Key Takeaways:
Cloudflare reported Q2 revenue of $696.1 million, up 36% year over year and beating the $664.67 million consensus by $31.4 million.
"The trajectory of the business is clearly up and to the right for both revenue as well as operating income," Chief Financial Officer Thomas Seifert said on the earnings call.
Adjusted earnings came in at $0.29 a share, topping the $0.27 analysts expected. Dollar-based net retention reached 120%, up 2 percentage points sequentially and 6 points year over year. Customers spending more than $100,000 annually rose 27% to 4,698, with a record 986 net additions over the past 12 months, and those accounts generated 73% of revenue, up from 71% a year earlier. Gross margin was 73.1%, improving 30 basis points sequentially for the first expansion in eight quarters, though down 320 basis points year over year. Free cash flow rose 69% to $56.4 million, or 8% of revenue.
Shares jumped 17.41% to $333.95 in after-hours trading, pushing the stock above its 52-week high of $305. The company guided third-quarter revenue of $736 million to $737 million, about 31% growth, and full-year 2026 revenue of $2.864 billion to $2.870 billion, up 32%. It expects Q3 operating income of $129 million to $130 million and diluted EPS of $0.34, with full-year EPS of $1.25 to $1.26.
Chief Executive Matthew Prince said more than half of the traffic across Cloudflare's network in Q2 was non-human for the first time, as AI agents and automated workloads reshape internet use. The company added nearly 2 million developers in the quarter, bringing its platform total above 7.4 million, and more than 80,000 paying customers. Remaining performance obligations reached $2.732 billion, up 38% year over year, while cash and equivalents stood at $4.2 billion.
Cloudflare recorded $151 million in severance and restructuring charges in the quarter, with up to $165 million expected for the full year. Prince said the company is "pacing ahead" of its 2028 target for GAAP profitability, noting the quarter would have been near break-even excluding restructuring costs. Management also said network capital spending would equal 14% to 15% of revenue for the year.
The beat and raised outlook signal management expects AI-driven demand for its Workers developer platform and security products to keep accelerating. Investors will watch the Q3 earnings call for updated gross-margin trends and adoption of new agentic-commerce tools such as Monetization Gateway and cloudflare.pay.
This article is for informational purposes only and does not constitute investment advice.
