Executive Summary

Strong execution with accelerating growth and broad-based demand. Q3 revenue rose 31% YoY to $562.0M, non-GAAP EPS was $0.27, non-GAAP operating margin 15.3%, and free cash flow $75.0M (13% margin) . Consensus was topped on both revenue ($562.0M vs $544.9M*) and EPS ($0.27 vs $0.234*) (S&P Global).
Momentum metrics inflected: RPO +43% YoY, CRPO +30% YoY, DBNRR 119% (+5pts QoQ), large customers >$100K reached 4,009 (23% YoY), with large customer revenue mix up to 73% .
FY25 guidance raised across the board (revenue to $2.142–$2.143B; non-GAAP op income $297–$298M; EPS $0.91), while Q4 revenue outlook ($588.5–$589.5M) is slightly below consensus ($591.3M*) and EPS in line ($0.27 vs $0.271*) .
Stock reaction catalysts: clear beat/raise and accelerating RPO/DBNRR offset by a modest Q4 revenue guide below consensus and near-term gross margin mix pressure as Workers and paid traffic mix evolve .

What Went Well and What Went Wrong

What Went Well
- Revenue growth re-accelerated for the second consecutive quarter to 31% YoY; non-GAAP operating margin expanded to 15.3%; FCF margin rose to 13% . CEO: “We’re shipping capabilities at an unmatched pace…builds the rails for the next decade of Internet growth.”
- Enterprise traction: large customers grew 23% YoY to 4,009; large-customer revenue mix increased to 73%; DBNRR improved to 119% (+5pts QoQ) as “pool of funds” consumption normalized .
- RPO strength: RPO reached $2.143B (+43% YoY), with cRPO at 64% of total; management sees record growth in $1M+ and $5M+ cohorts supporting expansion .
What Went Wrong
- Gross margin compression: non-GAAP gross margin fell YoY to 75.3% (−350 bps YoY; −100 bps QoQ) due to mix (Workers growth, paid vs free traffic allocating more costs to COGS) .
- Slightly cautious Q4 top-line outlook relative to Street: revenue guide $588.5–$589.5M vs consensus $591.3M*; EPS in line at $0.27* (S&P Global).
- Leadership change: President of Product & Engineering CJ Desai to depart in November; management emphasized continuity and depth of bench but it introduces transition risk .

Financial Results

Quarterly actuals

Metric	Q1 2025	Q2 2025	Q3 2025
Revenue ($M)	$479.1	$512.3	$562.0
Non-GAAP EPS ($)	$0.16	$0.21	$0.27
Non-GAAP Gross Margin (%)	77.1%	76.3%	75.3%
Non-GAAP Operating Margin (%)	11.7%	14.1%	15.3%
Free Cash Flow ($M)	$52.9	$33.3	$75.0
Free Cash Flow Margin (%)	11%	6%	13%

Q3 actual vs consensus and surprise

Metric	Actual	S&P Global Consensus*	Surprise ($/bps)
Revenue ($M)	$562.0	$544.9*	+$17.1
Non-GAAP EPS ($)	$0.27	$0.234*	+$0.036

Geography mix and growth (Q3 2025)

Region	Mix of Revenue	YoY Growth
United States	50%	+31%
EMEA	27%	+26%
APAC	15%	+43%

Key KPIs

KPI	Q3 2025	Trend/Context
Paying customers (approx.)	~296,000; net adds ~30,000 QoQ	Boost from free-to-paid grads around AI and birthday weeks
Large customers (>$100K ARR)	4,009 (+23% YoY)	Largest cohorts ($1M+/$5M+) set records
Large-customer revenue mix	73% (vs 67% LY)	Up 600 bps YoY
Dollar-based net retention	119% (+5 pts QoQ)	Pool-of-funds consumption improving DBNRR
RPO ($B)	$2.143 (+43% YoY; +8% QoQ)	cRPO is 64% of total ; cRPO YoY +30% per PR
Network CapEx	14% of revenue	FY25 guide ~13% of revenue
Cash, cash equiv. & AFS ($B)	$4.044	Strengthened liquidity

Segment breakdown: Cloudflare does not report by operating segment; geographic mix shown above.

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue ($M)	FY 2025	$2,113.5–$2,115.5	$2,142.0–$2,143.0	Raised
Non-GAAP Operating Income ($M)	FY 2025	$284–$286	$297–$298	Raised
Non-GAAP EPS ($)	FY 2025	$0.85–$0.86	$0.91	Raised
Diluted Shares (avg)	FY 2025	~370M	~370M	Maintained
Revenue ($M)	Q4 2025	—	$588.5–$589.5	Initiated
Non-GAAP Operating Income ($M)	Q4 2025	—	$83–$84	Initiated
Non-GAAP EPS ($)	Q4 2025	—	$0.27 (shares ~377M)	Initiated
Effective Tax Rate	Q4 & FY 2025	—	~20%	Initiated

Note: Q4 revenue guide sits slightly below Street ($591.3M*) and EPS is in line at $0.27* (S&P Global).

