目录
Executive Summary
I. Call Participants
II. Management Remarks
Phil Winslow: Opening Remarks
CEO Matthew Prince: Business Overview
III. Representative Q2 Customer Wins
IV. The Agentic Internet and the Transformation of Business Models
V. CFO Thomas Seifert: Financial Performance
Revenue and Regional Performance
Customer Metrics
Gross Margin and Capital Expenditure
Operating Expenses
Net Income, Cash Flow, and Balance Sheet
Third-Quarter and Full-Year Guidance
VI. Q&A
Monetizing Non-Human Traffic
Gross-Margin Outlook for the Second Half
Why Workers Attracts Developers and the Role of Cloudflare OS
The Agentic Security Opportunity
Pooled-Fund Contracts and Revenue-Recognition Volatility
Can Cloudflare Achieve Structurally Higher Growth?
The Moat Around Monetization Gateway, Wallets, and Identity
Workers’ Scale, Product Drivers, and Product-Led Growth
Progress Toward GAAP Profitability and Product Growth Ranking
Partner-Channel Revenue Mix
Agentic Inference, the Global Network, and Isolates
Outlook for Net Retention
Why Cloudflare Is Not Joining the AI-Infrastructure Capex Race
VII. Closing Remarks
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Cloudflare is seeing synchronized acceleration across large customers, Workers, and AI-agent workloads, while gross margin stabilized sequentially. Key factors ahead include monetizing agent traffic, managing usage-based revenue volatility, and maintaining capital efficiency.
Executive Summary
Cloudflare generated Q2 revenue of $696.1 million, up 36% YoY. Dollar-based net retention rose to 120%, up 2 percentage points QoQ and 6 percentage points YoY, indicating a significant acceleration in large-customer expansion and cross-selling.
Customers spending more than $100,000 annually increased to 4,698, up 27% YoY. Net additions reached a record 986 over the past 12 months. YoY net additions set records across every large-customer tier, while large customers’ share of revenue rose from 71% a year earlier to 73%.
The Workers developer platform became Cloudflare’s fastest-growing product segment. Its developer base exceeded 7.4 million, with nearly 2 million added in Q2 alone—more than the 1.5 million added during all of 2025. Management said Workers has shifted from primarily driving adoption to making a meaningful revenue contribution.
AI agents are reshaping internet traffic. More than 50% of traffic on Cloudflare’s network in Q2 was generated by non-human entities. If this trend continues, management estimates that non-human traffic could reach 1,000 times human traffic within 5 years. Cloudflare aims to build infrastructure for agent transactions and micropayments through Monetization Gateway, Wallets, and cloudflare.pay.
Q2 non-GAAP gross margin was 73.1%, up 30 basis points QoQ and marking the first sequential improvement in 8 quarters. Non-GAAP operating margin was 13.8%, and free cash flow was $56.4 million. Management expects gross margin to remain broadly stable at current levels, while emphasizing that aggregate unit economics across all products should continue improving in the second half.
Q3 revenue guidance is $736 million to $737 million, representing 31% YoY growth. Full-year 2026 revenue guidance is $2.864 billion to $2.87 billion, up 32% YoY. RPO increased 38% YoY and current RPO rose 35% YoY, providing some forward revenue visibility, although committed-spend pools, usage-based billing, and package structures will increase quarterly volatility.
Management explicitly rejected joining the capital-expenditure race in which companies use their balance sheets to buy GPUs and rent out commoditized computing capacity, viewing such revenue as highly commoditized and lower quality. Cloudflare’s strategy is to maximize utilization per $1 of capital expenditure through its global network, scheduling capabilities, and lightweight technologies such as Isolates.
Key risks include whether AI-agent traffic can support a sustainable paid model; continued gross-margin pressure from free traffic and network-cost allocation; reduced quarterly revenue predictability due to committed-spend pools and usage-based contracts; higher-than-initially-expected restructuring expenses in 2026; and the technological and ecosystem challenges of building an agent-payment network capable of processing volumes far beyond those of traditional payment systems.
I. Call Participants
Cloudflare’s management participants included co-founder and CEO Matthew Prince, co-founder and President Michelle Zatlyn, and CFO Thomas Seifert. Head of Investor Relations Phil Winslow hosted the call.
II. Management Remarks
Phil Winslow: Opening Remarks
Thank you for joining Cloudflare’s fiscal Q2 2026 earnings call. The company’s earnings release and supplemental financial information are available on its investor relations website.
Today’s discussion will include forward-looking statements concerning customers, vendors, and partners; the company’s operations and future financial performance; anticipated product launches, including their timing and market potential; future financial and operating results; and expectations for the macroeconomic environment.
These statements and other comments do not guarantee future performance and are subject to various risks and uncertainties, many of which are beyond the company’s control. Actual results may differ materially from those projected or implied by the forward-looking statements. These statements reflect views only as of today, and the company undertakes no obligation to update them after this call.
For risks and uncertainties that may affect future operating results and financial condition, please refer to the company’s filings with the U.S. Securities and Exchange Commission and today’s earnings release. Unless otherwise noted, all financial metrics discussed today, other than revenue, are presented on an adjusted non-GAAP basis. Reconciliations between GAAP and non-GAAP financial measures are available in the earnings release and supplemental financial information.
