According to Zhitong Finance APP, after the market closed on November 5 Eastern Time, Cloudflare (NET.US) announced its third-quarter fiscal 2026 results and held an earnings call. CEO Matthew
Prince called this quarter the company's "best quarter in history"—with revenue growth reaching its fastest pace in nearly four years, the company raised its full-year profit guidance for the third time this year, and forecast that GAAP profitability would be achieved as early as the fourth quarter of 2026 (previously targeted for the end of 2028). Management attributed this acceleration to AI and agentic internet.
(Internet) as the core requirement: over 10 million active developers helping to define new business models for the internet.
The product line recorded revenue for the first time; Prince explicitly stated that Cloudflare aims to become "the first proxy cloud," but emphasized that it is neither a neo cloud nor the fourth public cloud. CFO
Thomas Seifert emphasized that the guidance is based on a highly diversified demand base, with no single customer concentration.
In terms of performance, according to consistent estimates cited by Zhitong Financial, the company achieved revenue of $782.5 million in the third quarter, a 39% year-over-year increase—the fastest quarterly growth in nearly four years—with annualized revenue exceeding $3 billion, about 6.2% above the consensus estimate of $736.8 million. Non-GAAP diluted EPS came in at $0.38, exceeding expectations by $0.04 (compared to $0.27 in the same period last year). Profitability metrics vary by口径: Non-GAAP operating profit was $137.1 million, with a margin of 17.5%, a record high (up 370 basis points sequentially); however, under GAAP, the company still posted a net loss of $34.1 million, or a diluted loss per share of $0.10; free cash flow was $82.1 million, with a margin of 10%. The dollar-based net retention rate rose to 122%, and RPO (Remaining Performance Obligations) reached $2.877 billion, up 34% year-over-year. For guidance, the company forecasts Q4 revenue of $845–846 million, approximately 6% above the market consensus of $795.9 million, and non-GAAP
EPS guidance of $0.43 (LSEG consensus: $0.38, per CNBC); full-year non-GAAP
EPS guidance raised to $1.35, marking the third increase this year (previous guidance: $1.25–$1.26; Wall Street expectation: $1.27). The earnings report was released after hours; on the same day, the stock declined along with broader tech sell-offs (Nasdaq down 6.4%), but surged nearly 20% in after-hours trading before narrowing to approximately a 15% gain.
Focus and Response: Can AI-Driven Acceleration and Profit Expansion Be Sustained?
The central focus of this meeting was whether the accelerated revenue growth (up 39% year-over-year) and record profitability (non-GAAP operating margin of 17.5%) can be sustained, and whether AI-related demand represents genuine revenue or merely narrative. Seifert responded that the primary driver behind this quarter’s outperformance was variable revenue—faster consumption of pool-of-funds contracts led customers to renew early and make larger commitments. The demand underlying the guidance is highly diversified, encompassing growth in developer numbers, increased traffic, a net addition of 158,000 paid customers in the quarter, and adoption across industries such as finance and government, with “no concentration risk.” Prince addressed the matter strategically: Cloudflare’s architecture is built on isolation technology rather than containers, giving it unmatched efficiency in geographic and density scaling; he predicted that within five years, the ratio of agents to humans will reach 1,000 to 1—“I’d bet even earlier.” This quarter, the number of enterprise customers (annual spend over $100,000) increased by 308 net, reaching a total of approximately 5,000—both all-time highs.
Major clients are accelerating across the board, with net additions at every level setting new records.
Approximately 5,000 enterprise clients (annual spending exceeding $1 million USD), a 25% year-over-year increase, with a net addition of 308 clients this quarter and nearly 1,000 net new clients year-over-year—the highest in history. Net additions across all revenue tiers ($100K, $500K, $1M, and over $5M) all reached record levels; the number of new clients exceeding $5M in annual spend in the first three quarters of this year is nearly equal to the total at the end of last year. Enterprise client revenue contribution rose to 75% (up from 73% last year). Paid client net additions exceeded 158,000 this quarter, a 110% year-over-year increase—almost double last quarter’s record of over 80,000. Sales productivity has increased year-over-year for 11 consecutive quarters, and new customer bookings surpassed the five-year high set last quarter. Representative large deals this quarter include: a rapidly growing AI company signing a one-year, $11 million contract for the Workers platform (pay-as-you-go dynamic Workers replacing underutilized compute capacity from hyperscale providers); and a Fortune 100 cloud infrastructure provider signing a 13-month, $15.5 million contract for Magic.
