Cloudflare Inc Earnings - Q3 2025 Analysis & Highlights
Key Takeaways
Cloudflare's Q3 2025 earnings call highlighted strong financial results, driven by enterprise sales and innovation, particularly in AI. The company is navigating a transition in the internet business model with AI, while also seeing a change in product leadership as CJ Desai departs to become a CEO.
Key Financial Results:
Revenue for Q3 2025 was $562 million, up 30.7% year-over-year.
Large customers (>$100,000 per year) totaled 4,009, a 23% increase year-over-year.
Revenue contribution from large customers grew 42% year-over-year, representing 73% of total revenue, up from 67% in Q3 2024.
Dollar-based net retention was 119%, up 5 percentage points quarter-over-quarter.
Gross margin was 75.3%, within the target range of 75% to 77%.
Operating profit was $85.9 million, with an operating margin of 15.3%.
Free cash flow was $75 million for the quarter.
Business Segment Results:
The company has four acts: Application Services, SASE, and Developer.
Workers developer platform continues to deliver outsized growth.
Capital Allocation:
Network CapEx represented 14% of revenue in Q3 2025.
Network CapEx is expected to be approximately 13% of revenue for the full year 2025.
Industry Trends and Dynamics:
The rise of AI is expected to transform businesses.
AI is another information consumption platform shift.
Human eyeball traffic is unlikely to be the currency of the Internet's future.
80% of leading AI companies already rely on Cloudflare.
The Internet is becoming "scarier and scarier," leading customers to realize Cloudflare is the only network engineered to survive.
Competitive Landscape:
Cloudflare's architecture gives it 4 times the capacity of all its scrubbing center-based competition combined.
Cloudflare displaced a first-generation Zero Trust vendor as well as a legacy on-premise VPN provider.
The primary competition for inference workloads continues to be the hyperscalers.
Macroeconomic Environment:
No explicit discussion of macroeconomic factors, but the company's forward-looking statements are subject to risks and uncertainties, much of which is beyond their control.
Growth Opportunities and Strategies:
Go-to-market transformation from product-led growth to enterprise sales is ongoing.
Growth in net capacity of the sales force grew at its fastest pace year-over-year in more than two years.
Sales productivity increased year-over-year for the seventh consecutive quarter.
Bookings from partner-initiated opportunities doubled year-over-year.
Cloudflare is setting the protocols, guardrails, and business rules for the agentic Internet of the future.
Cloudflare will help shape the future of the Internet.
The company is working to ensure the tools to participate in the future are available to all businesses, large and small.
Cloudflare is focused on a multi-cloud future.
Cloudflare is partnering with Oracle to be natively available within Oracle's OCI platform.
Financial Guidance and Outlook:
For Q4 2025, revenue is expected to be in the range of $588.5 million to $589.5 million, representing an increase of 28% year-over-year.
Q4 2025 operating income is expected to be in the range of $83 million to $84 million, with an effective tax rate of 20%.
Q4 2025 diluted net income per share is expected to be $0.27, assuming approximately 377 million shares outstanding.
For the full year 2025, revenue is expected to be in the range of $2.142 billion to $2.143 billion, representing an increase of 28% year-over-year.
Full year 2025 operating income is expected to be in the range of $297 million to $298 million, with an effective tax rate of 20%.
Full year 2025 diluted net income per share is expected to be $0.91, assuming approximately 370 million shares outstanding.
Cloudflare expects to reach a $3 billion annualized revenue run rate in Q4 2026.
