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Cloudflare Q3 Earnings Beat Estimates on Robust Enterprise Demand
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Key Takeaways
Cloudflare's Q3 earnings rose 40.7% to 38 cents per share, while revenues jumped 39.2% to $782.5 million.
NET's large customers grew 25% to 5,006, while AI agent requests surged more than 1,700% year over year.
Cloudflare raises its 2026 revenue guidance to $2.963B-$2.964B and non-GAAP EPS outlook to $1.35.
Cloudflare, Inc. (NET - Free Report) reported third-quarter 2026 non-GAAP earnings of 38 cents per share, up 40.7% year over year. The figure surpassed the Zacks Consensus Estimate of 35 cents by 8.6%. Revenues surged 39.2% to $782.5 million, beating the consensus mark of $734 million by 6.6%.
Growth was driven by strong enterprise demand, accelerating adoption of its developer platform and solid sales execution. Dollar-based net retention reached 122%, improving 2 percentage points sequentially and 3 points year over year.
NET's Large Customer Momentum Remains Strong
Cloudflare ended the quarter with 5,006 customers generating more than $100,000 in annualized revenue, up 25% year over year. The company added 308 large customers sequentially and 997 over the past 12 months.
Large customers contributed 75% of quarterly revenues compared with 73% a year earlier. Remaining performance obligations (RPO) reached $2.88 billion, increasing 34.2% year over year and 5.3% sequentially. Current RPO represented 65% of total RPO and grew 37% year over year, reflecting continued demand for contracted services.
Cloudflare, Inc. Price, Consensus and EPS Surprise
The United States generated $407.9 million in revenues, rising 44.3% year over year. EMEA revenues increased 31.9% to $202.2 million, while APAC revenues advanced 31.9% to $111.7 million. Other regions contributed $60.7 million, up 46.4%.
Growth remained strong across customer channels. Revenues from channel partners jumped 65.1% year over year to $247.4 million, while direct-customer revenues increased 29.8% to $535.1 million. The performance highlights Cloudflare's expanding distribution capabilities and continued enterprise adoption.
Non-GAAP gross profit increased 33.9% year over year to $566.6 million. However, gross margin contracted 290 basis points to 72.4% and declined 70 basis points sequentially, indicating continued pressure on service delivery costs.
Non-GAAP operating income surged 59.5% year over year to $137.1 million. Operating margin expanded 220 basis points to 17.5% and improved 370 basis points sequentially.
Non-GAAP operating expenses totaled $429.5 million, up 27.4% year over year. Sales and marketing expenses increased to $270.2 million, while research and development expenses reached $101.7 million. General and administrative expenses totaled $57.5 million.
On a GAAP basis, Cloudflare reported an operating loss of $67.9 million compared with $37.5 million a year earlier. The quarter included $174.1 million in stock-based compensation and related payroll taxes.
Cloudflare's AI Developer Platform Gains Traction
Cloudflare surpassed 10 million active developers on its platform in October 2026 compared with more than 7.4 million in June. The expanding developer community strengthens the company's position in building and deploying AI-powered applications.
AI agent requests across Cloudflare's network increased more than 1,700% over one year. More than half of network traffic is now nonhuman, underscoring the changing nature of Internet activity.
The company continues developing its Workers platform and AI infrastructure offerings, including Workers AI, AI Gateway, Durable Objects and agent-building tools. Management is positioning the platform to support agent-driven workloads while providing security and connectivity services through its global network.
NET Generates Higher Operating Cash Flow
Operating cash flow increased 28.9% year over year to $215.4 million, representing 28% of quarterly revenues compared with 30% in the prior-year quarter.
Free cash flow rose 9.5% to $82.1 million from $75 million a year earlier. Free cash flow margin declined to 10% from 13%, reflecting increased capital investment. Purchases of property and equipment totaled $121.8 million during the quarter.
Cloudflare exited September with $5.13 billion in cash, cash equivalents and available-for-sale securities. The company also issued convertible senior notes due 2031 and repaid its convertible notes due 2026 during the quarter.
Cloudflare Raises Expectations for 2026
For the fourth quarter of 2026, Cloudflare expects revenues between $845 million and $846 million, implying approximately 38% year-over-year growth. Non-GAAP operating income is projected between $156 million and $157 million, while non-GAAP earnings are expected to reach 43 cents per share.
For 2026, revenues are anticipated between $2.963 billion and $2.964 billion, representing approximately 37% growth. This compares with the previous guidance of $2.864 billion to $2.870 billion.
Non-GAAP operating income is forecast between $462 million and $463 million, up from the previous range of $443-$445 million. Non-GAAP earnings guidance has increased to $1.35 per share from the earlier range of $1.25-$1.26. Cloudflare expects network capital expenditures to represent 14-15% of annual revenues.
NET’s Zacks Rank & Other Stocks to Consider
Cloudflare currently carries a Zacks Rank #2 (Buy).
Advanced Energy Industries shares have declined 11.5% year to date (YTD). The Zacks Consensus Estimate for Advanced Energy Industries’ 2026 earnings indicates a year-over-year increase of 79.4%. Estimates have been revised upward in the past seven days.
Shares of AMETEK have returned 8.6% YTD. The Zacks Consensus Estimate for AMETEK’s 2026 earnings suggests a year-over-year rise of 14.8%. Estimates have been revised upward in the past seven days.
ASE Technology shares have surged 89.8% YTD. The Zacks Consensus Estimate for ASE Technology’s 2026 earnings indicates year-over-year growth of 129.8%. Estimates have been revised upward in the past seven days.
