Cloudflare (NET.US) Q3 conference call: CEO says AI-driven ushered in the best quarter in history GAAP profits are expected to be achieved as early as the fourth quarter

The Zhitong Finance App learned that after the market on November 5 EST, Cloudflare (NET.US) announced the results for the third quarter of 2026 and held a conference call. CEO Matthew Prince called this season the company's “best quarter in history” — the fastest revenue growth rate in nearly four years. The company raised its full-year profit guidance for the third time during the year, and predicted that profit according to GAAP will be achieved ahead of schedule to the fourth quarter of 2026 (the original target given by the company on Investor Day was the end of 2028). At the conference, management listed AI and Agentic Internet (Agentic Internet) as the main line of demand: active developers surpassed 10 million and confirmed revenue for the first time; Prince clearly stated that Cloudflare would become the “first proxy cloud,” but “it is neither a new cloud (Neo Cloud) nor the fourth public cloud”. CFO Thomas Seifert emphasized that the guidance is based on a highly diverse demand base, and there is no single customer concentration.

In terms of performance, according to consistent forecast data quoted by Zhitong Finance, the company achieved revenue of US$782.5 million in the third quarter, an increase of 39% over the previous year, the company's fastest quarterly growth rate in the past four years, with annualized revenue exceeding US$3 billion, exceeding the consensus estimate (US$736.8 million) by about 6.2%; non-GAAP diluted earnings per share were $0.38, exceeding expectations of US$0.04 ($0.27 in the same period last year). Profit margins need to be distinguished: non-GAAP operating profit of US$137.1 million, a record high of 17.5% (up 370 basis points from month to month); GAAP is still in loss, with net loss of US$34.1 million and loss per diluted share of US$0.10; free cash flow of US$82.1 million, profit margin of 10%. The net dollar retention rate rose to 122%, and the RPO (Residual Performance Liability) was US$2,877 million, up 34% year over year. In terms of guidance, fourth-quarter revenue guidance was US$845 million to US$846 million, about 6% higher than market expectations of US$795.9 million, and non-GAAP EPS guidance of $0.43 (LSEG's agreed estimate was $0.38, according to CNBC); the full-year non-GAAP EPS guidance was raised to US$1.35, the third increase in the year (previous guidance of US$1.25-1.26, Wall Street expected US$1.27). The financial report was released after the market. The stock price declined with the sell-off of technology stocks on the same day (the NASDAQ index fell 6.4%). After the market, it surged nearly 20%, then the increase narrowed to about 15%.

Focus and Response: Can AI-Driven Acceleration and Profit Expansion Continue

The central focus of this conference was whether the acceleration in revenue (39% YoY) and the record high profitability (17.5% non-GAAP operating margin) can be sustained, and whether AI-related demand is narrative or actual. In response, Seifert said that the main driver for exceeding expectations this season was variable revenue - pool-of-funds (capital pool) contract consumption, leading to early renewal and greater commitment; the demand on which the guidelines are based is highly diversified, covering growth in the number of developers, traffic growth, a net increase of 158,000 paying customers in a single quarter, and various industries such as finance and government, and “there is no risk of concentration.” Prince responded from a strategic level: Cloudflare is built on isolation technology (isolate) rather than containers, and is unrivaled in terms of geographical expansion and density expansion. He predicts that within five years, the ratio of the number of agents (agents) to humans will reach 1000 to 1 — “I'll bet earlier.” Major customers (spending over 100,000 US dollars a year) had a net increase of 308 and a total of about 5,000 customers this quarter, all of which are historical records.

