Cloudflare Posts Its Fastest Growth in Nearly Four Years and Raises Its Full-Year Outlook

Cloudflare reported third-quarter revenue of $782.5 million on Thursday, up 39% from a year earlier, its fastest growth in nearly four years.

Non-GAAP earnings per share, the adjusted measure the company emphasizes, rose to $0.38 from $0.27 a year earlier. That beat the $0.34 analysts polled by FactSet expected, and revenue cleared the $737.2 million consensus.

"The third quarter was Cloudflare's best quarter ever," co-founder and chief executive Matthew Prince said in the release. "We crossed $3 billion in annualized revenue with revenue of $782 million, up 39% year over year."

Contracted revenue kept pace with the print

Current remaining performance obligations (RPO), contracted revenue due within the next year, grew 37% from a year earlier. The release gives the growth rate for current RPO but not its dollar value.

Annualized revenue crossed $3 billion because a $782.5 million quarter, multiplied by four, is a $3.13 billion run rate (TickerGrove calculation). That is a run rate, not a trailing-year total.

Adjusted profit expanded; the reported loss widened

Non-GAAP income from operations rose to $137.1 million, 17.5% of revenue, from $85.9 million and 15.3% a year earlier. On a reported basis, the operating loss widened to $67.9 million from $37.5 million.

The reported net loss widened to $34.1 million, or $0.10 a share, from $1.3 million a year earlier. The bridge is largely stock-based compensation, which rose to $174.1 million in the quarter from $119.7 million.

Reported gross margin narrowed to 71.2% from 74.0% a year earlier. The adjusted gross margin was 72.4%, down from 75.3%.

Cash flow grew, but thinner than revenue

Operating cash flow rose to $215.4 million from $167.1 million a year earlier. Free cash flow was $82.1 million, 10% of revenue, up from $75.0 million but down from 13% of revenue.

Cash, equivalents and available-for-sale securities stood at $5.13 billion at September 30. The balance gives the company a long runway, but the reported losses are a cost line, not a cash crisis.

Guidance rose for the quarter and the year

For the fourth quarter, Cloudflare expects revenue of $845 million to $846 million and non-GAAP earnings of $0.43 a share. Analysts polled by FactSet expected $796.2 million and $0.38.

For the full year, it now expects revenue of $2.96 billion to $2.96 billion, up from $2.86 billion to $2.87 billion in its second-quarter outlook. Non-GAAP earnings guidance rose to $1.35 a share from $1.25 to $1.26.

The new full-year revenue range also sits above the $2.87 billion analysts polled by FactSet expected for the year. The earnings guide clears their $1.26 as well.

A new revenue chief for the push to $5 billion

Cloudflare also appointed Christian Smith as president of revenue on Thursday, to lead its worldwide sales organization. The appointment release frames the hire around a push to $5 billion of annual recurring revenue and beyond.

Smith previously led Splunk's commercial business at Cisco. As Splunk's chief revenue officer, he led its shift to recurring revenue, scaling it to more than $4 billion.

Investors reversed the day's verdict after hours

The shares had fallen 8.3% in Thursday's regular session, closing at $244.51, as technology and AI-linked stocks sold off globally. After the results, the stock surged 18% to $288.00 in after-hours trading, the Wall Street Journal reported.

What remains unknown

Whether the reported loss keeps widening. Stock-based compensation is the main bridge to the adjusted profit, and the release sets no target for bringing the reported result to breakeven.

What is driving the gross-margin narrowing. The release reports the decline on both the reported and adjusted bases without assigning it to a product or cost line.

How the new revenue chief changes the sales model. The appointment release sets a $5 billion recurring-revenue ambition but gives no timetable or interim targets.

What to watch next

Watch Friday's first regular-session close, which will replace the after-hours snapshot as the settled market verdict.

Watch the fourth-quarter print against the $845 million to $846 million guide, the first test of the raised full-year outlook.

Watch reported margins and stock-based compensation when the company reports the holiday quarter, for evidence the reported loss stops widening.