Cloudflare will participate in the Stifel Technology Executive Summit on August 24 and the Goldman Sachs Communacopia & Technology Conference on September 9.
CEO Matthew Prince: Business Overview
Q2 was exceptionally strong. Revenue reached $696.1 million, up 36% YoY. Cloudflare now has 4,698 customers paying more than $100,000 annually, up 27% YoY.
The company added a record 986 large customers on a net basis over the past 12 months. Dollar-based net retention was 120%, up 2 percentage points QoQ and 6 percentage points YoY.
Gross margin was 73.1%, marking the first sequential improvement in 8 quarters. Operating profit was $96.1 million, with a non-GAAP operating margin of 13.8%. Quarterly free cash flow reached $56.4 million, up 69% YoY.
Cloudflare entered the quarter with strong momentum, which accelerated further in Q2. Sales productivity improved YoY for the 10th consecutive quarter; new-customer bookings grew at their fastest rate in more than 5 years; and new pipeline generation continued to accelerate, posting its fastest QoQ growth in 5 years.
Cloudflare added more than 80,000 paying customers during the quarter, driving 74% YoY growth in the total paying-customer base. For comparison, the number of paying customers added this quarter was equivalent to Cloudflare’s entire paying-customer base when it went public in Q3 2019.
The company added nearly 1,000 large customers over the past 12 months. Every large-customer tier, from $100,000 to more than $5 million in annualized revenue, recorded an all-time high in YoY net additions.
The platform had more than 7.4 million developers at quarter-end. Nearly 2 million developers joined in Q2 alone, exceeding the 1.5 million added during all of 2025. It is increasingly clear that the agentic era requires a new type of cloud.
Developers are flocking to Cloudflare because the Workers developer platform provides everything needed to build the agentic future. Cloudflare is the fastest, most secure, and most cost-effective platform for building, deploying, and scaling agents and the code they generate.
Cloudflare continues to demonstrate that a company built the right way can deliver growth and innovation while maintaining execution discipline and profitability. It has the network, platform, culture of innovation, business momentum, and rigorous operating discipline. The company believes it is at the right point in history and will continue investing aggressively.
This model has already proven effective and places Cloudflare in a leading position to shape the internet’s next phase in the age of agentic AI.
III. Representative Q2 Customer Wins
A leading digital-native media company expanded its relationship with Cloudflare through a 5-year, $31.8 million Application Services and Zero Trust contract.
The customer selected Cloudflare’s leading edge capabilities and operational speed to counter aggressive data scraping and improve global performance. Despite efforts by its incumbent hyperscaler to consolidate the customer’s spending, it made a long-term commitment to Cloudflare. The decision demonstrates that enterprises choose Cloudflare’s unified platform when performance and security cannot be compromised.
A European technology company in the Fortune Global 2000 expanded its relationship with Cloudflare through a 3-year, $11 million Application Services and Zero Trust contract, while adopting the developer platform in advance of future AI workloads.
A series of acquisitions over several years had left the customer with a highly fragmented IT environment. It selected Cloudflare to replace 5 legacy point solutions with a unified platform. Under its long-term roadmap, the customer may replace up to 7 systems and establish Cloudflare as the unified technology foundation across the organization.
A large U.S. federal agency expanded its relationship with Cloudflare through a 5-year, $7.7 million Magic Transit and Network Firewall contract.
A prior outage at a legacy vendor had prevented more than 100,000 users from accessing mission-critical systems for several days, creating an urgent need for greater resilience and real-time control. Cloudflare reduced the time required to implement global rule changes from 1 week under the incumbent service-level agreement to just 30 seconds.
The agency also lowered hardware costs by blocking unnecessary traffic at the network edge and has shut down an entire data center. As an existing Cloudflare application-security customer, it can now operate network and application security on the same unified platform, making Cloudflare the single entry point for all of its internet traffic.
A fast-growing generative-AI company signed a 1-year, $7.5 million committed-spend pool contract for the developer platform.
The customer’s workloads require access to massive volumes of images and videos. At this scale, hyperscaler egress fees would undermine its business model and create vendor lock-in, restricting its flexibility to select inference tools and GPUs.
After evaluating multiple vendors, the company’s engineering team concluded that only Cloudflare could provide both a zero-egress-fee model and the reliability, scale, and comprehensive capabilities required of an enterprise-grade platform.
The committed-spend pool allows the customer to address its current storage needs while retaining the flexibility to expand across Cloudflare’s entire developer platform over time.
A fast-growing Asia-Pacific technology company expanded its relationship with Cloudflare through a 1-year, $4 million committed-spend pool contract for the Workers developer platform. The customer had signed an $8.7 million Application Services contract just one quarter earlier.
In only 1 year, the customer standardized its end-to-end architecture on Cloudflare across application security, Zero Trust, and the developer platform. Every request is processed through a Cloudflare Worker, with KV and Durable Objects serving as the routing and tenant-configuration layer across the platform.
