Cloudflare, Inc. (NET), Financial Analysis

1 Revenue & Business Model

• Storyline: revenue growth rose from 26.5% in Q1 2025 to 39.2% in Q3 2026 while GAAP gross margin fell from 75.9% to 71.2%; 2026 also brought a cut of about 20% of the workforce, $2.5bn of new convertible notes and a court injunction against a non voting share class. Chapters 2 to 5 cover the four revenue drivers: application services and network security, Zero Trust and SASE, the developer platform with Workers AI inference, and large customer expansion with geography.
• Cloudflare reports one segment and files no revenue by product. The 10-K groups the connectivity cloud platform into application services, SASE (Zero Trust and network services), developer solutions (Workers, Workers AI, R2, D1, Durable Objects) and consumer offerings. The network runs in more than 340 cities in over 130 countries (Q3 2026 10-Q). No customer exceeded 10% of revenue in 2023 to 2025.
• Revenue FY2021 $656.4m to FY2025 $2.17bn, a 34.8% CAGR; TTM Q3 2026 $2.73bn. Growth year on year was 30.7% in Q3 2025, 33.6% in Q4 2025, 33.5% in Q1 2026, 35.9% in Q2 2026 and 39.2% in Q3 2026.
• Regions by billing address: United States $1.07bn in FY2025 (49.5%), EMEA $598.6m, Asia Pacific $329.8m, other $166.6m. In Q3 2026 the US was 52.1% of revenue, up 44.3% year on year.
• Sales channel: channel partners $568.9m in FY2025 (26.2%) against $73.8m in FY2021; 31.6% of Q3 2026 revenue, +65.0% year on year, against +29.8% for direct customers.
• Employees 5,156 at 31 Dec 2025 (2,452 outside the US) before the May 2026 reduction; 381 issued patents and 58 pending (10-K).

2 Application Services and Network Security: Growth at 39% Against 6% at Akamai and 20% at Fastly

• Total revenue $782.5m in Q3 2026, +39.2%; growth year on year 33.6% in Q4 2025, 33.5% in Q1 2026 and 35.9% in Q2 2026. Application services (CDN, web application firewall, DDoS protection, DNS, bot management) form one of the four product groups in the 10-K; no product revenue is filed.
• Gross margin GAAP 71.2% in Q3 2026 against 75.9% in Q1 2025; non GAAP 72.4% against 77.1%. Cost of revenue rose 54% in Q3 2026 on third party technology services, colocation and bandwidth, and depreciation (10-Q).
• Largest contract (Q4 2025 release): the largest annual contract value deal in company history, averaging $42.5m per year; new annual contract value grew nearly 50%.

How application services and delivery are changing

• Akamai delivery down, security up: Akamai delivery and other cloud applications revenue fell 3% to $391m in Q3 2026 and security rose 9% to $622m; Fastly network services grew 16% and security 32% (8-K Ex 99.1).
• AI and web traffic: the Q1 2026 10-Q adds a risk that consumers rely on AI chatbots instead of visiting websites, which may cut site operators' need for speed and security products.
• Hardware supply: the FY2025 10-K expects 2026 shortages of DIMM memory, enterprise SSDs, CPUs and HDDs as manufacturing capacity goes to AI infrastructure.
• Reliability and regulation: software update deployments in Nov and Dec 2025 caused widespread unavailability of Cloudflare services, now cited in two risk factors; the EU Digital Services Act and EU Data Act add transparency, switching and portability duties (FY2025 10-K).

3 Zero Trust and SASE: Net Retention at 122% and Security Peer Growth of 11% to 34%

• Dollar based net retention 122% in Q3 2026, after 120% at Q4 2025, 118% at Q1 2026 and 120% at Q2 2026; the low was 110% at Q3 2024 (10-Q, 10-K).
• RPO $2.877bn at 30 Sep 2026 against $2.143bn a year earlier; current RPO +37% (8-K Ex 99.1). SASE, which combines Zero Trust access with network services such as Magic Transit and Magic WAN, is one of the four product groups in the 10-K.
• No SASE or Zero Trust revenue is filed; retention, RPO and large customer counts are the company wide measures.

How Zero Trust and SASE are changing

• Platform and consumption licensing: Palo Alto Networks next generation security ARR reached $9.10bn, +63%, in the Jul 2026 quarter; CrowdStrike Falcon Flex ARR, a consumption style license across modules, $2.29bn, +101%.
• Acquired revenue in peer growth: Zscaler ARR of $3.77bn, +25%, includes $141m from the Red Canary acquisition; excluding it, ARR grew 20%.
• Identity at 11%: Okta revenue +11% and cRPO +14% in the Jul 2026 quarter.
• Cloudflare against the group: total revenue growth of 39.2% in Q3 2026 against 25% to 34% for Zscaler, CrowdStrike and Palo Alto Networks; GAAP operating margin (8.7%) against (2%) to 13% for the same group and Okta.