View the Zacks #1 Rank List
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Cloudflare Q3 Earnings Beat Estimates on Robust Enterprise Demand
Key Takeaways
Cloudflare, Inc. (NET - Free Report) reported third-quarter 2026 non-GAAP earnings of 38 cents per share, up 40.7% year over year. The figure surpassed the Zacks Consensus Estimate of 35 cents by 8.6%. Revenues surged 39.2% to $782.5 million, beating the consensus mark of $734 million by 6.6%.
Growth was driven by strong enterprise demand, accelerating adoption of its developer platform and solid sales execution. Dollar-based net retention reached 122%, improving 2 percentage points sequentially and 3 points year over year.
NET's Large Customer Momentum Remains Strong
Cloudflare ended the quarter with 5,006 customers generating more than $100,000 in annualized revenue, up 25% year over year. The company added 308 large customers sequentially and 997 over the past 12 months.
Large customers contributed 75% of quarterly revenues compared with 73% a year earlier. Remaining performance obligations (RPO) reached $2.88 billion, increasing 34.2% year over year and 5.3% sequentially. Current RPO represented 65% of total RPO and grew 37% year over year, reflecting continued demand for contracted services.
Cloudflare, Inc. Price, Consensus and EPS Surprise
Cloudflare, Inc. price-consensus-eps-surprise-chart | Cloudflare, Inc. Quote
Cloudflare Delivers Broad Geographic Growth
The United States generated $407.9 million in revenues, rising 44.3% year over year. EMEA revenues increased 31.9% to $202.2 million, while APAC revenues advanced 31.9% to $111.7 million. Other regions contributed $60.7 million, up 46.4%.
Growth remained strong across customer channels. Revenues from channel partners jumped 65.1% year over year to $247.4 million, while direct-customer revenues increased 29.8% to $535.1 million. The performance highlights Cloudflare's expanding distribution capabilities and continued enterprise adoption.
NET's Profitability Improves Despite Margin Pressure
Non-GAAP gross profit increased 33.9% year over year to $566.6 million. However, gross margin contracted 290 basis points to 72.4% and declined 70 basis points sequentially, indicating continued pressure on service delivery costs.
Non-GAAP operating income surged 59.5% year over year to $137.1 million. Operating margin expanded 220 basis points to 17.5% and improved 370 basis points sequentially.
Non-GAAP operating expenses totaled $429.5 million, up 27.4% year over year. Sales and marketing expenses increased to $270.2 million, while research and development expenses reached $101.7 million. General and administrative expenses totaled $57.5 million.
On a GAAP basis, Cloudflare reported an operating loss of $67.9 million compared with $37.5 million a year earlier. The quarter included $174.1 million in stock-based compensation and related payroll taxes.
Cloudflare's AI Developer Platform Gains Traction
Cloudflare surpassed 10 million active developers on its platform in October 2026 compared with more than 7.4 million in June. The expanding developer community strengthens the company's position in building and deploying AI-powered applications.
AI agent requests across Cloudflare's network increased more than 1,700% over one year. More than half of network traffic is now nonhuman, underscoring the changing nature of Internet activity.
The company continues developing its Workers platform and AI infrastructure offerings, including Workers AI, AI Gateway, Durable Objects and agent-building tools. Management is positioning the platform to support agent-driven workloads while providing security and connectivity services through its global network.
NET Generates Higher Operating Cash Flow
Operating cash flow increased 28.9% year over year to $215.4 million, representing 28% of quarterly revenues compared with 30% in the prior-year quarter.
Free cash flow rose 9.5% to $82.1 million from $75 million a year earlier. Free cash flow margin declined to 10% from 13%, reflecting increased capital investment. Purchases of property and equipment totaled $121.8 million during the quarter.
Cloudflare exited September with $5.13 billion in cash, cash equivalents and available-for-sale securities. The company also issued convertible senior notes due 2031 and repaid its convertible notes due 2026 during the quarter.
Cloudflare Raises Expectations for 2026
For the fourth quarter of 2026, Cloudflare expects revenues between $845 million and $846 million, implying approximately 38% year-over-year growth. Non-GAAP operating income is projected between $156 million and $157 million, while non-GAAP earnings are expected to reach 43 cents per share.
For 2026, revenues are anticipated between $2.963 billion and $2.964 billion, representing approximately 37% growth. This compares with the previous guidance of $2.864 billion to $2.870 billion.
Non-GAAP operating income is forecast between $462 million and $463 million, up from the previous range of $443-$445 million. Non-GAAP earnings guidance has increased to $1.35 per share from the earlier range of $1.25-$1.26. Cloudflare expects network capital expenditures to represent 14-15% of annual revenues.
NET’s Zacks Rank & Other Stocks to Consider
Cloudflare currently carries a Zacks Rank #2 (Buy).
Some other top-ranked stocks from the broader Zacks Computer and Technology sector include Advanced Energy Industries (AEIS - Free Report) , AMETEK (AME - Free Report) and ASE Technology (ASX - Free Report) . Advanced Energy Industries, AMETEK and ASE Technology sport a Zacks Rank #1 (Strong Buy) each at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Advanced Energy Industries shares have declined 11.5% year to date (YTD). The Zacks Consensus Estimate for Advanced Energy Industries’ 2026 earnings indicates a year-over-year increase of 79.4%. Estimates have been revised upward in the past seven days.
Shares of AMETEK have returned 8.6% YTD. The Zacks Consensus Estimate for AMETEK’s 2026 earnings suggests a year-over-year rise of 14.8%. Estimates have been revised upward in the past seven days.
ASE Technology shares have surged 89.8% YTD. The Zacks Consensus Estimate for ASE Technology’s 2026 earnings indicates year-over-year growth of 129.8%. Estimates have been revised upward in the past seven days.