The customer selected Cloudflare over its incumbent hyperscaler to avoid additional latency. This demonstrates the flywheel created by Cloudflare’s unified portfolio: once performance and security run on Cloudflare, the developer platform naturally becomes the foundation for the next layer of an enterprise’s technology stack.
A Fortune 100 technology company expanded its relationship with Cloudflare through a 3-year, $5.2 million contract for the full SASE portfolio.
The customer is replacing legacy VPNs and virtual desktops and migrating its global workforce to a single Zero Trust platform. In a competitive evaluation, Cloudflare defeated 2 first-generation Zero Trust vendors based on faster network performance and a simple, unified management interface. The customer estimates that operating Cloudflare’s services will require only about one-third as many personnel as alternative solutions.
This is emblematic of the accelerating consolidation in security products: enterprises are retiring fragmented point solutions in favor of Cloudflare’s fast, easy-to-use, unified platform.
A Fortune 1000 technology company expanded its relationship with Cloudflare through an 18-month, $15.9 million Application Services and Workers developer platform contract.
The customer serves hundreds of thousands of businesses and needed an architecture that could provide a unified global entry point for security and performance without adding latency. By selecting Cloudflare to replace legacy solutions, the customer eliminated the complexity of operating multiple products and gained long-term operational predictability as it builds an AI-first customer platform.
A leading technology company expanded its relationship with Cloudflare through a 1-year, $6 million committed-spend pool contract for the Workers developer platform.
As the customer expands its new AI-agent capabilities, it needs elastic, secure container infrastructure that can accommodate rapid growth and launch new capabilities within weeks rather than several quarters.
The customer selected Cloudflare over traditional hyperscalers and competing point solutions because Cloudflare’s built-in threat intelligence can proactively prevent compute-resource abuse, its pace of innovation is faster, and it is positioned to provide FedRAMP-compliant capabilities.
This win also shows that the most sophisticated AI developers are increasingly selecting Cloudflare as the agentic cloud for the future.
IV. The Agentic Internet and the Transformation of Business Models
More customers are choosing Cloudflare because the company is not merely responding to change—it is driving it. Cloudflare rapidly launches products, solves complex problems, and innovates in ways that materially raise standards across the internet. AI is among the most exciting areas of opportunity.
In the second quarter, non-human activity accounted for more than 50% of Cloudflare’s network traffic for the first time. The volume of requests from AI agents continues to grow.
As the internet shifts from human-led web browsing to AI answer engines and agent-driven commerce, it is undergoing a fundamental redesign for machine-to-machine communication. Cloudflare sits at the center of this paradigm shift, building the scalable infrastructure, control systems, developer tools, and payment rails required for the agentic internet.
Since the beginning of the third quarter alone, the company has launched a series of innovations around “Content Independence Day” and the ongoing “Agent Week,” while unveiling critical building blocks for a two-sided agent marketplace.
Monetization Gateway allows customers to sell any resource behind Cloudflare, whether a webpage, API, dataset, or MCP tool. This will enable the new business models that define the next generation of the internet.
The company also launched Wallets, enabling buyers to make autonomous payments through agents, while cloudflare.pay provides agent-ready identity and trust mechanisms for merchants and buyers.
Cloudflare is not only building the infrastructure required for successful agentic commerce; it also believes AI companies and content owners should grow together. The company recently announced a first-of-its-kind research pilot with OpenAI to explore pathways toward a sustainable ecosystem jointly developed by content creators and AI companies.
Over the coming months, the company will announce further initiatives to help AI companies, content creators, and businesses of all sizes grow together. The internet’s business model is changing, and Cloudflare believes it is exceptionally well positioned to help define its future.
V. CFO Thomas Seifert: Financial Performance
Cloudflare delivered an excellent second quarter, with strong growth across all key performance indicators. The principal drivers were another period of rapid growth in the Workers developer platform and network-wide agentic workloads, sustained momentum among the largest customers, and solid go-to-market execution.
Revenue and Regional Performance
Second-quarter revenue was $696.1 million, up 36% year over year.
The United States accounted for 51% of revenue and grew 41% year over year; Europe, the Middle East, and Africa represented 27% and grew 30%; and Asia-Pacific represented 14% and grew 32%.
Customer Metrics
Cloudflare ended the quarter with 4,698 large customers spending more than $100,000 annually, up 27% year over year and accelerating from 25% in the prior quarter.
The company added a net 282 large customers during the quarter and a record 986 over the past 12 months.
Every large-customer cohort—from $100,000, $500,000, and $1 million to $5 million in annualized revenue—posted a record year-over-year net increase in customers during the second quarter.
Large customers contributed 73% of quarterly revenue, up from 71% a year earlier.
Significant expansion among the largest customers drove dollar-based net retention to 120%, up 2 percentage points sequentially and 6 percentage points year over year.
Gross Margin and Capital Expenditure
Second-quarter gross margin was 73.1%, up 30 basis points sequentially and down 320 basis points year over year.
Paid traffic continued to grow faster than free traffic year over year, shifting more network costs from sales and marketing expense into cost of revenue. However, as discussed at Investor Day, this trend has begun to show signs of stabilizing.
