Summary
Cloudflare closed fiscal 2020 with strong top-line growth but still deep GAAP losses. Fourth quarter revenue was $125.9 million, up 50.0% from $83.9 million in the prior-year quarter. Full year revenue was $431.1 million, up 50.2% from $287.0 million. Gross profit followed. Fourth quarter gross profit was $96.9 million, up 47.4%, and full year gross profit was $330.0 million, up 47.6%. Gross margin slipped. Fourth quarter gross margin was 76.9%, down 1.4 percentage points, and full year gross margin was 76.6%, down 1.3 percentage points. The company still lost money on a GAAP basis. Fourth quarter operating loss was $24.7 million, a narrower loss than $29.9 million in the prior-year quarter. Full year operating loss was $106.8 million, also a narrower loss than $107.9 million. Operating margin was -19.6% in the fourth quarter, up 16.0 percentage points, and -24.8% for the full year, up 12.8 percentage points.
Bottom-line losses widened. Fourth quarter net loss was $34.0 million, a wider loss than $28.2 million in the prior-year quarter. Full year net loss was $119.4 million, a wider loss than $105.8 million. Diluted EPS was -$0.40 for the full year, a narrower loss than -$0.72. Cash generation remained negative. Fourth quarter operating cash flow was -$8.8 million, down 2.8% from -$8.6 million. Full year operating cash flow was -$17.1 million, up 56.0% from -$38.9 million. Capital expenditures were $10.4 million in the fourth quarter, down 15.4% from $12.3 million, and $56.4 million for the full year, up 30.2% from $43.3 million. The current portion of deferred revenue was $54.9 million, up 78.1% from $30.8 million. Remaining performance obligations were $383.5 million, up 75.0% from $219.2 million.
Operational metrics point to land-and-expand momentum. Paying customers reached 111,183, and customers with more than $100,000 in annualized revenue reached 828. Dollar-based net retention was 119%, an improvement of 300 basis points sequentially. Cloudflare said it delivered more than 550 products and capabilities during 2020. Management highlighted large enterprise strength, the company's role in securing the US election from cyberattacks, and vaccine registration sites using Project Fair Shot. Non-GAAP results were less negative. Fourth quarter non-GAAP loss from operations was $5.5 million, or 4.3% of revenue, compared with $18.3 million, or 21.8%. Non-GAAP gross profit was $98.3 million, or 78.1% gross margin, compared with $66.0 million, or 78.7%. Non-GAAP net loss was $7.4 million, compared with $16.4 million.
Guidance points to further growth but continued losses. Management guided to higher total revenue for the first quarter of 2021 and for the full year 2021. For the first quarter, Cloudflare expects a non-GAAP loss from operations of $9 to $8 million and a non-GAAP net loss per share of $0.03 to $0.02, using approximately 306 million weighted average shares. For the full year, the company expects a non-GAAP loss from operations of $25 to $21 million and a non-GAAP net loss per share of $0.09 to $0.08, using approximately 309 million shares. The main risks remain familiar. The COVID-19 pandemic, including new variants and containment measures, could pressure customer demand, network provisioning, and collections. Cloudflare also cites its history of net losses, limited operating history, rapid growth, ability to attract and retain customers, internal systems and network risks, rapidly evolving technology, sales cycle length, and general market conditions. The company expects to keep incurring operating losses and negative cash flows from operations for the foreseeable future.
Forecast
Reported figures
GAAP, from SEC filings| Metric | Q4 FY2020 | Q3 FY2020 | QoQ | Q4 FY2019 | YoY |
|---|---|---|---|---|---|
| Revenue | $125.9M | $114.2M | +10.3% | $83.9M | +50.0% |
| Gross profit | $96.9M | $87.2M | +11.1% | $65.7M | +47.4% |
| Gross margin | 76.9% | 76.3% | +0.6 pp | 78.3% | -1.4 pp |
| Research & development | $34.8M | $30.9M | +12.5% | $26.3M | +32.2% |
| Sales & marketing | $63.6M | $56.0M | +13.5% | $47.1M | +34.9% |
| General & administrative | $23.3M | $21.5M | +8.2% | $22.3M | +4.6% |
| Total operating expenses | $121.6M | $108.4M | +12.2% | $95.7M | +27.1% |
| Operating income (loss) | -$24.7M | -$21.3M | -16.4% | -$29.9M | +17.4% |
| Operating margin | -19.6% | -18.6% | -1.0 pp | -35.7% | +16.0 pp |
| Net income (loss) | -$34.0M | -$26.5M | -28.5% | -$28.2M | -20.8% |
| Net margin | -27.0% | -23.2% | -3.8 pp | -33.5% | +6.5 pp |
| Net retention rate | 115.0% | 116.0% | -1.0 pp | — | — |
Risks
The ongoing COVID-19 pandemic and new variants have lengthened the sales cycle since the pandemic began and prompted more customers to request payment concessions and earlier or additional termination rights. The pandemic also created delays in provisioning co-location facilities, which could materially affect results if it continues.
Cloudflare issued $575.0 million aggregate principal amount of 0.75% Convertible Senior Notes due May 2025 in May 2020. It may lack cash to settle conversions or repurchase notes upon a fundamental change, and note conversion could dilute stockholders.
Net loss widened to $119.4 million for the year ended December 31, 2020 from $105.8 million for the year ended December 31, 2019. The company has incurred net losses in all periods since operations began and expects to continue to incur net losses for the foreseeable future.
Cloudflare faces intense competition from on-premise vendors, cloud security vendors, and public cloud providers including Amazon Web Services, Google Cloud Platform, Microsoft Azure, and Alibaba Cloud. Larger competitors may bundle products, sell at zero or negative margins, or use broader relationships to weaken Cloudflare's position.
A majority of revenue for the year ended December 31, 2020 came from contracted customers acquired through inside and field sales teams, and a large percentage of the sales team is new to Cloudflare and inexperienced in selling subscriptions. Failure to hire, train, and retain effective sales personnel could materially harm future growth.
Growth strategy depends on increasing sales to large customers, whose evaluation and negotiation processes can materially lengthen the sales cycle. Paying customers with more than $100,000 Annualized Revenue rose to 828 for the three months ended December 31, 2020 from 526 for the three months ended December 31, 2019.
Use of Cloudflare's network by customers such as The Daily Stormer and 8chan caused significant negative publicity, and some potential customers decided not to subscribe because of those customers or because Cloudflare terminated their accounts. Similar customer content issues could harm brand and revenue.
The free plan is central to strategy, but the vast majority of customers do not pay, and a substantial majority of free customers historically have not converted to paying customers. Incremental costs and reputational detriments from free customers could outweigh expected benefits.
Cloudflare has limited experience determining optimal prices and pricing models, especially for newer products such as Cloudflare for Teams and Cloudflare One. Increasing focus on larger customers may lead to greater price concessions and pressure revenue, gross margin, and cash flow.
Headcount grew from 865 employees as of December 31, 2018 to 1,270 as of December 31, 2019 and 1,788 as of December 31, 2020, straining management and administrative, operational, and financial infrastructure. Failure to manage growth could harm support quality, security, culture, and execution.
Sales to U.S. and foreign government organizations require certifications such as FedRAMP and compliance with government contracting rules, and violations could lead to investigations, fines, or debarment. Government demand is unpredictable, and government contracts may include early termination and pricing disclosure terms.
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
Summary, forecast, risks and KPIs are extracted from Cloudflare, Inc.'s SEC filings for Q4 FY2020 (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.