4 Developer Platform and Workers AI Inference: Capex Up 44% Against Hyperscaler Growth

• No revenue, usage or GPU count for Workers AI is filed in the 10-K, the Forms 10-Q or the earnings releases; the 10-K describes Workers AI as running machine learning models on serverless GPUs across the network, with GPUs being deployed in its servers.
• Purchases of property and equipment $121.8m in Q3 2026, +44%, 15.6% of revenue, after $50.0m (7.2%) in Q2 2026; third party technology services in cost of revenue rose $43.0m in Q3 2026.
• Acquisitions: Replicate, an AI model deployment platform (1 Dec 2025); VoidZero, a developer toolchain (1 Jun 2026, $164.2m incl. $98.7m in Class A shares); Deno Land (8 Oct 2026, about $26.5m).
• Products named in the 10-K: Workers, Workers AI, R2 storage, D1 database and Durable Objects; the Q3 2026 10-Q adds AI Gateway, which routes customer traffic to third party generative AI models.

How edge compute and AI inference are changing

• Hyperscaler growth: Google Cloud revenue +102.6% to $30.7bn in Q3 2026, Azure +48.2% in the Sep 2026 quarter and AWS +39.3% to $46.0bn; Amazon capex was $77.3bn in Q3 2026.
• Edge peers move into compute: Akamai Cloud Infrastructure Services revenue +34% to $109m in Q3 2026, with more than $14bn of multi year commitments signed in 2026 and the launch of Akamai Inference; Akamai capex reached 41% of revenue. Fastly other revenue, which includes compute, was $7.4m.
• Competition named in filings: the FY2025 10-K states that Cloudflare increasingly competes with public clouds for storage and compute through Workers; the Q1 2026 10-Q adds AI providers and their server, processor and memory suppliers as potential competitors.
• Legal exposure: the Q3 2026 10-Q adds copyright claim exposure from AI Gateway traffic to third party AI models.

5 Large Customers and Geography: 5,006 Accounts Above $100,000 and 48% International

• 5,006 customers above $100,000 annualized revenue at 30 Sep 2026, +24.9%, against 1,416 at Q4 2021; 308 added in Q3 2026 and 997 in 12 months. Growth year on year ranged from 21.9% to 26.6% in the seven quarters from Q1 2025.
• Total paying customers are no longer filed from 2026; the last filed count was 332,466 at Q4 2025, against 140,096 at Q4 2021.
• Regions in Q3 2026: United States $407.9m, +44.3%; EMEA $202.2m, +31.9%; Asia Pacific $111.7m, +31.9%; other $60.7m, +46.3%. International share 48% against 51% in FY2025.
• Channel partners $247.4m, 31.6% of Q3 2026 revenue, +65.0%; direct customers $535.1m, +29.8%. Sales and marketing includes a revenue share cost that rose $18.1m in Q3 2026 (10-Q).

How large customer spend is changing across peers

• Backlog growth at security peers: Palo Alto Networks RPO $21.2bn, +34%, and Okta RPO $4.86bn, +17%, in the Jul 2026 quarter; Fastly RPO $334m, +24%, in Q3 2026.
• Retention: Fastly LTM net retention 119% in Q3 2026 against Cloudflare 122%; Cloudflare was at 119% a year earlier.
• Cloudflare backlog against revenue: RPO +34.2% and current RPO +37% against revenue +39.2% in Q3 2026; at Q4 2025 RPO grew 48%.

6 Financial Analysis & Ratios

• GAAP operating margin TTM (14.1%) after (9.6%) in FY2025, incl. $161.7m of restructuring charges in TTM; excluding them the TTM margin is (8.2%). Operating margin was (19.5%) in FY2021. Gross margin TTM 71.9% against 77.3% in FY2024.
• Net loss TTM $239.1m, (8.7%) of revenue, smaller than the operating loss because of interest income of $167.4m on $5.13bn of cash and securities; tax expense $11.9m under a full valuation allowance on US federal, state and UK deferred tax assets; federal net operating losses $1.86bn at 31 Dec 2025.
• Free cash flow TTM $322.0m, 11.8% of revenue, under the company definition: operating cash flow $681.7m less purchases of property and equipment ($322.2m) and capitalized internal use software ($37.5m).
• Balance sheet at 30 Sep 2026: cash and available for sale securities $5.13bn; 0% convertible notes due 2030 ($2.0bn) and 2031 ($2.5bn), carrying value $4.44bn; net cash $686.8m; $400m revolver undrawn; accumulated deficit $1.43bn; goodwill $375.8m.
• Capital returns: no dividend has been paid and no shares were bought back from FY2022. Stock based compensation 20.7% of TTM revenue; diluted weighted shares 357.1m TTM against 348.4m in FY2025.

