Overview
Cloudflare
NET · NYSEQ3 2026Software · Cloud Infrastructure and Cybersecurity
Since the Report + 22.4%
Revenue grew 39.2% year over year, EPS beat the estimate by 11.8%; the stock rose 14.7% in its first reaction.
- RevenueQ3
- $782.5M
- Estimate $736.8M · Beat by 6.2%
- EPSAdjusted
- $0.38
- Estimate $0.34 · Beat by 11.8%
Verdict
BUYCloudflare's revenue rose 39% year over year to $782.5 million, beating estimates by 6.2%, and the company lifted its full-year outlook by 3.4%. The stock rebounded 14.7% after hours following a sharp selloff on earnings day. The metric to watch next is gross margin: growth accelerated while margin contracted 2.9 points in a year.
Close on Report DayNov 5
$244.51▲ 14.7%Report-Day Move
- Market Cap(Today)
- ≈ $107 B
- 1Y Return(At Report)
- + 7%
- P/E(At Today's Price · $1.20 · Trailing 12M)
- 249.4
- PEG(Company Guidance 2026)
- 5.52
- Net Margin(Trailing 12M)
- − 8.2%
Earnings Summary
In 30 Seconds- Revenue grew 39% year over year to $782.5 million, beating estimates by 6.2%, and adjusted EPS came in 11.8% above expectations.
- Fourth-quarter revenue guidance topped estimates by 5.9%, but adjusted gross margin contracted 2.9 points in a year.
- After falling 8.3% on earnings day, the stock rebounded 14.7% after hours and closed up 9.9% the next day.
The Numbers
Adjusted Gross Margin
72.4%
Year Ago 75.3% · 2.9-Point Contraction
Adjusted Operating Margin
17.5%
Year Ago 15.3% · 2.2-Point Gain
Q4 Revenue Guidance
$845.5M
Estimate $798.2M · 5.9% Above
Stock Reaction
▲ 14.7%
After Hours · 7:59 P.m. ET · $280.51
Quarterly Revenue ($ Million)
562
Q3 25 · $562 M
615
Q4 25 · $615 M · QoQ + 9.3%
640
Q1 26 · $640 M · QoQ + 4.1%
696
Q2 26 · $696 M · QoQ + 8.8%
783
Q3 26 · $783 M · QoQ + 12.4% · YoY + 39.2%
845–846
Q4 26E · 845–846 · QoQ + 8.0% · YoY + 37.6%
- Q3 25
- Q4 25
- Q1 26
- Q2 26
- Q3 26
- Q4 26E
Q4 2026 Company Guidance
- Q4 Revenue845 – 846 million845 million846 million845 – 846 million
Midpoint 845.5 · Market Expectation 798.25.9% Above Estimate ▲
- Q4 Adjusted EPS0.43 $
379M Share Assumption · Market Expectation 0.3813.2% Above Estimate ▲
- Q4 Adjusted Operating Income156 – 157 million156 million157 million156 – 157 million
Q3 Actual 137.114.2% Sequential Increase ▲
- Full-Year Revenue2.963 – 2.964 billion2.963 billion2.964 billion2.963 – 2.964 billion
Prior Guidance 2.864–2.870 · Market Expectation 2.87Raised 3.4% ▲
- Full-Year Adjusted EPS1.35 $
Prior Guidance 1.25–1.26 · Market Expectation 1.26Raised 7.6% ▲
How to Read the Chart
The blue band is the company's low-high range; its length shows how much room the company left itself. The black triangle and the line beneath it mark where the market expected, and the notch in the band is the range's midpoint. The triangle appears only where a market expectation is known. When the company gave a single number rather than a range and no market expectation is known, that row gets no band at all: there is no length to measure and no position to compare. Axis is ±13% around the midpoint.
Segment and KPI Data
Revenue by Segment
- United States$408 MShare 52.1%▲ 44.3% YoY
- Europe, Middle East and Africa$202 MShare 25.8%▲ 31.9% YoY
- Asia-Pacific$112 MShare 14.3%▲ 31.9% YoY
- Other Regions$60.7 MShare 7.8%▲ 46.4% YoY
Key Metrics
Free Cash Flow
$82.1 M
▲ 9.5% YoYPress Release
Operating Cash Flow
$215 M
▲ 28.9% YoYPress Release
Remaining Performance Obligations
$2.88 B
10-Q
Adjusted Operating Margin
17.5%
Press Release
Cash and Securities
$5.13 B
Press Release
Shares are computed over the segment total: $783 M. Source: 10-Q.
Metrics come only from the company's own filings; each one names the document it was taken from.
“We're the first agentic cloud, and developers are flocking to us to build the agentic AI future. I predicted last quarter that within five years, agents would outnumber humans online 1,000 to 1.”
- First Agentic Cloud Claim
- Record Sales Productivity
- Security-driven Demand
Summary and Review
Summary
Cloudflare reported third-quarter revenue of $782.5 million. Growth of 39% was the fastest in nearly four years. Revenue beat the $736.8 million market expectation by 6.2%. Adjusted earnings per share were $0.38, 11.8% above estimates. The fourth-quarter revenue outlook also topped expectations by 5.9%. Annualized revenue crossed $3 billion for the first time. All three gates, revenue, profit and guidance, are open.