Network capital expenditure represented 7% of second-quarter revenue. This metric may fluctuate from quarter to quarter, and the company expects full-year 2026 network capital expenditure to equal 14% to 15% of revenue.
Operating Expenses
Second-quarter operating expenses declined by 3 percentage points year over year to 59% of revenue. Cloudflare ended the quarter with 4,700 employees.
Sales and marketing expense was $232.5 million, or 33% of revenue, down from 36% a year earlier.
Research and development expense was $104.1 million, or 15% of revenue, down from 16% a year earlier.
General and administrative expense was $76.3 million, or 11% of revenue, up from 10% a year earlier.
Operating income was $96.1 million, up 33% from $72.3 million a year earlier.
Second-quarter operating margin was 13.8%, up 240 basis points sequentially and down 30 basis points year over year.
Net Income, Cash Flow, and Balance Sheet
Second-quarter net income was $107.8 million, with diluted net income per share of $0.29.
These non-GAAP results excluded $151 million of second-quarter severance and other restructuring expenses, of which $99 million was paid during the quarter.
The company now expects full-year 2026 severance and other restructuring expenses of up to $165 million, including up to $130 million of cash expenditures. Although higher than initially anticipated, Cloudflare continues to prioritize completing these actions quickly—particularly international adjustments—to keep the organization focused on execution.
Quarterly free cash flow was $56.4 million, or 8% of revenue, compared with $33.3 million, or 6% of revenue, a year earlier. Excluding the higher severance and other restructuring costs, the company’s 2026 free-cash-flow outlook remains unchanged.
Cloudflare ended the second quarter with $4.2 billion in cash equivalents and available-for-sale securities.
Remaining performance obligations were $2.732 billion, up 7% sequentially and 38% year over year. Current remaining performance obligations represented 64% of the total and grew 35% year over year.
Third-Quarter and Full-Year Guidance
For the third quarter of 2026, the company expects:
Revenue of $736 million to $737 million, up 31% year over year;
Operating income of $129 million to $130 million;
An effective tax rate of 20%;
Diluted net income per share of $0.34, based on approximately 374 million shares.
For full-year 2026, the company expects:
Revenue of $2.864 billion to $2.87 billion, up 32% year over year;
Operating income of $443 million to $445 million;
An effective tax rate of 20%;
Diluted net income per share of $1.25 to $1.26;
Approximately 374 million weighted-average shares.
The second quarter demonstrated the strength of Cloudflare’s core business. The company’s strategic position in the shift toward the agentic internet has never been stronger, while the opportunity ahead has never been larger or clearer. Cloudflare intends to capture it through disciplined execution, sustainable growth, and long-term focus.
VI. Q&A;
Monetizing Non-Human Traffic
Barclays analyst Saket Kalia:
The traffic mix is changing: non-human traffic is already the majority, and the trajectory has clearly reached an inflection point. Will this trend primarily drive new customers to adopt Cloudflare, or prompt existing customers to increase their spending?
From a related perspective, will the impact be greater among large customers or smaller customers?
CEO Matthew Prince:
This is a remarkable period. In November 2025, someone asked me when non-human traffic would surpass human traffic. After pulling all the data and completing our analysis, we were fairly confident it would happen in the second half of 2027.
When I was asked the same question again in March 2026, we reran the analysis and were surprised to find that the expected crossover had moved forward to the first half of 2027.
CFO Thomas Seifert:
In May this year, the team told me, “You may not believe this, but non-human traffic online has already surpassed human traffic.” I was astonished.
To illustrate how rapidly this trend is developing—and I should emphasize that every forecast I made at each prior point proved wrong—if the current trend continues, we believe non-human traffic could reach 1,000 times human traffic within 5 years.
In other words, human activity could become a rounding error in total internet traffic. That would not be because human traffic is declining, but because non-human traffic is growing so quickly.
This shift has several implications. First, some non-human traffic is malicious and may originate from hackers or other bad actors. It may also be malicious relative to a particular customer’s business model—for example, when an AI company attempts to access content from a media company supported by advertising revenue.
We block such traffic and do not charge customers more for doing so, because that is the service a security company should provide.
At the same time, some customers want to receive this traffic. We will therefore not only do our best to serve it, but also work to improve the efficiency with which we do so.
If online traffic is going to increase to 1,000 times its current level, efficiency must improve dramatically. Companies such as Cloudflare will be essential to supporting that growth, regardless of customer size.
More interestingly, more than 80% of the major AI companies we engage with are already Cloudflare customers and depend on Cloudflare.
CEO Matthew Prince:
We have strong relationships with these AI companies. As agents access websites at enormous scale, the exchange model developed during the era of human traffic is changing.
Products announced during Agent Week, including cloudflare.pay, establish a foundational mechanism for charging a very small fee—potentially only a fraction of a cent—for each request made by an agent.
Someone must pay for the bandwidth and the servers, and the people who create content must also be compensated.
For the past 27 years, the internet’s business model has been defined primarily by advertising and shaped to a significant extent by Google. The business model for the next 27 years will be very different, and Cloudflare believes no company is better positioned to help define it.