Major customers have accelerated across the board, with record net growth at all levels

The number of major customers (annual consumption exceeding 100,000 US dollars) was about 5,000, with a net increase of 308 in a single quarter, a net increase of nearly 1,000, the highest in history; the net increase of all revenue levels (100,000, 500,000, 1 million, 5 million US dollars or more) all set records, and the number of new increases for customers above 5 million US dollars in the first three quarters of this year was close to the total at the end of last year. Major customers increased their share of revenue to 75% (73% last year). The net increase in paying customers exceeded 158,000 in a single quarter, up 110% year over year, almost double the previous quarter's record (80,000+). Sales productivity increased year-on-year for 11 consecutive quarters, and new customer bookings surpassed the five-year high set in the previous quarter. Representative orders this season include: a rapidly growing AI company signed a 1-year $11 million Workers platform contract (dynamic workers pay per use to replace idle computing power from hyperscale vendors); a Fortune 100 cloud infrastructure provider signed a 13-month $15.5 million Magic Transit contract to completely replace legacy DDoS hardware; a US cabinet-level federal department signed a 5-year $10.3 million SASE contract; and a leading European media company replaced the legacy of 17 years of operation with a 5-year $8.1 million contract CDN.

“First Agent Cloud” and Act 4 confirm revenue for the first time

Prince said that Cloudflare is neither a new cloud nor the “fourth public cloud,” but rather the “first agentic cloud” (Agentic Cloud) — based on isolation technology rather than containers, and is unrivaled in terms of geographical expansion and density expansion; he predicts that the number of agents will exceed 1,000 times that of humans within five years. Agent Internet-related products (Act 4) confirmed revenue for the first time this season, helping define new Internet business models: pay-per-crawl (pay-per-crawl), micropayments, proxy disclosure intentions in exchange for lower rates; cooperation with OpenAI provides page change reminders and saves costs for crawlers. Prince said that in ten years, this business “may become the company's largest business segment”. At the same time, he revealed that both Meta (Muse) and Google are customers, and Cloudflare acts as a “mediator” between agents and content parties.

Security “tsunami”: 6 worst breaches in history in 14 days

Prince said that 6 of the most serious security breaches in history were revealed within 14 days, and “the worst is yet to come; this state of affairs will continue for 2 years.” Cloudflare obtains early vulnerability alerts through trusted reporter (trusted reporter) channels and provides protection for all customers (including free users), thus forming a virtuous cycle of “more free users, more threat intelligence, and stronger paid conversions”; related issues have escalated to the White House level. The current state of the CISO (Chief Information Security Officer) group was described by him as a “panic (panic)”. Free services became entrances, and large banks then signed major contracts.

Operational efficiency and personnel: After half a year of layoffs, the total number of employees will exceed those before the layoffs

In response to organizational changes after layoffs of about one-fifth in May (shifting to an operating model centered on AI agents), Prince said that AI is good at “measurement” work — for example, an employee of the company's investor relations team used an agent to complete financial reporting materials that previously required the entire team, and the token cost is less than a few hundred dollars; the company will switch to multi-employed “builders” (builders) and sales, and the total number of people will exceed that before the layoffs. At the operational level, OpEx accounted for 55% of revenue, a year-on-year decrease of 510 basis points; G&A accounted for 7% of revenue (10% last year). In terms of personnel handover, GTM's transformation hero Mark Anderson retired at the end of the year (remaining a consultant for at least one year), and Christian Smith became President of Revenue (President of Revenue) and made his debut at this conference call. His priorities were GTM implementation, enterprise customer acceleration, and customer time-to-value.

Guidance: Third increase in the year, GAAP profit ahead of schedule

Fourth quarter guidance: Revenue of US$845 million to US$846 million (up 38% year over year), non-GAAP operating profit of US$156 million to US$157 million, non-GAAP diluted EPS of $0.43 (approximately 379 million tradable shares), effective tax rate of 20%; management made it clear that GAAP profits will be realized early to the fourth quarter of 2026. Full year 2026 guidance: Revenue of US$2,963 million to US$2,964 million (up 37% year over year), non-GAAP operating profit of US$462 million to US$463 million, and non-GAAP diluted EPS of US$1.35 (approximately 376 million shares). By region, the US accounted for 52% of revenue in the third quarter (+44% year over year), EMEA 26% (+32%), and the Asia-Pacific region accounted for 14% (+32%).

