Cloudflare, Inc. Q3 FY2025 earnings call

• Revenue growth accelerated to 31% year-over-year, with strong momentum in the business.
• Go-to-market transformation: Sales force growth at the fastest pace in over 2 years, sales productivity up for the seventh consecutive quarter, close rates up, partner-initiated bookings doubled, and gross retention levels increased.
• Key wins: Multiple large contracts with various companies, including a Global 2000 digital media platform, a leading European technology company, a rapidly growing media platform, and a U.S. cabinet-level agency.
• CJ Desai's departure: CJ is leaving to become CEO of another company, with Matthew Prince expressing excitement for his new opportunity while acknowledging his impact on Cloudflare.

Cloudflare achieved revenue of $562 million in Q3 2025, up 30.7% year-over-year. The company had 4,009 large customers (paying over $100,000 per year), a 23% year-over-year increase, contributing 73% of revenue (up from 67% in Q3 2024). Dollar-based net retention was 119%, up 5 percentage points quarter-over-quarter. Gross margin was 75.3%, within the long-term target range of 75% to 77%. Operating profit was $85.9 million (15.3% operating margin), and free cash flow was $75 million. Geographically, the U.S. represented 50% of revenue, EMEA 27%, and APAC 15%, with APAC showing 43% year-over-year growth.

• Q4 2025: Expected revenue in the range of $588.5 million to $589.5 million (28% year-over-year growth), operating income in the range of $83 million to $84 million, effective tax rate of 20%, and diluted net income per share of $0.27.
• Full-year 2025: Expected revenue in the range of $2.142 billion to $2.143 billion (28% year-over-year growth), operating income in the range of $297 million to $298 million, effective tax rate of 20%, and diluted net income per share of $0.91.

• Forward-looking statements are subject to risks and uncertainties beyond control, including impacts from customers, vendors, partners, operations, and future financial performance.
• Competition in the enterprise space, particularly from hyperscalers, in securing inference workloads and other enterprise business.
• Regulatory considerations for new products like NET Dollar and potential challenges in navigating different regulatory regimes.

Q: RBC Capital Markets' Matt Hedberg asked about the acceleration in RPO growth.

A: Matthew Prince and Thomas Seifert discussed sales transformation from product-led growth to enterprise sales, strong performance with large customer cohorts, and increased consumption of pool of funds contracts.

Q: Goldman Sachs' Gabriela Borges inquired about capacity constraints in Workers.

A: Matthew Prince and Thomas Seifert talked about Cloudflare's network architecture allowing workload movement across the network, efficient utilization of CPUs and GPUs, and fast reaction time to deploy hardware where needed.

Q: TD Cowen's Shaul Eyal asked about NET Dollar and AI gatekeeper.

A: Matthew Prince discussed regulatory considerations for NET Dollar, partnerships with companies like Coinbase and Visa, and positive reception and progress with AI gatekeeper products.

Q: KeyBanc Capital Markets' Jackson Ader asked about transition from product-led to enterprise and Q4 outlook.

A: Thomas Seifert and Matthew Prince talked about pipeline buildup, guidance considering multiple factors including sales productivity and net sales capacity, and optimism about the future.

Q: Needham's Mike Cikos asked about SASE market trends.

A: Matthew Prince discussed strong performance of SASE products, doubling down on partner strategy, and the importance of partners in selling SASE products due to high gross margins.