Cloudflare, Inc. Q4 FY2025 earnings

Actual or threatened U.S. tariffs and retaliatory measures could increase costs of network equipment, delay corporate spending, and contribute to inflation or recession. MD&A states the company believes macroeconomic uncertainty could persist through 2026 and that negative trends may emerge or recur.

Cloudflare periodically has experienced lengthening average sales cycles, slowdowns in pipeline conversion, higher churn in its paying customer base, and longer payment timing, which may have contributed to a slowdown in revenue growth from prior periods. MD&A expects some or all of these negative trends may emerge or recur during future quarters.

Growth strategy depends on attracting, expanding, and retaining large customers, which involve longer evaluations, greater pricing leverage, pool-of-funds arrangements, and early termination rights. Loss or reduction of a large customer could cause significant adverse impact and greater quarter-to-quarter variability.

Competition is increasing as new products and services leverage AI and machine learning, and large public cloud or telecom competitors could bundle competing products, offer lower prices, or reduce demand if more web content is housed on another network. Failure to anticipate these competitive challenges could weaken position and reduce revenue or growth rate.

Ability to grow depends on attracting, training, and retaining sales personnel; since late 2022 Cloudflare periodically has experienced reductions in average productivity among sales personnel, partly due to new hires not becoming as productive as expected. Experienced sales personnel are sought after, and failure to retain them would adversely impact business.

Gross margin decreased 2.8 percentage points year to date in FY2025 versus FY2024. Continued cost increases, including for network infrastructure and customer support, could pressure profitability if revenue growth does not offset them.

As of December 31, 2025, $1,293.8 million aggregate principal amount of 2026 Notes and $2,000.0 million aggregate principal amount of 2030 Notes were outstanding. The company may not have sufficient cash to settle conversions or repurchase notes upon a fundamental change, and credit agreement covenants restrict operations.

Activities of paying and free customers or their content can cause adverse political, business, and reputational consequences; Cloudflare cites negative publicity from Daily Stormer, 8chan, and Kiwi Farms, and notes some potential customers decided not to subscribe because of actions or potential actions of certain customers.

Headcount grew from 3,682 employees as of December 31, 2023, to 4,263 as of December 31, 2024, to 5,156 as of December 31, 2025. Rapid growth strains management, operational, financial infrastructure, and corporate culture, and failure to manage growth could harm execution.

Revenue growth has been rapid but may not be indicative of future performance; revenue growth rates have periodically slowed and may slow again. FY2025 year-to-date revenue was up 29.8% versus FY2024, but historical comparisons should not be relied upon.

Capital expenditures increased 70.6% year to date in FY2025 versus FY2024 to $315.6 million, including investments in network infrastructure and GPUs for AI-related products. Significant expenditures may not ultimately grow the business or cause long-term profitability.

Failure to obtain or maintain government or industry security certifications, such as FedRAMP moderate authorization achieved in 2022, could impact the ability to attract and retain customers, particularly large and government customers.