The full minutes of the meeting are as follows:

Management statement

Phil Winslow (Investor Relations): Welcome to Cloudflare's Q3 2026 results conference call. In attendance today were Co-founder and CEO Matthew Prince, Chief Financial Officer Thomas Seifert, and new Revenue President Christian Smith. Co-Founder and President Michelle Zatlyn also attended the conference. The conference statements include forward-looking statements relating to non-GAAP financial indicators. The relevant adjustments are set out in the company's financial statements.

Matthew Prince (Co-founder and CEO): This was the best quarter in our company's history. Revenue was US$782.5 million, up 39% year on year, the fastest growth rate in the past four years; annualized revenue exceeded US$3 billion. Since July 1, approximately 5% of the Internet's new network traffic has been connected to the Cloudflare network — growth reached an inflection point in October 2025 and accelerated twice in July 2026 and October of this year.

Major customer performance: About 5,000 major customers spent more than 100,000 US dollars a year, a year-on-year increase of 25%, a net increase of 308 this quarter; a net year-on-year increase of nearly 1,000 major customers, the highest in history in both a single quarter and a single year. The net increase of all revenue levels — 100,000, 500,000, 1 million, and more than 5 million US dollars — all set records, and customers spent more and grew faster. The number of new customers over $5 million added in the first three quarters of this year is close to the stock at the end of last year. The net increase in paying customers exceeded 158,000 this quarter, up 110% year on year, almost double the record set in the second quarter (more than 80,000). Sales productivity has increased year-on-year for 11 consecutive quarters, ACV growth is the highest in history, and new customer bookings have surpassed the five-year high set in the previous quarter.

Representative customer contracts for this season: A rapidly growing AI company signed a 1-year, $11 million pool-of-funds contract to use the Workers developer platform to replace the idle computing power of hyperscale vendors with a dynamic pay-per-use model; a Fortune 100 cloud infrastructure provider signed a 13-month, $15.5 million Magic Transit contract to replace legacy DDoS hardware and completely evict current vendors; a US cabinet-level federal department signed a 5-year, $10.3 million SASE Combined contracts to replace expired VPNs and beat first-generation Zero Trust vendors; a multinational neobank/fintech company signed a 3-year pool-of-funds contract (with an average annual average of over $3 million), and performance work orders dropped 74% after completing full employee migration throughout the quarter; a rapidly growing technology company signed a 39-month, $9.5 million pool-of-funds contract (application services+workers) to defeat large hyperscale vendors; a leading global consulting firm signed a 3-year, more than $7 million The pool-of-funds contract (Zero Trust+ Application Service+Workers) integrates the supplier; a leading European media company signed a 5-year, $8.1 million contract (application service+workers) to replace the legacy CDN that had been in operation for 17 years, and began using bot management to identify AI crawlers and access pay-per-crawl for monetization. Strategic aspect: Cloudflare will be the first Agentic Cloud (Agentic Cloud). We're not a new cloud, and we're not the fourth public cloud. Built on isolation technology (isolate) rather than containers, we are unrivaled in terms of geographic scaling and density scaling. I predict the number of agents will surpass humans by 1000 in 5 years—I'll bet sooner. Active developers surpassed 10 million this season, more than doubling since the beginning of the year (from 7 million to 10 million during the quarter).

Act 4 — a product line that helps define a new Internet business model — confirmed revenue for the first time this season: pay-per-crawl, micropayments, and proxy disclosure intentions in exchange for lower rates. The partnership with OpenAI provides page change reminders to save costs for crawlers. Ten years from now, this business may become our largest business segment. Meta (Muse) and Google are our customers, and we act as mediators between agents and content parties.

