Summary
Cloudflare reported second quarter fiscal 2025 revenue of $512.3 million, up 27.8% year over year. The company said revenue growth reaccelerated to 28% and annualized revenue exceeded $2 billion. Year-to-date revenue was $991.4 million, up 27.2%. Paying customers rose to 265,929 from 210,166, and customers with more than $100,000 in annualized revenue rose to 3,712 from 3,046. Dollar-based net retention was 114%. International markets represented 51% of revenue in the quarter. Remaining performance obligations were $1.98 billion, up 39.1%, and current RPO grew 33% year over year. Deferred revenue was $546.7 million, up 47.4%. The CEO said Cloudflare sits in front of more than 20% of all websites and is positioning for the agentic web. He also said the largest customers are growing their investments at the highest levels since 2022, with some strategic wins centered on content creators on the AI-driven Internet.
Profitability remains the pressure point. Gross profit rose 23.0% to $383.6 million, but gross margin was 74.9%, down 2.9 percentage points. GAAP operating loss widened 93.9% to -$67.3 million, and operating margin was -13.1%, down 4.5 percentage points. Net loss widened 234.6% to -$50.4 million. Diluted EPS loss widened 275.0% to -$0.15. On a non-GAAP basis, income from operations was $72.3 million, or 14.1% of revenue, and non-GAAP net income was $75.1 million, or $0.21 per diluted share. Non-GAAP gross profit was $390.7 million, or 76.3% gross margin. Non-GAAP operating margin was 14.1%, compared with 14.2% in the prior-year quarter. Non-GAAP net income per diluted share was $0.21, compared with $0.20. The gap between GAAP and non-GAAP results reflects stock-based compensation and related employer payroll taxes, amortization of acquired intangible assets, and lease impairment charges.
Cash generation improved. Operating cash flow was $99.8 million, up 33.4% year over year. Year-to-date operating cash flow was $245.6 million, up 65.5%. Capital expenditures were $59.9 million, up 102.2%, and year-to-date capital expenditures were $145.8 million, up 136.4%. Free cash flow was $33.3 million, or 6% of revenue, compared with $38.3 million, or 10% of revenue. Net cash provided by operating activities was 19% of revenue in the quarter and 25% year to date. The company issued $2,000.0 million aggregate principal amount of 2030 convertible senior notes in June 2025 and received net proceeds of $1,971.0 million. It also received $309.6 million from settlement of the 2025 capped calls.
Guidance points to continued growth. For the third quarter of fiscal 2025, management guided non-GAAP income from operations of $75.0 million to $76.0 million and non-GAAP net income per share of $0.23, using weighted average common shares outstanding of approximately 376.5 million. For the full fiscal year 2025, it guided non-GAAP income from operations of $284.0 million to $286.0 million and non-GAAP net income per share of $0.85 to $0.86, using approximately 370 million shares. Management also gave revenue guidance for both periods. A reconciliation of non-GAAP guidance measures to the corresponding GAAP measures is not available on a forward-looking basis without unreasonable effort.