A transit contract to fully replace legacy DDoS hardware; a U.S. cabinet-level federal agency signed a five-year, $10.3 million SASE contract; a leading European media company signed a five-year, $8.1 million contract to replace a legacy CDN that had been in operation for 17 years.
First agency cloud and first revenue recognition under Act 4
Prince stated that Cloudflare is not a new cloud or a "fourth public cloud," but rather aims to become the "first agentive cloud."
(Cloud)—based on isolation technology rather than containers, it is unmatched in efficiency for geographic and density scaling; he predicts that within five years, the number of agents will exceed the human population by a factor of 1,000. Agent internet-related products (Act
4) First-time revenue recognition this quarter helps define new internet business models: pay-per-crawl, micropayments, and proxy disclosure of intent for lower rates; collaboration with OpenAI provides page change alerts to help crawlers reduce costs. Prince stated that this business could become the company’s largest segment within ten years. He also revealed that Meta (Muse) and Google are both customers, with Cloudflare acting as a "mediator" between proxies and content providers.
Security "tsunami": Six of the most severe vulnerabilities in history within 14 days
Prince said that six of the most severe security vulnerabilities ever disclosed appeared within 14 days, "the worst is yet to come, and this state will persist for two more years." Cloudflare, through trusted reporters,
Reporters) gained early access to vulnerability alerts and provided protection for all customers (including free users), creating a virtuous cycle where more free users lead to more threat intelligence and stronger paid conversion; the issue has escalated to discussions at the White House. He described the current state of CISOs (Chief Information Security Officers) as "panic," with free services serving as the entry point, followed by large banks signing substantial contracts.
Operational Efficiency and Personnel: Total headcount will exceed pre-layoff levels six months after the cuts
Following the organizational changes after approximately one-fifth of staff were laid off in May (in favor of an AI agent-driven operational model), Prince noted that AI excels at "measurement" tasks—for example, a single employee from the company’s investor relations team used an agent to complete financial report materials that previously required an entire team, at a token cost of less than a few hundred dollars. The company will now hire more "builders" and sales personnel, with total headcount expected to exceed pre-layoff levels by year-end. Operationally, OpEx accounted for 55% of revenue, a 510-basis-point decline year-over-year; G&A expenses represented 7% of revenue (down from 10% last year). On the personnel transition front, Mark, a key contributor to the GTM transformation,
Anderson is retiring at the end of the year (remaining as an advisor for at least one year); Christian Smith will become President of Revenue
Revenue) and made its debut at this call, with priorities focused on GTM execution, enterprise customer acceleration, and customer time-to-value.
Guidance: Third increase this year, GAAP earnings accelerated
Q4 Guidance: Revenue of $845 million to $846 million (up 38% year-over-year), non-GAAP operating profit of $156 million to $157 million, non-GAAP diluted EPS
$0.43 (approximately 379 million outstanding shares), effective tax rate of 20%; management explicitly stated that GAAP profitability will be achieved in the fourth quarter of 2026. Full-year 2026 guidance: revenue of $2.963–$2.964 billion (37% year-over-year growth), non-GAAP operating profit of $462–$463 million, non-GAAP diluted EPS
$1.35 billion (approximately 376 million shares). By region, U.S. revenue accounted for 52% in the third quarter (+44% year-over-year), EMEA for 26% (+32%), and Asia-Pacific for 14% (+32%).
The full meeting minutes are as follows:
Management Commentary
Phil Winslow (Investor Relations): Welcome to Cloudflare's Q3 2026 earnings call. Joining us today are co-founder and CEO Matthew
Prince, Chief Financial Officer Thomas Seifert, and newly appointed President of Revenue Christian Smith. Co-founder and President Michelle
Zatlyn also attended the meeting. The presentation included forward-looking statements and non-GAAP financial measures; reconciliations to the most directly comparable GAAP measures are available in the company’s earnings materials.
Matthew
Prince (Co-founder and CEO): This is our best quarter in company history. Revenue reached $782.5 million, a 39% year-over-year increase—the fastest growth rate in four years—and annualized revenue surpassed $3 billion. Since July 1,新增网络流量 equivalent to approximately 5% of the entire internet has been added to the Cloudflare network—growth hit a turning point in October 2025, then accelerated again in July 2026 and this past October.