Cost structure and profitability

• Costs (revenue less operating loss) $850.4m in Q3 2026, +41.9%, against revenue +39.2%; operating margin (2.0) pts year on year and 20.9 pts on Q2 2026, when restructuring charges were $150.7m.
• Cost of revenue 28.8% of revenue against 26.0% a year earlier and 24.1% in Q1 2025; third party technology services rose $43.0m in Q3 2026 and $104.0m in 9M 2026.
• Sales and marketing 43.2% of revenue, R&D 21.5%, G&A 13.8%, against 42.0%, 21.5% and 17.1% a year earlier.
• Stock based compensation $167.6m, 21.4% of revenue against 19.6%. With related payroll tax ($174.1m in total), intangibles amortization ($9.2m), legal reserve and settlements ($10.7m) and restructuring ($11.0m) it makes up the $205.0m between the GAAP operating loss and non GAAP operating income.
• Operating cash flow $215.4m, +28.9%; capex incl. capitalized software $133.3m against $92.1m; free cash flow $82.1m against $75.0m.

Backlog and guidance

• RPO $2.877bn at 30 Sep 2026, +34.2% year on year and +5.3% on Q2 2026; 65% due within 12 months against 73% at Q4 2023. Current RPO growth as filed: +34% at Q4 2025 and Q1 2026, +35% at Q2 2026, +37% at Q3 2026.
• FY2026 revenue guidance midpoint up $173.5m (+6.2%) between February and November 2026: +$19.0m in May, +$58.0m in August and +$96.5m in November; midpoint +36.7% on FY2025.

7 MD&A & Management Commentary

Q3 2026 results: Form 10-Q and 8-K Ex 99.1 of 5 Nov 2026

• Revenue $782.5m, +39.2% year on year and +12.4% on Q2 2026; 9M 2026 $2.118bn, +36.4%. The 10-Q attributes growth to new paying customers, the 5,006 large customers and net retention of 122%. The release states annualized revenue above $3bn.
• Profit lines: GAAP operating loss $67.9m against $37.5m; GAAP net loss $34.1m against $1.3m; diluted EPS ($0.10); non GAAP operating income $137.1m against $85.9m; non GAAP EPS $0.38 against $0.27.
• Cost of revenue +54% to $225.3m: third party technology services +$43.0m, colocation and bandwidth +$19.4m, depreciation +$10.1m. GAAP gross margin 71.2% against 74.0%; non GAAP 72.4% against 75.3%.
• Operating expenses: sales and marketing $338.0m, +43% (stock compensation +$27.2m, revenue share +$18.1m); R&D $168.2m, +39%; G&A $108.0m, +13%, with G&A headcount down 14%; restructuring $11.0m; legal reserve and settlements $10.7m.
• Cash: operating cash flow $215.4m; free cash flow $82.1m (10.5% of revenue) against $75.0m; 9M 2026 free cash flow $222.5m. The $1.29bn of 2026 notes were settled in Q3 2026 with cash for principal and about 2.2m shares for the excess.
• Leadership (Ex 99.2): Christian Smith, former chief revenue officer of Splunk, becomes President of Revenue; the release links the hire to a goal of $5bn in annual recurring revenue. Mark Anderson retires from the full time role at the end of 2026.

Management and CFO commentary

• Cloudflare files no CFO commentary document; the points below come from the earnings releases (Ex 99.1, Ex 99.2) and the 10-Q MD&A.
• Q3 2026 release (5 Nov 2026), CEO Matthew Prince: annualized revenue above $3bn and the fastest growth in nearly four years; Cloudflare described as the development platform for the AI powered Internet.
• Q3 2026 10-Q MD&A: cost of revenue +$79.0m, incl. $43.0m more third party technology services; capex for property and equipment $121.8m against $84.6m; paying customer count no longer a key metric.
• Q2 2026 release (6 Aug 2026): GAAP operating loss $205.7m incl. restructuring; GAAP gross margin 71.8% against 74.9%; FY2026 revenue guidance raised to $2.864bn to $2.870bn.
• Q1 2026 release and 8-K/A (7 May 2026): move to an agentic AI first operating model with about 1,100 roles cut; charges of $140m to $150m, of which $105m to $110m cash; GAAP gross margin 71.2% against 75.9%.
• Q4 2025 release (10 Feb 2026): largest annual contract value deal in company history, averaging $42.5m per year; FY2025 free cash flow $260.6m, 12.0% of revenue.

