Executive Summary

Q1 2025 delivered a revenue beat and in-line EPS: revenue $479.1M (+27% YoY) vs S&P Global consensus $469.7M; non-GAAP diluted EPS $0.16 vs $0.163 consensus. Bold revenue beat reflects accelerating large-account momentum, while EPS was essentially in line given rounding and FX headwinds. *
Management highlighted record commercialization milestones: Cloudflare’s largest-ever >$100M Workers-led contract and longest-term SASE deal, with double‑digit YoY sales productivity improvement and faster sales cycles despite larger deal sizes. These wins underpin reacceleration efforts.
Q2 2025 guidance: revenue $500–$501M, non‑GAAP operating income $62.5–$63.5M, non‑GAAP diluted EPS $0.18 (≈364M shares). FY 2025 guidance maintained at revenue $2.090–$2.094B, non‑GAAP operating income $272–$276M, non‑GAAP diluted EPS $0.79–$0.80.
Key stock-relevant narratives: expanding enterprise adoption (large customer cohorts), Workers AI traction (AI inference requests +~4,000% YoY; AI Gateway requests +~1,200% YoY), and architectural security advantage in defending hyper-volumetric DDoS—balanced by macro volatility and a modest YoY gross margin decline (mix/allocations).

What Went Well and What Went Wrong

What Went Well

Signed Cloudflare’s largest contract ever (> $100M) driven by Workers; added record numbers of $1M+ and $5M+ customers; $479.1M revenue up 27% YoY; non‑GAAP operating income $56.0M (11.7% margin). “Innovation wins… From networking, to security, to AI” (CEO).
Workers/AI momentum: Workers AI inference requests +~4,000% YoY; AI Gateway requests +~1,200% YoY; Cloudflare advancing MCP servers enabling AI agents—selected by notable logos (Stripe, Atlassian, Block, PayPal, Sentry).
SASE/Zero Trust wins and government traction: longest-duration SASE contract; competitive displacements vs first‑gen vendors based on global performance and unified platform breadth.

What Went Wrong

Gross margin declined YoY: non‑GAAP 77.1% vs 79.5% in Q1’24; CFO cited paid vs free traffic mix and cost allocation shifts; depreciation anniversary effects also noted.
GAAP net loss widened modestly YoY to $(38.5)M; FX remeasurement losses reduced diluted non‑GAAP EPS by ~$0.01 this quarter.
Macro/prudent stance: Management emphasized volatility (tariffs, geopolitics); maintained FY guide (not raised) despite strong ACV and pipeline to balance growth and profitability (40% rule).

Financial Results

Metric	Q3 2024	Q4 2024	Q1 2025
Revenue ($USD Millions)	$430.1	$459.9	$479.1
Non-GAAP Gross Margin (%)	78.8%	77.6%	77.1%
Non-GAAP Operating Margin (%)	14.8%	14.6%	11.7%
Non-GAAP Diluted EPS ($)	$0.20	$0.19	$0.16
Free Cash Flow ($USD Millions)	$45.3	$47.8	$52.9
Free Cash Flow Margin (%)	11%	10%	11%

Results vs S&P Global consensus (current quarter):

Metric	Consensus	Actual	Surprise
Revenue ($USD Millions)	$469.7*	$479.1	+$9.3M (≈+2.0%)*
Non-GAAP Diluted EPS ($)	$0.163*	$0.16	−$0.003 (≈in line)*
Estimates Count (Revenue / EPS)	27 / 25*	—	—

Values retrieved from S&P Global.*

Geography mix and growth:

Metric	Q4 2024	Q1 2025
U.S. % of Revenue (YoY Growth)	50% (+23% YoY)	49% (+20% YoY)
EMEA % of Revenue (YoY Growth)	28% (+27% YoY)	28% (+27% YoY)
APAC % of Revenue (YoY Growth)	14% (+39% YoY)	15% (+54% YoY)

KPIs:

KPI	Q4 2024	Q1 2025
Paying Customers (approx.)	237,700	~251,000 (+13,000 seq.)
Large Customers (>$100k)	~3,500	3,527
Revenue from Large Customers (%)	69%	69%
Dollar-Based Net Retention (DBNR)	111%	111%
RPO ($USD Billions)	$1.687	$1.864
Current RPO (% total)	70%	66%

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue ($M)	Q2 2025	—	$500–$501	New
Non-GAAP Operating Income ($M)	Q2 2025	—	$62.5–$63.5	New
Non-GAAP Diluted EPS ($)	Q2 2025	—	$0.18 (~364M shares)	New
Revenue ($B)	FY 2025	$2.090–$2.094	$2.090–$2.094	Maintained
Non-GAAP Operating Income ($M)	FY 2025	$272–$276	$272–$276	Maintained
Non-GAAP Diluted EPS ($)	FY 2025	$0.79–$0.80 (~366M shares)	$0.79–$0.80 (~364M shares)	Maintained (share count lower)
Effective Tax Rate (%)	Q2 2025 / FY 2025	— / 21%	20% / 20%	Updated lower (Q2/FY)