Gross-Margin Outlook for the Second Half
Saket Kalia:
Gross margin stabilized this quarter, which is encouraging. The company discussed this extensively at Analyst Day. Could you elaborate on the positive and negative drivers, and how gross margin might fluctuate during the second half?
CFO Thomas Seifert:
As we said at Investor Day, the company should focus more on overall unit economics because gross-margin profiles vary significantly by product.
Across all the metrics disclosed today, progress is ahead of our internal tracking targets. We are quite confident that aggregate unit economics across all products will continue to improve this year.
Gross margin is expected to remain broadly stable at the current level. More importantly, unit economics will continue to expand during the second half.
Why Workers Attracts Developers and the Role of Cloudflare OS
RBC Capital Markets analyst Matthew Hedberg:
The addition of approximately 2 million developers this quarter was exceptional. Given the wide range of choices available to developers and the market’s ongoing debate around open-weight and open-source models, what are the key attributes of Workers that give developers confidence in using it as their foundational platform?
The internet is being fundamentally redesigned to support machine-to-machine traffic. Cloudflare OS was open-sourced this week. How will it extend the opportunity beyond developers to every employee across an organization?
CEO Matthew Prince:
I had the team verify the developer numbers 3 times because we added more developers this quarter than in all of last year—and we had thought last year was already very strong.
Several factors are driving this growth. First, Cloudflare Workers is becoming an ideal platform for building agents and agentic workloads. It is extremely lightweight, customers pay only when work is actually being performed, and it can start and stop very quickly. It has become the platform of choice for sophisticated developers deploying code.
Our methodology is quite conservative. Some large enterprises may have many people involved in development behind the scenes but still be counted as only 1 developer account.
The growth in paying customers also shows that many small developers are increasing their platform usage. This is encouraging: some of these projects may not succeed, but others could become major businesses. That pattern has always been an important part of Cloudflare’s growth story.
Another factor, related to Cloudflare OS, is the sharp expansion in the overall developer population. Many people who never previously thought they could write code or create tools are now doing so.
My executive assistant is using vibe-coding platforms to build tools for managing household tasks. She is writing code and deploying it to Cloudflare, which is remarkable.
Much of the code generated by users of companies such as Lovable, Replit, and Wix-owned BASE44 ultimately runs on Cloudflare, which is often the preferred deployment target. This is further accelerating developer growth.
Last quarter, the company said team efficiency had improved significantly—not only among developers, but also across finance, legal, procurement, and management. Some observers were puzzled by that statement. A major reason is that Cloudflare OS has enabled us to build tools that give all employees access to capabilities typically reserved for developers at most organizations.
We received many questions about this, and we were proud of the results, so we recently open-sourced the project. The response has already been highly positive, with many large enterprises saying this is exactly what they need.
Many startups are also developing similar capabilities, with considerable promise. Cloudflare is differentiated by its origins as a security company. It would clearly no longer be accurate to describe Cloudflare solely as a security company, but security remains central to its DNA.
This allows the company to connect systems of record securely and audibly, sample and inspect activity, and establish controls that give employees across an organization access to these powerful tools while ensuring they are used safely and responsibly.
These are precisely the areas where most organizations encounter barriers when extending access to AI tools more broadly across their workforces. One reason Cloudflare has been able to move faster—and is willing to open-source Cloudflare OS—is that the company is grounded in security and understands how to implement these capabilities safely, enabling rapid progress without disrupting existing systems.
The Agentic Security Opportunity
Morgan Stanley analyst Sanjit Singh:
Cloudflare has one of the market’s more comprehensive agentic technology stacks, spanning infrastructure, runtime, model services, the data layer, and Durable Objects. That may also be one reason for the strong developer growth.
Beyond running and orchestrating agents, when will securing the agents themselves become an opportunity? What might the security portfolio for agent orchestration and the agents themselves look like?
CEO Matthew Prince:
First, credit is due to everyone working on the developer platform, particularly the agent-related initiatives. These teams have been operating at an intense pace and continuously releasing additional capabilities.
They initially build the tools Cloudflare itself needs, and those have proven to be the same tools other enterprises need. The opportunity is already here.
The primary reason large enterprises proactively contact Cloudflare is that they know they must use AI, but need to do so more securely. This is particularly evident in SASE and zero trust.
Many zero-trust vendors are still discussing matters such as seats for human users. Cloudflare takes a different approach that quickly reframes the conversation: enterprises can decide for themselves how to manage human users within their organizations, but agents will eventually outnumber humans, making an appropriate security model for agents essential.
A few weeks ago, I met with a large government agency in London. It was already far along in a project with a first-generation zero-trust provider and planned to deploy that solution across a substantial portion of the UK government.
When we began discussing agents and how the agency planned to manage them, it quickly became clear that its original vendor had not seriously considered the issue. By contrast, because Cloudflare has a developer platform, agents have been central to its solution from the outset.
The agency then canceled its original procurement process outright and is now reassessing its options through an agent-first lens.
More organizations will take a similar approach. Cloudflare’s starting point in the developer platform is also a major reason its SASE and zero-trust platforms have gained significant market share over the past 6 months.