Enterprise Performance: Approximately 5,000 enterprise clients with annual spending exceeding $100,000, representing a 25% year-over-year increase, with a net addition of 308 clients this quarter; nearly 1,000 net new enterprise clients added year-over-year, marking the highest quarterly and annual figures in history. Net additions across all revenue tiers—$100K, $500K, $1M, and over $5M—set all-time records, with faster growth observed among clients with higher spending. The number of new clients exceeding $5M in annual spending during the first three quarters of this year is already approaching last year’s year-end存量. Paid client net additions this quarter exceeded 158,000, a 110% year-over-year increase—nearly double the record set in Q2 (80,000+). Sales productivity has increased year-over-year for 11 consecutive quarters, achieving the highest ACV growth in history, with new customer bookings surpassing the five-year high set last quarter.
Representative customer contracts this quarter: A rapidly growing AI company signed a 12-month, $11 million pool-of-funds contract to use the Workers developer platform, replacing idle compute capacity from hyperscale providers with dynamic, pay-as-you-go Workers; a Fortune 100 cloud infrastructure provider signed a 13-month, $15.5 million Magic contract.
Transit contract: replace legacy DDoS hardware and fully remove the current vendor; a U.S. cabinet-level federal agency signs a five-year, $10.3 million SASE bundle contract to replace expiring VPNs, outcompeting first-generation Zero Trust.
A trusted vendor; a multinational neobank/fin-tech company signed a three-year pool-of-funds contract (averaging over $3 million annually), with performance tickets declining by 74% after completing company-wide migration for the quarter; a rapidly growing tech company signed a 39-month, $9.5 million pool-of-funds contract (Application Services + Workers), outcompeting major hyperscale vendors; a global leading consulting firm signed a three-year, over $7 million pool-of-funds contract (Zero
Trust + Application Services + Workers), integrate suppliers; a leading European media company signs a five-year, $8.1 million contract (Application Services + Workers) to replace a 17-year-old legacy CDN and begins using bots to identify AI crawlers and integrate pay-per-crawl monetization. Strategically: Cloudflare aims to become the first agentic cloud.
(Cloud). We are not a new cloud, nor the fourth public cloud. We are built on isolation technology rather than containers, offering unmatched efficiency in geographic and density scaling. I predict that within five years, the number of agents will exceed humans by a ratio of 1,000 to 1—I’m betting it happens even sooner. Active developers surpassed 10 million this quarter, more than doubling since the beginning of the year (increasing from 7 million to 10 million within the quarter).
Act
4—A product line helping define new internet business models—recognized revenue for the first time this quarter: pay-per-crawl, micropayments, and agent disclosure of intent for lower fees. Collaboration with OpenAI provides page change notifications, helping crawlers reduce costs. A decade from now, this business could become our largest segment. Meta (Muse) and Google are our clients, and we act as a mediator between agents and content providers.
Security: Six of the most severe vulnerabilities in history were disclosed within 14 days. The worst is yet to come, and this state will persist for another two years. We address this through trusted
The reporter channel received advance warnings and provided free protection to all customers—the more free users, the more threat intelligence, and the stronger the paid conversion, creating a virtuous cycle. These issues have been discussed at the White House level.
Human Resources: Mark Anderson, instrumental in the GTM transition, will retire at year-end and remain as an advisor for at least one year. Christian
Smith has been appointed President of Revenue, and this is his first time joining the call. Thank you, Mark—it was an incredible quarter, a monster quarter.
quarter. A monster quarter.")
Christian
Smith (President of Revenue): My priorities are threefold: GTM execution, accelerating enterprise customer growth, and reducing customer time-to-value. The momentum of our sales organization has been the foundation of this quarter’s record performance, and we will continue investing in our enterprise sales capabilities.
Thomas
Seifert (Chief Financial Officer): Q3 Financial Details: Revenue of $782.5 million, up 39% year-over-year. Gross margin of 72.4%, down 70 basis points sequentially and 290 basis points year-over-year, with a long-term target range of 70%–77%. Non-GAAP operating profit of $137.1 million, with an operating margin of 17.5%, a record high, up 370 basis points sequentially and 220 basis points year-over-year. Free cash flow of $82.1 million, representing 10% of revenue (compared to $75 million, or 13%, in the same period last year). Dollar-based net retention rate of 122% (up from 120% last quarter and 119% year-over-year). RPO
$2.877 billion, up 5% sequentially and 34% year-over-year; cRPO accounted for 65%, up 37% year-over-year. This quarter, $2.5 billion in convertible bonds were issued and $1.3 billion was repaid; cash and cash equivalents combined with available-for-sale securities totaled $5.1 billion at period end. Network
CapEx accounts for 15% of revenue, with the full-year guidance maintained at 14%–15%. OpEx accounts for 55% of revenue, a decrease of 510 basis points year-over-year: sales and marketing expenses of $270.2 million (35%, compared to 36% last year); R&D expenses of $101.7 million (13%, compared to 15% last year); G&A
$575 million (7%, down from 10% last year). Approximately 4,700 employees. By region: the U.S. accounts for 52% of revenue, up 44% year-over-year; EMEA accounts for 26%, up 32%; Asia-Pacific accounts for 14%, up 32%.