8 Peer Valuation & Sector Summary

• Sector: connectivity cloud, covering content delivery and application security, SASE and Zero Trust, and edge compute. The FY2025 10-K names on premises hardware vendors, point solution cloud vendors and public clouds as competitors; peers in the table: Akamai, Fastly, Zscaler, CrowdStrike and Datadog.
• Growth (latest quarter, ZS annual): NET 39.2%, DDOG 35.2%, CRWD 25.8%, ZS 25.4%, FSLY 20.2%, AKAM 5.4%.
• GAAP operating margin TTM: AKAM 10.5%, DDOG 2.3%, CRWD (2.5%), ZS (4.0%), FSLY (9.0%), NET (14.1%); FCF margin: CRWD 29.8%, DDOG 25.9%, ZS 25.4%, AKAM 22.1%, NET 11.8%, FSLY 7.9%.
• Valuation: NET 35.6x EV/Sales against CRWD 41.2x, DDOG 14.9x, ZS 9.4x, FSLY 3.4x and AKAM 3.3x; AKAM 27.9x TTM GAAP P/E is the only one shown for an edge peer.

9 Material Events & Contracts

• Nine Forms 8-K from 6 Nov 2025 to 6 Nov 2026: seven 8-K and two 8-K/A; four earnings releases, the convertible notes, one officer change and the annual meeting results. The 8-K/A of 7 May 2026 adds Item 2.05, omitted from the original header; the 8-K/A of 1 Jul 2026 amends the Item 5.07 text on the adjournment proposal.
• 2031 notes (8-K of 13 Aug 2026): $2.5bn after the $325.0m option was exercised in full; 0% interest; conversion rate 2.0123 shares per $1,000; not redeemable before 20 Aug 2029 except a cleanup redemption below $200.0m outstanding; holders may convert after Q4 2026 if the share price is at least 130% of the conversion price; cross default threshold $200.0m.

10 Ownership, Voting Power & Annual Meeting

• Class A is listed with 1 vote per share; Class B is unlisted with 10 votes; the cofounders hold most votes. Matthew Prince holds 39.0% and Michelle Zatlyn 13.4% of voting power, directors and officers 52.4% (2026 proxy, 30 Apr 2026). Class B carried 50.6% of votes at 22 Oct 2026.
• Capitalization Changes: a new non voting Class C common stock, a Class C Split that issues one Class C share for each Class A and Class B share, higher authorized shares, and an Exchange Agreement under which the cofounders exchange Class B shares for Series FF preferred and Class A stock while keeping their voting power. The Q2 2026 10-Q states that the Class A price would likely halve on the split, about as in a 2 for 1 split, and that Class C may trade at a discount.
• Votes of 30 Jun 2026: the Class C stock (proposal 4A) received 382.3m votes for and 200.6m against (65.6% of votes cast); the other parts of proposal 4 received 66.7% to 66.8%. Class B shares present carried 335.6m votes and Class A shares present 279.4m.
• Litigation: eight stockholder complaints were filed over the Capitalization Changes. On 16 Oct 2026 the Delaware Court of Chancery preliminarily enjoined them, with reference to the Section 144 safe harbor; Cloudflare seeks an interlocutory appeal (Q3 2026 10-Q). The proxy supplement of 25 Jun 2026 described the claims as without merit.
• Other votes: directors Michelle Zatlyn (97.0% of votes cast), Scott Sandell (90.3%) and Karim Lakhani (79.7%, 119.1m withheld) elected; say on pay 76.2%; KPMG ratified with 98.9%; amended 2019 Equity Incentive Plan 63.1%; ESPP 71.6%.
• Insiders, Form 4 transactions from 11 Nov 2025 to 19 Oct 2026: no open market purchases; open market sales of about $698.4m across 124 filings; all 830 sale lines are footnoted as made under Rule 10b5‑1 trading plans. Matthew Prince sold about 1.57m shares for about $339.6m, Michelle Zatlyn about 1.04m for $247.2m, CFO Thomas Seifert about 241,000 for $57.5m and director Carl Ledbetter 130,000 for $30.8m; John Graham‑Cumming (director), Janel Riley (CAO) and Alissa Starzak (CLO) sold $5.2m to $8.8m each.