Pooled-Fund Contracts and Revenue-Recognition Volatility
Sanjit Singh:
Investor Day presented several revenue models, including the pooled-fund model. Some large customers renew in advance through pooled-fund arrangements, which can affect the timing of revenue recognition and create an initial revenue headwind.
As the company moves through the second quarter and looks toward the second half, have these customers increased their usage, and has Cloudflare moved beyond the initial revenue pressure created by the early adoption of pooled-fund contracts?
CFO Thomas Seifert:
The trajectory is clearly upward for both revenue and operating profit.
As discussed at Investor Day, the business model will also continue to evolve from a purely ratable SaaS model toward a more diversified mix of fund pools, usage-based pricing, and what the company calls “T-shirt-sized bundles.”
As the business accelerates, more customers will exhaust their bundle allowances sooner and consume and renew fund-pool contracts more quickly. As these contracts accumulate, the standard deviation of revenue from individual customers will increase.
Over multiple quarters, growth momentum is clearly strengthening, not only in revenue but also in RPO and current RPO. However, quarter-to-quarter movements will become harder to predict, so the company will remain prudent when setting guidance.
Can Cloudflare Achieve Structurally Higher Growth?
Goldman Sachs analyst Gabriela Borges:
Cloudflare’s growth rate has remained consistently near 30% over the past 3 years. Given current business trends and the increasing convergence of multiple product segments, could Cloudflare’s structural growth rate rise further over the next 3 years?
CFO Thomas Seifert:
Many factors will work together to drive growth. First is the innovation flywheel: the addressable markets the company serves and disrupts have expanded from $30 billion at the time of its IPO to more than $300 billion today.
The flywheel generated by Phase 3 is accelerating, particularly now with Phase 4. With each new phase, the maximum contract size increases by multiples: Phase 1 contracts were worth $1 million; Phase 2 reached tens of millions of dollars; and Phase 3 reached hundreds of millions of dollars.
This reflects a combination of factors. The company also made clear today that the larger the customer cohort, the faster it is growing. Multiple independent growth vectors are moving in the right direction and collectively generating the momentum visible in the financial results.
CEO Matthew Prince:
Having a co-founder serve as CEO can have some disadvantages—although whether they are disadvantages or advantages depends on one’s perspective.
I remember when the company’s growth rate was far higher than it is today, and I miss those days. I would not be disappointed if we returned to a higher growth rate.
The Moat Around Monetization Gateway, Wallets, and Identity
Gabriela Borges:
The company announced a three-part offering comprising Monetization Gateway, Wallets, and identity. Why is this difficult to build? Where is Cloudflare’s moat, and who might its competitors be?
When discussing Phase 4, the company has consistently said it must reach critical mass, with enough industry participants adopting the system for it to become a standard. How should investors think about the adoption curves for these 3 products?
CEO Matthew Prince:
Cloudflare considers how to build moats, but its mission has always been to help build a better Internet—and that mission has already produced a highly durable business.
The more important question is why this is so difficult. When the company began considering how the Internet’s business model might change significantly, micropayments appeared likely to play a role; the challenge was how to make them work in practice.
The following figures are unaudited but directionally accurate. Cloudflare’s network processes approximately 500 million requests per second. The company roughly estimates that about 1% to 10% of those requests could be monetized through some form of microtransaction, potentially worth only a fraction of a cent each.
That means the system may need to support approximately 10 million financial transactions per second on the first day of launch, then scale to approximately 100 million per second.
By comparison, to the best of my recollection, Visa—the world’s largest payment network—processes approximately 20,000 transactions per second during peak holiday periods. Delivering Cloudflare’s envisioned model would require a system operating at a scale 3 orders of magnitude greater than Visa’s.
The company initially did not intend to build this system itself and hoped to partner with other institutions. Unfortunately, many companies building next-generation payment networks see Visa as their competitor rather than approaching the problem from the perspective of building a better Internet and ensuring that its future business model remains healthy and successful.
If Cloudflare succeeds, its operating scale and processing efficiency will be critical. Moreover, more than 20% of the Internet already sits behind Cloudflare.
If Cloudflare can enable these websites to activate the relevant capabilities with just 1 click, the results could be highly compelling. Many of these websites are free customers. If the company can make its free service “less than free”—meaning Cloudflare pays customers after they join because it earns revenue from a series of microtransactions generated by serving agents—that would further accelerate the entire business flywheel.
The Internet’s business model will change, and Cloudflare believes it is best positioned to lead that transition.
Workers’ Scale, Product Drivers, and Product-Led Growth
Citi analyst Fatima Boolani:
Can you quantify the combined scale of Workers and Workers AI so investors can assess their contribution to total revenue? Are any specific capabilities or SKUs within the portfolio driving outsized monetization growth?
In addition, the company has spent years strengthening its enterprise go-to-market capabilities, enabling more consistent and strategic participation in customer decision-making. With the innovation focus now appearing to shift back toward developers, will the company return to a product-led growth model to some extent?
CEO Matthew Prince:
I will begin with an incomplete answer, and then Thomas can continue with another incomplete answer.
The company has not yet disclosed revenue or revenue growth by product segment. It can confirm, however, that the Workers platform continues to drive substantial new-customer adoption and genuine revenue growth.
