Summary
Cloudflare closed fiscal 2019 with strong top-line growth and wider GAAP losses. Revenue in the fourth quarter rose 51% year over year to $83.9 million, and full-year revenue reached $287.0 million, up 49%. GAAP gross profit was $65.7 million in the quarter on a gross margin of 78.3%, up 1.7 percentage points from a year earlier. Full-year gross profit was $223.6 million and gross margin was 77.9%, up 0.5 percentage points. Non-GAAP gross profit was $66.0 million in the quarter, a 78.7% margin, and $224.4 million for the year.
The bottom line remains the problem. Fourth quarter loss from operations widened to $29.9 million, and full-year loss from operations was $107.9 million. Fourth quarter net loss was $28.2 million. Full-year net loss was $105.8 million, and diluted EPS for the year was negative $0.72. Non-GAAP loss from operations was $18.3 million in the quarter and $71.2 million for the year. Non-GAAP net loss was $16.4 million in the quarter and $69.5 million for the year.
Customer metrics show scale and expansion. Paying customers reached 82,882 at December 31, 2019, compared with 67,899 at December 31, 2018 and 49,309 at December 31, 2017. Customers with more than $100,000 in annualized billings totaled 550, up from 313 and 184 in those same periods. Dollar-based net retention was 112% for the trailing twelve months ended December 31, 2019, compared with 111% and 113%. Deferred revenue was $30.84 million, up 83.4% year over year, and remaining performance obligations were $219.2 million. International markets represented at least 50% of revenue in 2019, 2018, and 2017. The company also entered the enterprise security market with Cloudflare for Teams, and its network had a presence in 200 cities in over 90 countries.
Cash flow and spending still reflect heavy investment. Fourth quarter operating cash flow was negative $8.6 million, and full-year operating cash flow was negative $38.9 million. Capital expenditures were $12.31 million in the quarter and $43.29 million for the year. Free cash flow, a non-GAAP measure, was negative $23.5 million in the fourth quarter and negative $96.2 million for the full year. Free cash flow margin was negative 28% in the quarter and negative 34% for the year. Contractual obligations totaled $97.8 million as of December 31, 2019, including $51.4 million of operating lease obligations, $32.8 million of bandwidth and co-location commitments, and $13.7 million of open purchase agreements. Of the total, $32.3 million came due in less than one year. The IPO lock-up is set to end at the beginning of trading on February 19, 2020, ahead of its scheduled March 11, 2020 date, and the company will also release its market standoff agreements at that time.
Guidance points to more growth and continued non-GAAP losses. For the first quarter of fiscal 2020, the company guides to a non-GAAP loss from operations of $20 to $19 million and a non-GAAP net loss per share of $0.06 to $0.05, using roughly 297 million weighted average shares. For full-year fiscal 2020, it guides to a non-GAAP loss from operations of $65 to $61 million and a non-GAAP net loss per share of $0.21 to $0.19, using roughly 303 million weighted average shares. Revenue guidance is part of both outlooks, but the profit guidance is entirely non-GAAP, and the press release states that a reconciliation of the non-GAAP guidance measures to the corresponding GAAP measures is not available on a forward-looking basis without unreasonable effort.
Risks cited in the annual report are broad. Cloudflare points to its history of net losses and limited operating history, the difficulty of managing rapid growth, and its ability to attract and retain new customers, retain and upgrade paying customers, and convert free customers to paying ones. It also flags problems with internal systems, network, or data, including actual or perceived breaches or failures, rapidly evolving technological developments, long sales cycles, and general market, political, economic, and business conditions. Management expects to continue to incur operating losses and negative cash flow from operations for the foreseeable future as it invests in the business, which keeps the profitability question open.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q4 FY2019 | Q3 FY2019 | QoQ | Q4 FY2018 | YoY |
|---|---|---|---|---|---|
| Revenue | $83.9M | $73.9M | +13.5% | — | — |
| Gross profit | $65.7M | $57.9M | +13.5% | — | — |
| Gross margin | 78.3% | 78.3% | ±0.0 pp | — | — |
| Research & development | $26.3M | $27.9M | -5.6% | — | — |
| Sales & marketing | $47.1M | $45.5M | +3.4% | — | — |
| General & administrative | $22.3M | $25.6M | -13.0% | — | — |
| Total operating expenses | $95.7M | $99.0M | -3.4% | — | — |
| Operating income (loss) | -$29.9M | -$41.1M | +27.1% | — | — |
| Operating margin | -35.7% | -55.6% | +19.9 pp | — | — |
| Net income (loss) | -$28.2M | -$40.9M | +31.1% | — | — |
| Net margin | -33.5% | -55.3% | +21.7 pp | — | — |
Risks
Derived 50% of revenue from international customers for the year ended December 31, 2019 and operates co-location facilities in 200 cities and over 90 countries, exposing it to Brexit, China-U.S. trade tensions, and epidemic or pandemic diseases such as the coronavirus that originated in China in 2019.
China network presence depends on a commercial relationship with Baidu; the current agreement expires at the end of 2020 and can be terminated early if Chinese governmental approvals are revoked or if Chinese or U.S. regulatory action restricts the collaboration, a risk that may have increased during U.S.-China trade tensions.
Disclosed a June 2019 route leak spread by a major telecommunications provider and a July 2019 outage caused by a web application firewall update; while these did not materially impact FY2019 results, future similar events could materially harm reputation and results.
Faces lawsuits in Italy and Germany over customer content and potential liability under the EU copyright directive and new laws in Germany, Australia, and Singapore; adverse decisions could result in substantial damages and increased compliance costs.
Net loss widened to $105.8 million for FY2019 from $87.2 million for FY2018, with an accumulated deficit of $301.7 million as of December 31, 2019; operating expenses are expected to increase and may prevent achieving or sustaining profitability.
Negative publicity from use of its network by The Daily Stormer and 8chan, and adverse feedback from terminating those accounts, has caused some potential customers to decide not to subscribe; similar content-related controversies could harm brand and revenue.
Pay-as-you-go customers can terminate monthly subscriptions at will with little notice, and contracted customers generally have no obligation to renew after one-to-three-year terms; some can terminate without cause, making retention and future results difficult to predict.
The vast majority of customers do not pay, and a substantial majority of free customers historically have not converted to paying customers; costs and detriments of the free plan could outweigh its expected benefits.
Announced a change in how key business metrics will be calculated starting in 2020 so they are based on revenue instead of billings; if investors or analysts do not perceive the metrics as accurate, reputation and business could be harmed.
A significant number of important co-location agreements are with a single company; if arrangements with this company change adversely, Cloudflare could face difficulty maintaining or growing its network on commercially viable terms.
Employees use internal network services tools to support customers, and third parties have attempted to induce employees to reveal, remove, or disable customer information via fraudulent law enforcement or copyright requests; unauthorized release or misuse could significantly harm customers and reputation.
Dual-class structure gives Class B holders 10 votes per share, and as of December 31, 2019 directors, executive officers, and 5% holders held 84.6% of voting power; this concentrated control may depress the trading price and limit Class A stockholder influence.
SaaS KPIs
All quarters →Free Cash Flow Margin
Paying customers
Free Cash Flow
Non-GAAP Gross Margin
Summary, forecast, risks and KPIs are extracted from Cloudflare, Inc.'s SEC filings for Q4 FY2019 (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 24, 2026.