The stock fell 8.3% during the earnings-day session amid a tech selloff and closed at $244.51. When results came out, it rose 14.7% after hours to $280.51. The next day's closing gain was smaller at 9.9%. The market read this report as a demand story, not an AI spending story. Growth came from usage-based revenue across many customers. The low base created by the selloff also amplified the initial reaction.
The score is 84 and the view is buy. Revenue, profit and guidance all beat comfortably, and the full-year EPS target rose 7.6%. Two caveats pull the score down within its band. Adjusted gross margin fell from 75.3% to 72.4% in a year. Free cash flow margin also slipped from 13% to 10%. Growth is accelerating, but each dollar of revenue is costing a little more.
Full Review
Growth hit a four-year high.
Revenue was $782.5 million. A year earlier it was $562.0 million and growth was 31%. Second-quarter revenue was $696.1 million, so sequential growth was 12.4%. Annualized revenue topped $3 billion for the first time. By region, the U.S. grew fastest: revenue of $407.9 million, up 44% year over year. The U.S. share of total revenue is 52%. More than half of the annual revenue gain came from this region. EMEA and Asia-Pacific grew 32%. On the earnings call, CFO Thomas Seifert said the upside came from variable usage across many customers. That shows growth does not hinge on a single giant contract. Per the call, dollar-based net retention rose to 122%. It was 119% a year ago and 120% last quarter. Existing customers spend more every year.
Margin is shrinking, profitability still rising.
Adjusted gross margin was 72.4%. It was 73.1% last quarter and 75.3% a year ago. That is a 0.7-point sequential and 2.9-point annual contraction. On the call, management said the fast-growing developer platform Workers carries a slightly lower margin. Operating expenses, however, fell to 55% of revenue, from above 60% a year ago. Sales and marketing dropped to 35% of revenue, and general and administrative to 7%. Adjusted operating income rose 60% to $137.1 million. Operating margin climbed from 15.3% to 17.5%. On a GAAP basis there was a $34.1 million loss. Restructuring charges widen the loss, totaling $161.7 million year to date. The company expects GAAP profitability in the fourth quarter. The earlier target had been no later than 2028.
Backlog is growing faster than revenue.
According to the 10-Q, remaining performance obligations total $2.88 billion. Of that, 65% will be recognized over the next 12 months. The current portion grew 37% year over year, close to revenue growth. On the call, customers paying over $100,000 a year were put at about 5,000. They account for 75% of revenue, up from 73% a year ago. Prince listed several large contracts in the quarter. An AI company signed an $11 million one-year deal for Workers. A Fortune 100 cloud provider signed a $15.5 million attack-protection contract. Sales productivity rose for the eleventh straight quarter. The same day, the company named Christian Smith, formerly of Splunk, as President of Revenue.
Cash flow and investment pace need watching.
Operating cash flow was $215.4 million, up 29% year over year. Free cash flow was $82.1 million, or 10% of revenue. A year ago that ratio was 13%. The gap comes from network investment. Network capex rose to 15% of revenue this quarter. The company expects 14-15% for the full year. The balance sheet is strong: cash and securities stand at $5.13 billion. The company sold $2.5 billion of convertible notes this year and repaid $1.29 billion. The release also mentions a shift to an agentic AI-first operating model with a related workforce reduction. The cost of that plan has not been disclosed yet. Why free cash flow diverges from operating cash is explained in the cash flow guide.
Next quarter, one metric: gross margin.
The company guides fourth-quarter revenue to $845-846 million. That implies about 38% annual growth and sits 5.9% above estimates. The EPS outlook is $0.43 versus a $0.38 estimate. Operating income guidance of $156-157 million means 14% growth over the third quarter. Why comparing guidance with estimates matters is covered in the how to read earnings day guide. The full-year revenue target rose to $2.963-2.964 billion. The August target was $2.864-2.870 billion. The growth story is now proven. The next question is the margin attached to that growth. Next quarter, look at one line: adjusted gross margin. If it holds above 72%, Workers growth has protected profitability. If it drops below 71%, the cost of growth is rising and operating margin gains will be limited.
Looking Ahead
Strengths and Risks
5 Strengths · 5 RisksStrengths
5- Revenue grew 39% year over year, the fastest pace in nearly four years.
- Fourth-quarter revenue guidance beat estimates by 5.9% and EPS guidance by 13.2%.
- Adjusted operating margin rose 2.2 points year over year to 17.5%.
- Dollar-based net retention rose from 119% to 122% in a year.
- The company expects GAAP profitability in the fourth quarter, versus a prior target of no later than 2028.
Risks
5- Adjusted gross margin fell from 75.3% to 72.4% in a year, a 2.9-point contraction.
- Free cash flow margin slipped from 13% to 10% as network capex rose to 15% of revenue.
- A GAAP loss of $34.1 million persistsRestructuring charges total $161.7 million year to date.
- The cost of the workforce reduction plan is undisclosed and could weigh on upcoming GAAP results.
- The sales leadership change takes effect at year-end and carries transition risk.
What to Watch
4- Fourth-quarter earnings are expected in February 2027, when the company targets GAAP profitability.
- Christian Smith takes over as President of Revenue at the end of 2026, with Mark Anderson advising through December.
- The cost of the agentic operating model shift and the size of the workforce reduction will become clearer next period.
- The company's first 2027 outlook will be released with February 2027 earnings.
Upcoming Earnings
To Understand This