Earnings Call Themes & Trends

Topic	Q3 2024 (prev)	Q4 2024 (prev)	Q1 2025 (current)	Trend
AI/Workers platform	Financial, healthcare, CRM, media use cases progressing; developer base milestone; election cyber protection narrative	Workers = “killer app” for inference; efficiency vs hyperscalers; >3M developers	>$100M Workers-led deal; AI inference +~4,000% YoY; AI Gateway +~1,200%; MCP server leadership	Accelerating commercialization and scale
Go-to-market execution	Record large customer adds; Fortune 500 penetration	Sales productivity + double-digit; ramp AEs; capacity set to accelerate in 2025	Productivity up again; faster cycles despite larger deals; 40% rule frame	Sustained improvement; focus on durable growth
SASE/Zero Trust	Platform breadth highlighted; displacements begin	Pool-of-funds platform deals; multi-product bundles	Longest-duration SASE deal; government wins (US/APAC); performance vs first‑gen vendors	Strengthening competitive position
Security/DDoS	Election-related protections	Architectural efficiencies driving cost advantage	Hyper‑volumetric attack resilience; referrals from hyperscalers/competitors	Increasing differentiation
Macro/tariffs/supply chain	General caution	Prudent FY guide; volatility acknowledged	Volatility persists; diversified supply chain; potential tailwind vs on‑prem tariffs	Cautious tone maintained
Government/FedRAMP	—	FedRAMP High progress without fragmenting network	Government traction continues (US/APAC); partner MSSP in Japan (Rakuten)	Expanding public sector/channel reach

Management Commentary

“We landed the largest contract in Cloudflare’s history, a more than $100 million deal driven by our Workers developer platform, and signed the longest‑term SASE contract to date.”
“Gross margin was 77.1%, again above our long‑term target of 75% to 77%… operating profit of $56 million (11.7%), and strong free cash flow of $52.9 million.”
On DDoS defense: “Every single server… runs every function… our out is always significantly higher than our in. Even at hyperscale attacks, in never exceeds out… we can defend without passing costs on to customers.”
On guidance philosophy: “Our North Star… is the 40% rule… we will continue to reinvest where data points us.”
On MCP/AI agents: “We’re building the first, fastest and most powerful MCP server… great companies like Stripe, Atlassian, Block… are adopting our approach.”

Q&A Highlights

Margins and investment cadence: Management balances growth with margin under a rolling “40% rule,” reinvesting in GTM where ROI is strong; Q2/FY tax rate set at 20%.
Sales execution: Double‑digit YoY sales productivity increases; ramping capacity expected to accelerate; territory and incentive structures pivot to consumption in pool‑of‑funds deals.
Security posture: Architectural advantage in DDoS mitigation at hyperscale leading to referrals and wins in financial services and other verticals.
SASE wins: Competitive displacements vs first‑gen vendors due to performance, unified platform, and bundling; notable gov wins in US/APAC and Europe.
AI commercialization: Workers AI’s efficiency vs hyperscalers (utilization, pay‑per‑inference) and MCP leadership position Cloudflare at the center of agentic Internet workloads.

Estimates Context

Q1 2025 revenue beat: Actual $479.1M vs consensus $469.7M; EPS essentially in line at $0.16 vs $0.163; counts: 27 revenue, 25 EPS estimates.*
Implications: Large‑deal momentum and platform breadth may push FY revenue estimates higher; EPS estimates likely stable near-term given margin mix, FX noise, and reinvestment pace (GTM/AI infrastructure).*
Values retrieved from S&P Global.*

Key Takeaways for Investors

Revenue reacceleration supported by enterprise scale: large cohort mix at 69% of revenue, record $1M+ and $5M+ customer adds, and faster cycles despite larger deals.
Workers AI is becoming a commercial engine: >$100M deal; efficiency and utilization advantages vs hyperscalers should sustain price/performance leadership and margin leverage longer-term.
SASE platform differentiation: Unified architecture and global performance drive competitive displacements and longer‑duration contracts; public sector momentum (FedRAMP High without network fragmentation).
Security moat: DDoS defense at hyperscale without incremental cost strengthens brand and win rate in sensitive verticals.
Margin trajectory: Near-term non‑GAAP margins reflect mix/allocations and reinvestment; free cash flow seasonality skewed to 2H (≈two‑thirds) per CFO.
Guidance stance: Q2 introduced (new) with prudent assumptions; FY maintained—leaves room for upward revisions as consumption/pool‑of‑funds usage normalizes.
Risks: Macro/geopolitical volatility and tariff dynamics, FX noise, and ongoing mix shifts; execution hinge on sustaining GTM productivity and converting pools into revenue recognitions.

Additional Q1 2025 Press Releases

Rakuten Mobile partnership as Cloudflare’s first MSSP in Japan to deliver managed Zero Trust and network services—expands channel and SMB reach.

Note: The CEO’s prepared remarks in one transcript instance referenced 20% YoY revenue growth; the official Q1 2025 figure in the press release is +27% YoY. All quantitative assessments above rely on the 8‑K and press release for accuracy.

Cloudflare, Inc. (NET)·Q1 2025 Earnings Summary