Cloudflare, Inc. Q4 FY2025 earnings call

• Achieved $614.5 million in revenue, up 34% year over year. - Had 4,298 customers paying over $100,000 per year, up 23% year over year, with revenue from these large customers contributing 73% of the quarter's revenue. - Dollar-based net retention rate was 120%. - Gross margin was 74.9%, operating profit was $89.6 million (14.6% operating margin). - Generated strong free cash flow of $99.4 million. - Blowed away previous record for new ACV in Q4, with new ACV book growing nearly 50% year over year. - Highlighted various customer wins across different industries, including AI companies, Fortune 100/500, consumer goods, etc. - Noted the trend of Cloudflare being a must-have in the modern tech stack and AI driving demand for its services. - Mentioned growth in the workers' developer platform and adoption of Zero Trust products.

Cloudflare achieved $614.5 million in revenue for the fourth quarter, up 34% year over year. There were 4,298 customers paying more than $100,000 per year, a 23% year-over-year increase, and revenue from these large customers grew 42% year over year, contributing 73% of the quarter's revenue. The dollar-based net retention was 120%, up 1% quarter over quarter and 9% year over year. Gross margin was 74.9%. Geographically, the US represented 49% of revenue (up 31% year over year), EMEA 27% (up 31% year over year), and APAC 16% (up 50% year over year).

• For the first quarter of 2026, expected revenue in the range of $620 million to $621 million, representing a 29% to 30% year-over-year increase. Expected operating income in the range of $70 million to $71 million, effective tax rate of 20%, and diluted net income per share of $0.23. - For the full year 2026, expected revenue in the range of $2.785 billion to $2.795 billion, a 28% to 29% year-over-year increase. Anticipated revenue weighted 46% in the first half of the fiscal year. Expected operating income in the range of $378 million to $382 million, effective tax rate of 20%, and diluted net income per share in the range of $1.11 to $1.12.

Risks and uncertainties related to forward-looking statements, including but not limited to impacts from customers, vendors, partners, operations, future financial performance, product launches, market potential of products, macroeconomic conditions, and other factors beyond control that could cause actual results to differ significantly from projected or suggested in forward-looking statements.

Q: Matt Hedberg from RBC asks about the impact of AI agents on Cloudflare and how Cloudflare provides picks and shovels without absorbing GPU cost.

A: Matthew Prince responds that Cloudflare is perfectly positioned for the AI moment, agents driving demand for Cloudflare's services, and Cloudflare is more efficient with CapEx compared to hyperscalers as it charges for actual work done.

Q: Keith Weiss from Morgan Stanley asks about evolution in Internet traffic and where acquisitions like Humenated and ASTRO fit in.

A: Matthew Prince states that Humenated helps think about the next business model of the Internet and ASTRO is a developer platform/framework powering next-gen web, and Cloudflare is at the center of inventing the future of the Internet.

Q: Jonathan Ho from William Blair asks for examples of companies using Cloudflare Workers for AI projects.

A: Matthew Prince mentions examples like a Fortune 500 pharmaceutical company building a vibe coding platform on Cloudflare, a publicly traded tech company migrating sandbox infrastructure, and a leading financial services company launching an MCP server on Cloudflare Workers.

Q: Gabriela Borges from Goldman Sachs asks about pipeline for large deals and pool of funds traction.

A: Matthew Prince says there's a strong pipeline from embedding with customers, and Thomas Seifert mentions pool of funds was about 20% of ACV in Q4 2025 with higher variable revenue leading to some volatility.

Q: Fatima Boolani from Citi asks about next phase of pool of funds traction and variability in revenue forecasting.

A: Matthew Prince talks about pool of funds representing customer trust, and Thomas Seifert discusses higher variable revenue from pool of funds leading to sequential volatility.

Q: Gray Powell from BTIG asks about material pickup in core application services related to AI.

A: Matthew Prince says AI is a tailwind for Cloudflare's application services and Zero Trust products, with increased demand from AI companies and enterprises needing controls.

Q: Shrenik Kotauri from Robert Baird asks about early feedback on AI crawl control and structured marketplace model.

A: Matthew Prince discusses Cloudflare as a neutral broker between AI companies and content creators, and the need for a new business model for content creators.

Q: Adam Borg from Stifel asks about channel priorities for 2026.

A: Matthew Prince talks about channel being important for enterprise sales, making it easier for channel partners, and seeing success from channel efforts.

Q: Jackson Ader from KeyBanc Capital Markets asks about nimbleness with channel presence.

A: Matthew Prince says channel makes Cloudflare more nimble, and Thomas Seifert adds that they are stacking channel and internal sales vectors to accelerate growth.