The company continues to face risks from tariffs, geopolitical conflicts, and macroeconomic uncertainty. Management said these factors could lengthen sales cycles, slow pipeline conversion, increase churn, and delay customer payments. It also warned about potential reductions in new non-U.S. customers and expansion sales because products are sold in U.S. dollars, which could become relatively more expensive for those customers. Other risks include customer requests for concessions, losses of paying customers due to economic distress or bankruptcy, and increased costs for employee compensation and equipment purchases from inflationary pressures. Cloudflare also has a history of net losses and expects to continue incurring operating losses and cash flow that may fluctuate between positive and negative. It may need additional capital to execute its strategic initiatives. The company also noted that it is assessing the expected financial impact of U.S. tariffs on capital expenditures related to its global network. The quarter's GAAP loss widened even as revenue grew, and the non-GAAP profitability shows the company still invests heavily in growth.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q2 FY2025 | Q1 FY2025 | QoQ | Q2 FY2024 | YoY |
|---|---|---|---|---|---|
| Revenue | $512.3M | $479.1M | +6.9% | $401.0M | +27.8% |
| Gross profit | $383.6M | $363.5M | +5.5% | $312.0M | +23.0% |
| Gross margin | 74.9% | 75.9% | -1.0 pp | 77.8% | -2.9 pp |
| Research & development | $134.6M | $115.1M | +16.9% | $102.5M | +31.2% |
| Sales & marketing | $219.4M | $214.0M | +2.5% | $174.5M | +25.7% |
| General & administrative | $97.0M | $87.7M | +10.6% | $69.6M | +39.3% |
| Total operating expenses | $450.9M | $416.8M | +8.2% | $346.7M | +30.1% |
| Operating income (loss) | -$67.3M | -$53.2M | -26.3% | -$34.7M | -93.9% |
| Operating margin | -13.1% | -11.1% | -2.0 pp | -8.7% | -4.5 pp |
| Net income (loss) | -$50.4M | -$38.5M | -31.2% | -$15.1M | -234.6% |
| Net margin | -9.8% | -8.0% | -1.8 pp | -3.8% | -6.1 pp |
| Diluted EPS | -$0.15 | -$0.11 | -$0.04 | -$0.04 | -$0.11 |
Risks
MD&A states the company is assessing the expected financial impact of U.S. tariffs on capital expenditures for its global network, and retaliatory tariffs could increase equipment costs, delay corporate spending, or reduce economic growth. The company also cites conflicts in the Middle East and Ukraine and other geopolitical tensions as uncertainties that could decrease customer spending.
MD&A reports periodic lengthening of average sales cycles, slowdowns in pipeline conversion, higher churn in the paying customer base, increases in average days sales outstanding, and lengthening payment timing, which may have contributed to a slowdown in revenue growth from prior periods. The company expects some or all of these negative trends may emerge or recur during future quarters.
The growth strategy depends on attracting and retaining large customers, which involve longer evaluation periods, greater pricing leverage, potential early termination rights, and pool-of-funds arrangements that do not require specific monthly or quarterly spend. Paying customers with annualized revenue over $100,000 increased to 3,712 as of June 30, 2025 from 3,046 as of June 30, 2024.
Gross margin decreased to 75% from 78% for the three and six months ended June 30, 2025, primarily driven by higher depreciation expense and allocated costs from increased network traffic. The company expects gross margin to fluctuate and competition could pressure pricing.
Capital expenditures increased 102.2% for the quarter and 136.4% year to date, and free cash flow margin decreased to 6% from 10% for the three months ended June 30, 2025. The company continues to invest in network infrastructure, including GPUs for AI-related products, which may pressure liquidity.
As of June 30, 2025, $1,293.8 million of 2026 Notes and $2,000.0 million of 2030 Notes were outstanding, and the company may not have sufficient cash to settle conversions or repurchases. The company is also subject to counterparty risk on capped call transactions.
The company has experienced a reduction in average productivity among sales personnel since late 2022, partly due to new hires not becoming as productive as expected, and competition for experienced sales and engineering talent is intense. Headcount grew to 4,616 employees as of June 30, 2025 from 3,902 as of June 30, 2024.
The company has faced negative publicity from use of its network by controversial customers such as The Daily Stormer, 8chan, and Kiwi Farms, and is aware of potential customers that decided not to subscribe because of actions or potential actions of certain paying and free customers. This could harm brand and customer acquisition.
Competition is expected to increase as new products and services, including those leveraging artificial intelligence and machine learning, are introduced. The company is investing in GPUs to support AI-related developer platform products, which may require significant capital and face competitive pressure.
The vast majority of customers do not pay, and a substantial majority of free customers historically have not converted to paying customers. The company bears incremental expenses and potential liabilities from free customers, including reputational risks.
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 Gross Margin
Non-GAAP Income from Operations
Current RPO (year-over-year growth)
RPO year-over-year growth
Summary, forecast, risks and KPIs are extracted from Cloudflare, Inc.'s SEC filings for Q2 FY2025 (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 Sep 25, 2026.