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1 & Q2 2025)	Current Period (Q3 2025)	Trend
AI/Workers platform	Q1: largest contract in company history (> $100M) driven by Workers . Q2: “invent the new business model for content creators on the AI-driven Internet” .	“80% of leading AI companies already rely on us”; shaping “agentic” internet; Net Dollar initiative; partnerships (e.g., payments, protocols) .	Accelerating platform relevance; strategic position strengthening.
Enterprise GTM & productivity	— (Q1 PR emphasized large deals) . Q2: re-acceleration to 28% YoY; strong large-customer growth .	Sales productivity up 7th consecutive quarter; ramped rep capacity improving; close rates up; partner-initiated bookings doubled YoY .	Sustained improvement; scaling capacity.
Partner ecosystem	—	Oracle OCI native availability; channel-first push in SASE after peer benchmarks; partner-led opportunities rising .	Expanding partnerships; distribution leverage.
RPO/DBNRR	Q1: highest YoY net new ACV growth in 3 years . Q2: RPO +39% YoY .	RPO +43% YoY; DBNRR 119% (+5pts QoQ); pool-of-funds driving strategic, multi-product adoption .	Accelerating backlog and expansion.
Gross margin mix	—	Non-GAAP GM 75.3% (−350 bps YoY) from mix (Workers growth; paid vs free traffic) and cost allocation .	Near-term pressure; long-term unit economics “very consistent.”
SASE	—	Competitive; unlocking via partner-led model; high gross margin profile balances Workers mix .	Execution pivot to channel; margin mix support.
Regulatory/policy and AI content economics	—	Thought leadership with media/publishers; enabling AI deals; helping define agentic web business model .	Increasing strategic role.

Management Commentary

CEO Matthew Prince (prepared remarks): “We’re shipping capabilities at an unmatched pace…builds the rails for the next decade of Internet growth.”
CEO on momentum and customers: “We now have 4,009 large customers…revenue contribution from large customers grew 42% YoY…DBNRR was 119%.”
CEO on AI positioning: “We estimate 80% of the leading AI companies already rely on us…we will help set the protocols, guardrails, and business rules for the agentic internet of the future.”
CFO Thomas Seifert: “Revenue growth accelerated…to 31% YoY…gross margin 75.3%…operating margin 15.3%…RPO $2,143M (+43% YoY)…we expect revenue of $588.5–$589.5M and EPS of $0.27 in Q4; FY revenue $2,142–$2,143M and EPS $0.91; effective tax rate 20%.”

Q&A Highlights

RPO/Pool of Funds: RPO acceleration driven by higher-quality large-customer cohorts and platform expansion; pool-of-funds now “low double digits of total ACV,” with balanced consumption; initial downward pressure on DBNRR reversing as pools are consumed .
Sales productivity and capacity: Productivity expected to continue improving; ramped rep capacity turning up after salesforce revamp .
Oracle OCI integration: Cloudflare to be natively available in OCI across hybrid/multi-cloud workloads, aligning to a multi-cloud future and expanding distribution .
Capacity/GPUs: Not capacity constrained; architecture treats the network as a global scheduler; driving GPU utilization toward CPU-like 70–80% to improve TCO for inference workloads .
AI-native exposure & concentration: AI revenue still de minimis with no customer >2% of revenue; security products often land first due to high per-query costs in AI, with inference adoption following .
SASE GTM: Pivoting to partner-led model (learning from peers); partner unlock expected to drive growth in high-margin SASE, balancing Workers mix .
Quantum-safe security and egress fees: Rolling out post-quantum cryptography at scale with ecosystem partners; eliminating egress fees (e.g., via R2) supports multi-cloud freedom and customer economics .

Estimates Context

Q3 beats: Revenue $562.0M vs $544.9M*; non-GAAP EPS $0.27 vs $0.234* (both beats). Primary EPS estimates based on 28 inputs for Q3; revenue based on 29 inputs*. (S&P Global)
Q4 guide vs Street: Revenue guide $588.5–$589.5M vs $591.3M* (slightly below); EPS guide $0.27 vs $0.271* (inline). FY25 EPS guide $0.91 roughly in line with the FY consensus $0.9135*. (S&P Global)
Implication: Expect upward estimate revisions to FY revenue/EPS and operating income; near-term Q4 revenue consensus may tick down modestly to guidance midpoint. Management also indicated comfort with Q4 FCF consensus .

Key Takeaways for Investors

Execution flywheel: Two consecutive quarters of accelerating growth (28% → 31% YoY) with expanding operating leverage (11.7% → 15.3% non-GAAP OM) and rising FCF margin (11% → 13%) support the “beat-and-raise” narrative into FY-end .
Demand durability: RPO +43% YoY and DBNRR 119% indicate strengthening expansion from large enterprises and platform breadth (Workers, SASE, Zero Trust) .
Guide dynamics: FY25 guide raised across revenue, operating income, and EPS; Q4 revenue outlook slightly conservative vs Street while EPS is in line—sets an achievable near-term bar (potential upside from partner-led SASE and continued large-customer expansion) .
Mix considerations: Near-term gross margin pressure from product and customer traffic mix (Workers growth, paid vs free traffic) is strategic and manageable; high-margin SASE scale can balance mix over time .
Strategic positioning in AI: Edge inference, agentic web enablement, and AI content economics (gatekeeping, payments) reinforce a long-term moat; Cloudflare estimates it touches 80% of leading AI firms .
GTM momentum: Productivity, capacity, and partner ecosystem are improving, with partner-initiated bookings doubling YoY and OCI-native integration expanding reach .
Risk checks: Leadership transition (CJ Desai) and modest Q4 guide vs Street; monitor margin cadence as Workers scales and SASE channel ramps .

Values marked with an asterisk (*) are retrieved from S&P Global consensus via GetEstimates.

Cloudflare, Inc. (NET)·Q3 2025 Earnings Summary