For some time, the company said its priority was adoption rather than revenue. That phase has now changed. Cloudflare still will not try to extract every $1 of revenue, but Workers has become a meaningful revenue contributor.
This is also evident in the customer orders cited earlier. More customers are signing fund-pool contracts partly because they include Workers. A customer’s development team may agree to contract with Cloudflare for zero-trust and reverse-proxy services while also requiring an allowance for use on the Workers platform. This typically drives substantial usage.
The number of paying customers also demonstrates that product-led growth is performing extremely well.
Adding together the customer order values disclosed across Cloudflare’s earnings calls and calculating the average contract size shows that the figure continues to rise. This remains closely tied to the strength of the enterprise sales organization.
No customer will simply swipe a credit card for a contract worth more than $10 million. Such transactions require human negotiation, trust and relationship-building, and confidence that someone will take responsibility for resolving problems when they arise. That is precisely the value strong enterprise salespeople provide.
Cloudflare’s enterprise sales organization is also becoming more technically capable. Some employees are highly skilled at selling but were previously less familiar with the technology; the company is providing tools to strengthen their technical capabilities.
I challenged the sales team to see who would become the 1st salesperson to build a feature, deliver it to the customer, and deploy it into production before the customer meeting had even ended. The company is building systems capable of making this possible, and I believe someone will rise to the challenge soon.
The sales organization recognizes that customer relationships remain critical, but salespeople must also possess the technical expertise to understand and communicate with the technical leaders on customer teams. Ultimately, the best products will still win.
Progress Toward GAAP Profitability and Product Growth Ranking
William Blair analyst Jonathan Ho:
At Investor Day, the company said it would achieve GAAP profitability no later than 2028. Given second-half guidance, how is it tracking against that target? What major levers or incremental opportunities remain available?
CEO Matthew Prince:
The key phrase is “no later than the end of 2028.” The company is currently well ahead of that target.
Excluding restructuring charges, GAAP net loss was approximately $18 million, already very close to breakeven.
The levers the company is using include accelerating revenue growth, generating operating leverage, and deploying the Cloudflare automation capabilities discussed earlier. These capabilities are helping improve performance and enhance discount analysis. The company is applying multiple levers simultaneously and is currently well ahead of its stated target.
Jonathan Ho:
Can you rank the relative strength of the current sales pipeline across the different business phases or product families?
CFO Thomas Seifert:
The Investor Day disclosure remains applicable. Workers is still the fastest-growing business phase, encompassing the complete Phase 3 product and feature stack, followed by SASE products and the Phase 2 business.
The underlying business drivers and the way the sales pipeline is built have not changed between Investor Day and this earnings call.
Partner-Channel Revenue Mix
Stifel analyst Adam Borg:
The partner channel accounted for 31% of revenue this quarter, continuing to rise.
A greater Phase 2 mix may drive more channel usage and demand for partnerships, whereas Phase 3 and Phase 4 products may not require as many partner touchpoints. How should investors think about future partner participation? Is the current mix approaching a ceiling, or is there room for further gains over the next several quarters?
CEO Matthew Prince:
The partner revenue mix definitely has room to increase.
The company has materially improved how it engages with partners, helps them succeed, provides training, and offers clear price lists. Historically, the company was not particularly good at providing transparent price lists, but that has changed.
Based on discussions with partners, they view Cloudflare very favorably as a business partner and see a clear path to succeeding alongside the company.
The partner ecosystem is changing. As AI and other tools significantly reshape how services are delivered, yesterday’s winners may not be tomorrow’s winners.
Cloudflare previously focused partners primarily on Phase 2 products—SASE and zero trust—where they achieved considerable success, while also allowing them to cross-sell other products. SASE and zero trust remain important areas where partners can create value.
In addition, some partners are beginning to actively promote the developer platform. Several large systems integrators have expressed strong interest in Cloudflare OS. For customers that do not want to manage the open-source version themselves, these integrators want to handle implementation and deployment.
The opportunity extends beyond installing software. It includes connecting different systems of record, integrating sources of truth, and ensuring that the complete system is properly configured. This represents an enormous opportunity for partners and may drive broader adoption of Cloudflare’s developer platform.
The revenue mix generated through partners is expected to continue increasing, although it may not reach the more than 90% levels seen at some first-generation zero-trust companies or traditional hardware vendors. Over the long term, the share could exceed 50% and potentially reach more than 60%.
Agentic Inference, the Global Network, and Isolates
Ryan McWilliams:
As AI agents become more sophisticated and require increasingly frequent calls to large language models while performing tasks, will inference capacity close to where business activity occurs become more important? Are more enterprises prioritizing AI performance and low-latency requirements when building products?
CEO Matthew Prince:
Inference is only one piece of a more complex puzzle.
Agents must be able to create code, perform inference, access networks, aggregate information, store some content, and combine all these capabilities within a short period and at extremely low cost. The key is not inference alone, but the orchestration of every component.
Ideally, an agent does not operate in just one location; it runs across multiple locations. It may need to access and retrieve information from different places around the world.
