Cloudflare reported third-quarter revenue of $782.5 million on Nov. 5, up 39% from a year earlier and comfortably ahead of the roughly $738 million Wall Street had expected — the internet infrastructure company's fastest growth rate in nearly four years, according to its SEC-filed earnings release.
Non-GAAP operating income came in at $137.1 million, 17.5% of revenue, while the company's GAAP figures still showed a loss: $67.9 million at the operating line and $34.1 million, or 10 cents a share, at the net-income line, largely the product of stock-based compensation and other non-cash items the company excludes from its adjusted numbers. Free cash flow was $82.1 million, though that margin narrowed to about 10% of revenue from 13% a year earlier as capital spending climbed 44% to keep pace with demand for the company's network, a trend detailed in the company's results.
Cloudflare raised its outlook for the rest of the year, guiding to fourth-quarter revenue of $845 million to $846 million and full-year revenue of roughly $2.96 billion. The company's finance chief told investors Cloudflare now expects to reach GAAP profitability in the fourth quarter — well ahead of the "by 2028 at the latest" target it set at its investor day earlier this year, according to coverage of the earnings call.
Positioning around AI traffic
Chief executive Matthew Prince called it "the company's best quarter ever," noting Cloudflare has now crossed $3 billion in annualized revenue. The company has increasingly positioned itself as infrastructure for what Prince calls the "AI-powered internet" — the layer of caching, security and routing that sits between AI companies' chatbots and agents and the websites and data they draw on.
The third quarter was Cloudflare's best quarter ever.
Matthew Prince, Cloudflare co-founder and CEO
That positioning comes with its own costs. Cloudflare is in the middle of a shift toward what it describes as an "agentic AI-first" operating model, which has included a round of restructuring and an associated headcount reduction; the company recorded $11 million in restructuring charges in the quarter alone, and $161.7 million so far this year.
The results landed in a week when cybersecurity and infrastructure stocks broadly sold off before rebounding on strong earnings, part of a pattern this quarter in which companies sitting underneath the AI boom — chipmakers, cloud providers, networking firms — have generally outperformed the AI model developers themselves, whose spending has drawn growing scrutiny from investors watching for signs of an AI-spending bubble.
