Cloudflare, Inc.

What they do

Cloudflare operates a global network that delivers a broad range of services to businesses in all geographies, making them more secure and improving application performance while eliminating the cost and complexity of managing individual network hardware. The network acts as a unified control plane spanning on-premises, hybrid, cloud, and SaaS applications, and customers increasingly build their own applications on top of it, including AI-enhanced applications. Revenue comes primarily from subscriptions to access the network and its products, sold through Enterprise contracts, pay-as-you-go Pro and Business plans, per-seat Zero Trust offerings, and usage-metered developer solutions.

Revenue drivers

• Contracted Enterprise customers — Customers on the Enterprise subscription plan sign contracts typically one to three years, usually billed monthly or annually, with tailored pricing that generally includes a base subscription and sometimes variable usage; certain larger enterprise agreements are structured as a 'pool of funds' committing a minimum spend over the subscription period.
• Pay-as-you-go Pro and Business plans — Self-serve subscriptions purchased through the website per registered domain for securing and accelerating Internet properties, with customers commonly covering multiple domains, APIs, and mobile applications and often adding more than one solution or add-on product.
• Zero Trust and network services — Sold on a per-seat basis to pay-as-you-go or contracted customers needing scalable Zero Trust security for users and internal resources.
• Developer solutions — Usage-based plans for developers building serverless applications, metered by requests and execution time.

Recent performance

Second quarter 2026 revenue was $696.1 million, up 36% year-over-year. GAAP gross margin was 71.8% versus 74.9% a year earlier, and GAAP loss from operations widened to $205.7 million (29.6% of revenue) from $67.3 million (13.1% of revenue). GAAP net loss was $170.0 million, or $0.48 per basic and diluted share, compared with a $50.4 million loss, or $0.15 per share, in the prior-year quarter. Non-GAAP income from operations was $96.1 million (13.8% of revenue) and non-GAAP net income was $107.8 million, or $0.29 per diluted share. Operating cash flow was $117.6 million and free cash flow was $56.4 million (8% of revenue).

Strategy

Management describes Cloudflare as positioned at the center of a shift toward AI answer engines and agent-driven commerce, a 'fundamental rewrite of the Internet for machine-to-machine traffic.' The company says it is building the infrastructure, controls, developer tools, and payment rails for what it calls the Agentic Internet. The business model emphasizes ongoing product development, investment in the network for growth, and a go-to-market approach spanning self-serve developers through large enterprises, including converting free customers to paying ones. Cloudflare also leverages its traffic volume to negotiate agreements with ISPs that place equipment in their data centers, lowering bandwidth and co-location costs and enabling new products to launch at low marginal cost.

Risks

• Persistent GAAP losses — GAAP loss from operations widened to $205.7 million in Q2 2026 from $67.3 million a year earlier, and annual net losses continue (2025 net loss of $102.3 million) despite revenue growth.
• Gross margin compression — GAAP gross margin fell to 71.8% in Q2 2026 from 74.9% in Q2 2025, and non-GAAP gross margin fell to 73.1% from 76.3%.
• Customer and free-to-paid conversion dependence — The company identifies its ability to retain and upgrade paying customers and to attract new paying customers, including large ones, or convert free customers to paying as forward-looking risk factors.
• Macroeconomic and geopolitical exposure — Management cites adverse economic conditions affecting customer spending, conflicts and geopolitical tension, elections and governmental changes, and threats of tariffs and other impediments to cross-border trade as risks to the business and demand.

Outlook

For the third quarter of fiscal 2026, management guided to total revenue of $736.0 to $737.0 million, non-GAAP income from operations of $129.0 to $130.0 million, and non-GAAP net income per share of $0.34 on roughly 374 million weighted average common shares. For the full year fiscal 2026, management guided to total revenue of $2,864.0 to $2,870.0 million, non-GAAP income from operations of $443.0 to $445.0 million, and non-GAAP net income per share of $1.25 to $1.26. These are forward-looking statements that management notes may differ materially from actual results.