Annual meeting remarks

• No management remarks, presentation or shareholder questions from the virtual meeting of 30 Jun 2026 were filed; the Item 5.07 filings report vote counts only. The proxy supplement of 25 Jun 2026 reported five stockholder suits in the Delaware Court of Chancery seeking to enjoin the Capitalization Changes.

11 Risk Factors

• Item 1A of the FY2025 Form 10-K holds 77 risk factors against 78 in FY2024 (40,684 words against 39,799); none added, one removed and nine materially reworded. The Q2 and Q3 2026 Forms 10-Q hold 84 factors after adding six on the Capitalization Changes and one on the agentic AI first operating model.

How risk factors changed

• Comparison: 10-K FY2025 filed 26 Feb 2026 acc 0001477333-26-000016 against 10-K FY2024 filed 20 Feb 2025 acc 0001477333-25-000043.
• AI appears in 13 risk factors in the Q3 2026 10-Q against 8 in the FY2025 10-K and 5 in the FY2024 10-K; mentions rose to 60 from 22 and 7.
• Tariffs are mentioned 20 times in the FY2025 10-K against 8 a year earlier, across economic, supplier, customer and international factors.
• Network outages in Nov and Dec 2025 from software update deployments are now cited in the access interruption and service level factors.
• Factor count rose to 84 in the Q2 and Q3 2026 Forms 10-Q from 77 in the FY2025 10-K, mainly from six Capitalization Changes factors and one AI operating model factor.
• Debt disclosure shifted from the 2026 Notes to the 2030 and 2031 Notes, $4.5bn outstanding at 30 Sep 2026.

12 Stock Price, Scenarios & Sensitivity

• NET traded at $273.74 in pre market trade on 6 Nov 2026 (about 08:13 UTC), after results released after the 5 Nov close; +12.0% on the prior close of $244.51. 52 week high $370.00 and low $158.84; the price is 26.0% below the high. In the figure below the last two points are the 5 Nov close and the 6 Nov pre market trade; the figure measures the price against the highest monthly close, $347.28 in Sep 2026.
• Valuation: market value $98.1bn on 358.4m Class A and Class B shares ($87.6bn at the prior close); enterprise value $97.4bn; EV/Sales 35.6x and EV/FCF 303x TTM; 228.1x TTM non GAAP EPS of $1.20; GAAP P/E n/a on the TTM loss per share of ($0.68).
• Scenario basis: exit EV/Sales multiple. TTM GAAP operating loss is $384.8m and GAAP EPS is negative, so prices use revenue: implied price equals TTM Q3 2029 revenue times the exit EV/Sales multiple, plus net cash of $0.69bn, divided by 387.1m shares (358.4m plus 8%). Revenue grows from TTM Q3 2026 $2.73bn for three years.
• Share basis: if the Capitalization Changes take effect, each Class A share would receive one Class C share and the Class A price would adjust about as in a 2 for 1 split (10-Q); scenario prices are per current Class A share.

Critical factors and core assumptions

• Revenue base TTM Q3 2026 $2.73bn; GAAP operating loss $384.8m ((14.1%)); non GAAP operating income $395.9m (14.5%); FY2026 guidance midpoint $2.964bn.
• Best case: 35% revenue CAGR, near the 36.7% implied by FY2026 guidance, with net retention at or above 122%; exit EV/Sales 25x against 35.6x today and CRWD 41.2x.
• Base case: 28% revenue CAGR as growth slows from the Q4 2026 guidance of about 38%; exit EV/Sales 18x, between DDOG 14.9x and CRWD 41.2x.
• Worst case: 18% revenue CAGR as net retention returns to the 110% to 111% of Q3 2024 to Q1 2025 and GAAP gross margin falls below 70%; exit EV/Sales 10x, near ZS 9.4x.
• Shares up 8% over three years from 358.4m through stock compensation, with no buybacks or dividends; net cash $0.69bn held flat; dilution from the 2030 notes above $247.67 and the 2031 notes above $496.94 not modelled separately.

Scenarios, three years forward

Sensitivity analysis

Disclaimer

This analysis is for information only and is not financial advice. It is derived from public SEC filings retrieved via sec-api.io and is not a publication of the U.S. Securities and Exchange Commission. Scenario values are model outputs under stated assumptions and are not forecasts. Data as of 6 November 2026.

Sources

All company and peer figures are read from SEC filings retrieved through the sec-api.io MCP server. Share prices are last trades as stated in the text.