Guidance: Q4 revenue of $845 million to $846 million, representing a 38% year-over-year growth; non-GAAP operating profit of $156 million to $157 million; effective tax rate of 20%; non-GAAP diluted EPS
$0.43, based on approximately 379 million shares outstanding. Full year 2026: Revenue of $2.963–$2.964 billion, up 37% year-over-year; non-GAAP operating profit of $462–$463 million; non-GAAP diluted EPS
$1.35 per share, based on approximately 3.76 billion shares outstanding. It is important to note: We will achieve GAAP profitability ahead of schedule—originally targeted for the end of 2028, now expected in the fourth quarter of 2026.
Q&A Session
Matt Hedberg (RBC Research): What is your perspective on the relationship between Meta's Muse and Act 4? What underlies the demand reflected in the guidance?
Matthew
Prince: Meta is our client; the proxy is built on Cloudflare, and the content they access is also on Cloudflare, with us acting as the intermediary between the proxy and the content provider.
Thomas Seifert: The guidance is based on highly diversified demand—developer count, traffic, 158,000 net new paid customers this quarter, and across finance, government, and global industries, with no concentration risk.
Gabriela Borges (Goldman Sachs Research): How is the timeline for Act 4 being considered?
Matthew Prince: Substantial revenue has been confirmed (OpenAI is already paying); a micropayment model will be launched in the future; over a 10-year horizon, this could become our largest business segment.
Thomas Seifert: Variable revenue was the primary driver of the quarter's outperformance, driven by accelerated depletion of the pool-of-funds, prompting customers to renew early and make larger commitments.
Ryan McWilliams (Wells Fargo Research): Is growth driven by AI-native customers? How are CDN customers handling proxy traffic?
Matthew
Prince: Growth is broadly based—finance, government, manufacturing, healthcare, and e-commerce are all accelerating, primarily because AI is intensifying the discovery and exploitation of security vulnerabilities. CDN customers can independently choose to allow or block proxy traffic; we never charge based on CDN traffic itself.
Saket Kalia (Barclays Research): What does the report of slowed data center construction mean for the company?
Matthew Prince: "We are an engineering company, not a financial engineering company." We criticize those who "dumb
"deals" (foolish trades); the Isolate architecture also benefits in dense scenarios, and rumors of slowing demand are unrelated to us.
Thomas Seifert: NDR (Net Retention Rate) still has room for improvement; the role of security in customer expansion is growing.
Sanjit Singh (Morgan Stanley Research): How do developers convert into revenue? What are your thoughts on the Rule of 40/50?
Thomas Seifert: Workers has a lower gross margin than traditional products but a lower cost-to-book ratio, actually improving operating margins; Rule of
The 40→50 target is currently far exceeding expectations; the efficiency of the computing infrastructure continues to improve.
Samik Chatterjee (J.P. Morgan Research): Why is the win rate of Zero Trust increasing?
Matthew Prince: The CSO (Chief Security Officer) is now attending developer platform meetings. First-generation Zero
Trust vendors aren't addressing the issue of agency identity; clients are abandoning ongoing RFPs; customers are buying an "entire platform," and first-generation vendors are becoming mere features. Nearly all pool-of-funds contracts include Workers.
Joseph Gallo (Jefferies Research): What is the current status of CISO clients?
Matthew Prince: One word—"panic." Free services are the entry point; major banks sign large contracts after trialing them.
Fatima Bulani (Citi Research): How is the organization faring six months after the layoffs?
Matthew
Prince: AI excels at "measurement"-type tasks—for example, Heather from the IR team used an agent to complete the entire team’s previous earnings materials, with token costs under a few hundred dollars. We’re shifting toward hiring more builders and sellers, and by year-end, our total headcount will exceed what it was before the layoffs.
Closing remarks
Matthew Prince: Thank you to the team and Mark Anderson for their contributions. "It was an incredible quarter. A monster
quarter." (This was an incredible quarter, a monster quarter.) We will subsequently attend the RBC Global Technology Conference on November 18 and the Barclays Global Technology Conference on December 9.