Summary
Cloudflare closed the second quarter of fiscal 2024 with revenue of $401.0 million, up 30% from the prior-year quarter. Revenue for the first six months of the fiscal year reached $779.6 million, up 30% over the same period a year earlier. Management credited new paying customer additions and expansion inside existing accounts. Forward-looking backlog supports that story. Deferred revenue, current portion only, was $371.0 million, up 38.4% year over year. Remaining performance obligations stood at $1.42 billion, up 37.1%. Both measures grew faster than revenue, a sign that bookings kept pace even with an unsettled macro backdrop.
Margins and profitability both improved. Gross profit was $312.0 million, a 77.8% gross margin, against 75.6% in the prior-year quarter. The GAAP loss from operations narrowed to $34.7 million from $56.2 million, and the operating margin moved to (8.7)% from (18.2)%. The GAAP net loss narrowed to $15.1 million from $94.5 million, and diluted loss per share was $0.04 against $0.28. Part of the improvement is optical. The prior-year quarter carried a large loss on extinguishment of debt that did not repeat. Cost of revenue still grew slower than revenue, and that is what drives the gross margin gain.
Cash generation stayed healthy. Operating cash flow was $74.8 million for the quarter, up from $64.5 million a year earlier, and $148.4 million for the six-month period. Capital expenditures were $29.6 million, down 23.5% from the prior-year quarter, helped by a change in the estimated useful life of network servers from four years to five years. Free cash flow, a non-GAAP measure, was $38.3 million, or 10% of revenue, against $20.0 million, or 6% of revenue, a year ago. Cash, cash equivalents, and available-for-sale securities totaled $1,757.4 million as of June 30, 2024. In May 2024 the company put a $400.0 million revolving credit facility in place and had no loans drawn against it at quarter end.
Customer metrics tell a similar expansion story with one soft spot. Paying customers were 210,166 at June 30, 2024, up from 174,129 a year earlier, and accounts generating more than $100,000 in annualized revenue reached 3,046, up from 2,352. Dollar-based net retention slipped to 112% from 115%, which points to some pressure on expansion within the installed base. International markets accounted for 49% of revenue in the quarter, up from 47%.
Guidance covers the third quarter of fiscal 2024 and the full fiscal year 2024. Both outlooks are built around non-GAAP profitability and continued top-line growth. The company noted that its non-GAAP guidance excludes stock-based compensation and related employer payroll taxes, amortization of acquired intangible assets, acquisition-related costs, and the amortization of debt issuance costs, and it said a reconciliation of those measures to the closest GAAP figures is not available on a forward-looking basis without unreasonable effort.
Risks are familiar and mostly macro. The company runs a large accumulated deficit, expects operating losses to continue, and warns that cash flow may swing between positive and negative. The MD&A flagged lengthening sales cycles, slower conversion of pipeline into sales, rising days sales outstanding, and higher churn, and said those pressures could persist through the rest of 2024. Inflation, high interest rates, and geopolitical conflicts are named concerns. Stock-based compensation remains a large non-cash expense that management strips out of its non-GAAP numbers, and the gap between GAAP and non-GAAP results is still wide.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2024 | Q1 FY2024 | QoQ | Q2 FY2023 | YoY |
|---|---|---|---|---|---|
| Revenue | $401.0M | $378.6M | +5.9% | $308.5M | +30.0% |
| Gross profit | $312.0M | $293.6M | +6.3% | $233.3M | +33.7% |
| Gross margin | 77.8% | 77.5% | +0.3 pp | 75.6% | +2.2 pp |
| Research & development | $102.5M | $87.7M | +16.9% | $89.6M | +14.4% |
| Sales & marketing | $174.5M | $194.1M | -10.1% | $146.7M | +19.0% |
| General & administrative | $69.6M | $66.3M | +5.0% | $53.1M | +31.0% |
| Total operating expenses | $346.7M | $348.1M | -0.4% | $289.4M | +19.8% |
| Operating income (loss) | -$34.7M | -$54.5M | +36.4% | -$56.2M | +38.2% |
| Operating margin | -8.7% | -14.4% | +5.8 pp | -18.2% | +9.6 pp |
| Net income (loss) | -$15.1M | -$35.5M | +57.6% | -$94.5M | +84.0% |
| Net margin | -3.8% | -9.4% | +5.6 pp | -30.6% | +26.9 pp |
| Diluted EPS | -$0.04 | -$0.10 | +$0.06 | -$0.28 | +$0.24 |
| Net retention rate | 112.0% | 115.0% | -3.0 pp | 115.0% | -3.0 pp |
Risks
Cloudflare said challenging macroeconomic conditions have periodically caused lengthening average sales cycles, slowdowns in pipeline conversion, increases in average days sales outstanding, higher churn, and longer payment timing, and it believes macroeconomic uncertainty could persist through the remainder of 2024. It expects some or all of these negative trends may emerge or recur in future quarters.
Revenue increased 30% for the three and six months ended June 30, 2024 compared to the prior-year periods, but Cloudflare stated its rate of revenue growth has slowed in recent periods and may continue to slow. It warned not to rely on prior growth as an indication of future performance.
Risk factors state that since late 2022 Cloudflare has periodically experienced reduced average sales productivity, partly because new sales hires did not become as productive as expected, and it notes senior sales leadership changes including a new President of Revenue in February 2024. It warns failure to attract, train, and retain sales personnel could adversely impact revenue growth.
Cloudflare's growth strategy depends on attracting and expanding sales to large customers, which can involve longer sales cycles, greater pricing leverage, customer-favorable termination rights, and pool of funds arrangements that do not require specific monthly or quarterly spend. The number of paying customers with more than $100,000 annualized revenue increased to 3,046 as of June 30, 2024 from 2,352 as of June 30, 2023, increasing this exposure.
Dollar-based net retention rate was 112% for the three months ended June 30, 2024 compared with 115% for the three months ended June 30, 2023. Risk factors also cite periodic higher churn, including pay-as-you-go customers converting to free plans, which could slow revenue growth.
Cloudflare faces intense competition from on-premises hardware vendors, point solution vendors, and traditional public cloud vendors, and expects competition to increase as new products leveraging artificial intelligence and machine learning are introduced. It warns larger competitors may bundle products, offer lower prices, or make its products unable to interoperate.
The company's free plan creates incremental costs and liabilities, and the vast majority of customers do not pay. Cloudflare has faced negative publicity from offensive customer content on its network, including The Daily Stormer, 8chan, and Kiwi Farms, and says some potential customers decided not to subscribe because of its actions or the actions of its customers.
As of June 30, 2024, $1,293.8 million aggregate principal amount of 2026 Notes remained outstanding, and in May 2024 Cloudflare entered a $400 million Revolving Credit Facility with restrictive covenants. The 2026 Notes may require cash settlement upon conversion or repurchase upon a fundamental change, and the conditional conversion feature could adversely affect liquidity.
SaaS KPIs
All quarters →Dollar-Based Net Retention Rate
Free Cash Flow Margin
Paying customers
Non-GAAP Operating Margin
Paying Customers (> $100,000 Annualized Revenue)
Free Cash Flow
Non-GAAP Income from Operations
Summary, forecast, risks and KPIs are extracted from Cloudflare, Inc.'s SEC filings for Q2 FY2024 (10-Q / 10-K and the 8-K earnings release); GAAP figures in the summary are checked against the reported XBRL data. They can contain errors; the filings are authoritative. Processed Oct 2, 2026.