The ideal is to make the entire network the computer. Sun once coined the phrase “the network is the computer.” Oracle did not renew the trademark after acquiring Sun, and Cloudflare now owns “the network is the computer” trademark, which I think is fitting.
What agents need is precisely for the network to become the computer. As for whether the relevant location should be called the “edge,” the “core,” or something else, I have always been reluctant to use “edge” because, in some respects, the term is not particularly meaningful.
Cloudflare’s positioning is that wherever customers require storage, compute, inference, and networking, Cloudflare can provide those capabilities and orchestrate them across its global network.
Beyond the network, the company also owns a range of foundational technologies. In the past, deploying a new service required purchasing a new physical server. VMware later enabled one server to be virtualized into many, but that approach remained relatively cumbersome. Companies such as Docker then advanced container technology, helping drive the first generation of cloud computing.
Agents require a new generation of cloud. Even containers are too heavy for agents.
As the company’s team explained at Investor Day, if every knowledge worker on Earth ran 1 container-based agent, the existing supply of CPUs would be insufficient, and the number of CPUs required would increase manyfold.
Cloudflare developed Isolates, a new and more lightweight sandboxing technology that enables code to be deployed and run at the scale required by agents.
The opportunity therefore depends on both the network and its global reach, as well as the scalability of the underlying platform. Overall Internet usage will increase extremely significantly in the future, and Cloudflare’s platform was designed for that growth.
Ryan McWilliams:
The agent development-lifecycle product the company launched this week is compelling; it effectively gives agents everything they need to build other agents.
CEO Matthew Prince:
It truly is remarkable.
Outlook for Net Retention
Ryan McWilliams:
Given this quarter’s large orders, new Workers customers, and fund-pool contracts that are being consumed more quickly, can you offer any perspective on modeling net retention or how it may trend through the rest of the year?
CFO Thomas Seifert:
This quarter’s performance was driven by contributions across the board; there is no single factor to isolate.
Most notably, growth came from every product, every customer cohort, and every contract model used between the company and its customers. The entire breadth of the business demonstrated strong momentum.
Why Cloudflare Is Not Joining the AI-Infrastructure Capex Race
Scotiabank analyst Patrick Colville:
Cloudflare’s multiple business engines are performing well, but the company has chosen not to participate in the AI capex race. Hyperscalers and neoclouds are signing massive GPU and AI-infrastructure contracts, and another competitor disclosed nearly $3 billion in aggregate AI-infrastructure contract value tonight.
What is the rationale behind Cloudflare’s decision not to join this AI-infrastructure race?
In addition, management’s comments suggest that cybersecurity risks are clearly increasing. Did this risk already affect Cloudflare’s financial model in the second quarter, or did it remain primarily a topic of customer discussions, with more of the actual financial impact expected in the second half of 2026?
CEO Matthew Prince:
Not all revenue is of equal quality.
If a company is merely selling commoditized compute—effectively allowing AI companies to use its balance sheet and credit rating to purchase the same servers available from other vendors—that is not an attractive business for Cloudflare.
The company remains highly disciplined on this point. Customers have made such requests, but Cloudflare does not consider that business particularly compelling.
Cloudflare has extensive engagement with the world’s largest AI service providers, all of which are also its customers. It is conceivable that Cloudflare may eventually find more meaningful and deeper ways to serve a broader set of important AI companies and play a larger role in their operations.
But the company will not pursue that objective simply by selling commoditized hardware, because that is not a high-quality business.
Another key differentiator for Cloudflare is its relentless focus on extracting as much value as possible from every $1 of capital expenditure. Rather than simply spending its way through problems, the company continually explores how to obtain more inference capacity, CPU utilization, memory efficiency, and storage capacity from each device.
Cloudflare understands the typical inference workloads and GPU utilization rates of hyperscalers, where utilization is generally very low. This is not entirely the hyperscalers’ fault: they sell infrastructure, while customers are responsible for maximizing its utilization.
Customers often lack sufficiently diversified traffic and effective scheduling capabilities, making peak utilization difficult to achieve.
If Cloudflare is able, in certain cases, to generate 10x the utilization efficiency from every $1 of capital expenditure, it could continue scaling revenue while achieving higher revenue quality, without relying solely on additional capital investment for growth.
Cloudflare operates a fundamentally different business from hyperscalers. The traditional first-generation cloud model is to purchase servers, rent them to customers, and seek to monetize each server roughly five times.
Cloudflare instead sells completed work. Rather than leaving customers to maximize server utilization, Cloudflare takes responsibility for maximizing utilization of the underlying equipment and building the necessary scheduling and efficiency systems.
This is the fundamental difference in Cloudflare’s business model. The company does not want to enter the server-rental business because, over the long term, it is a commoditized and relatively unattractive business.
VII. Closing Remarks
CEO Matthew Prince:
Thank you to everyone at Cloudflare for delivering an outstanding quarter.
We are helping define the future of agents and the internet, while also helping build a successful and sustainable business model for the internet. This is among the work I am proudest of in my career, and I am equally proud of everything our team has done to make it possible.
Thank you for joining the earnings call. We look forward to speaking with you again next quarter.
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