management’s Remarks
Cloudflare’s management focused on the company’s ability to drive enterprise revenue growth through strategic product expansion and operational discipline. The outperformance in Q1 was attributed to strong demand from larger customers, the success of its developer and security platforms, and improved sales execution.
Enterprise customer expansion: Cloudflare saw a record increase in customers spending over $1 million and $5 million annually, with these segments growing 48% and 54% year-over-year, respectively. Management credited this to targeted improvements in the company’s sales organization and increased adoption of its enterprise offerings.
Developer platform milestone: The company closed its largest contract ever—a $130 million, five-year deal—driven by the Workers developer platform. This win reflected a shift by customers seeking performance, ease of development, and lower costs compared to traditional hyperscalers (large-scale cloud providers).
Zero Trust and SASE traction: Cloudflare reported closing its longest-duration contract for Zero Trust security and noted growing demand from government and critical infrastructure sectors. The company’s Secure Access Service Edge (SASE) solutions were cited as differentiators, especially for customers moving away from on-premise hardware due to regulatory and tariff concerns.
Sales productivity and pipeline growth: Management emphasized double-digit improvements in sales productivity, shorter sales cycles even with larger and more complex deals, and better-than-expected pipeline generation. These improvements were attributed to ongoing investments in go-to-market initiatives and operational excellence.
AI and agentic Internet focus: Cloudflare highlighted rapid growth in AI-related workloads, including a 4,000% year-over-year increase in Workers AI inference requests. The company is investing in protocols and infrastructure to support AI agent deployment, working with industry partners to address emerging security and interoperability challenges.
Drivers of Future Performance
Cloudflare’s outlook for the next quarter and beyond centers on continued expansion in the enterprise segment, disciplined investment, and product innovation amid macroeconomic volatility.
Enterprise sales momentum: Management believes that ongoing improvements in sales capacity and productivity will drive further penetration into large customer accounts, supporting sustained revenue growth and higher contract values.
AI and developer platform investment: The company is prioritizing investment in its developer tools and AI infrastructure, expecting these capabilities to underpin new customer wins and increase wallet share among existing clients.
Macro and regulatory headwinds: Leadership acknowledged potential risks from external factors such as tariffs, geopolitical uncertainty, and evolving regulatory requirements, especially for customers in sectors like government and financial services. The company is maintaining flexibility in its supply chain and go-to-market strategy to mitigate these risks.
Top Analyst Questions
Matt Hedberg (RBC Capital Markets): Asked about changes in internet traffic trends given tariff discussions; CEO Matthew Prince noted that traffic has remained steady and that Cloudflare’s exposure is less to media delivery and more to API and business-critical traffic, with no tariff-related impact observed.
Joel Fishbein (Truist Securities): Inquired about sales productivity and future sales capacity ramp; management responded that sales productivity has improved and hiring for the go-to-market team is ongoing, with expectations for continued capacity increases.
Mark Murphy (JPMorgan): Questioned the impact of rising DDoS attack volumes and whether this environment could become a tailwind; Prince explained Cloudflare’s architectural advantage allows cost-effective mitigation, differentiating it from competitors, but does not directly drive revenue growth.
Andrew Nowinski (Wells Fargo): Sought details on SASE and Zero Trust trends and government sector adoption; management highlighted that bundled platform offerings and performance are key differentiators, with government clients moving away from on-premise hardware.
Mike Cikos (Needham): Wanted clarification on the sustainability of shorter sales cycles and guidance prudence; management said recent sales cycle improvements may not be permanent but reflect strong execution, while guidance remains cautious due to macro uncertainty.
Catalysts in Upcoming Quarters
In the coming quarters, the StockStory team will monitor (1) the pace of large enterprise deal activity and continued growth in high-value customer cohorts, (2) progress in scaling the Workers platform and AI-related services as customers shift workloads from traditional hyperscalers, and (3) how Cloudflare navigates macro and regulatory headwinds, particularly regarding tariffs and security requirements in sensitive sectors. Additionally, we will track improvements in sales productivity and whether operational investments translate into sustained margin expansion.
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