Security aspect: Within 14 days, the 6 most serious vulnerabilities in history were revealed. The worst is yet to come; this state of affairs will continue for another two years. We get early warning through the trusted reporter channel and protect all customers for free — more free users, more threat intelligence, and stronger paid conversions, creating a virtuous cycle. These issues have already been discussed at the White House level.

Personnel aspects: Mark Anderson — the hero of GTM's transformation — retires at the end of the year and will remain an advisor for at least one year. Christian Smith is the president of revenue. He attended his first conference call today. Thanks Mark, it's been an incredible quarter—a monstrous quarter (“It was an incredible quarter. A monster quarter.”)

Christian Smith (President of Revenue): My priorities are three things: GTM implementation, enterprise customer acceleration, and customer time-to-value reduction. The momentum of the sales organization underlies this season's record, and we will continue to invest in the company's sales capacity.

Thomas Seifert (Chief Financial Officer): Third quarter financial details: Revenue of $782.5 million, up 39% year over year. The gross profit margin was 72.4%, down 70 basis points month-on-month and 290 basis points year-on-year. The long-term target range is 70% to 77%. Non-GAAP operating profit of US$137.1 million, an operating profit margin of 17.5%, a record high, increasing 370 basis points month-on-month and 220 basis points year-on-year. Free cash flow of US$82.1 million, accounting for 10% of revenue (US$75 million in the same period last year, accounting for 13%). The net dollar retention rate is 122% (120% in the previous quarter and 119% in the same period last year). RPO was US$2,877 billion, up 5% month-on-month and 34% year-on-year; CrPO accounted for 65%, up 37% year-on-year. This quarter, $2.5 billion convertible bonds were issued and $1.3 billion was repaid; the total amount of cash and equivalents and marketable securities at the end of the period was 5.1 billion US dollars. Network CapEx accounts for 15% of revenue and maintains a year-round guideline of 14% — 15%. OpEx accounted for 55% of revenue, a year-on-year decrease of 510 basis points: sales and marketing expenses of US$270.2 million (35%, 36% of the previous year); R&D expenses of US$101.7 million (13%, 15% of the previous year); G&A of US$57.5 million (7%, 10% of the previous year). Approximately 4,700 employees. By region: The US accounted for 52% of revenue, up 44% year over year; EMEA accounted for 26%, up 32%; Asia Pacific accounted for 14%, up 32%.

Guidelines: Fourth-quarter revenue of US$845 million to US$846 million, up 38% year on year; non-GAAP operating profit of US$156 million to US$157 million; effective tax rate of 20%; non-GAAP diluted EPS of $0.43, calculated on the basis of approximately 379 million tradable shares. Full year 2026: Revenue of US$2,963 million to US$2,964 million, up 37% year over year; non-GAAP operating profit of US$462 million to US$463 million; non-GAAP diluted EPS of US$1.35 million, calculated at approximately 376 million shares. It should be emphasized that we will achieve GAAP profits ahead of schedule — the original Investor Day target was before the end of 2028, and now it is expected to be achieved in the fourth quarter of 2026.

Q&A session

Matt Hedberg (RBC Research): What do you think of Meta's relationship between Muse and Act 4? What is the composition of the requirements behind the guidelines?

Matthew Prince: Meta is our customer; agents are built on Cloudflare, and the target content they access is also on Cloudflare, and we act as mediators between agents and content parties.

Thomas Seifert: The guidelines are based on highly diverse needs — number of developers, traffic, net increase of 158,000 paying customers this quarter, finance/government/global industries, and no risk of concentration.

Gabriela Borges (Goldman Sachs Research): How are Act 4 timelines considered?

Matthew Prince: We have confirmed considerable revenue (OpenAI is already paying); in the future, we will launch a micropayment model; in a 10-year perspective, this may become our largest business segment.

Thomas Seifert: Variable income is the main driver for exceeding expectations this season. Accelerated pool-of-funds consumption has led customers to renew contracts early and make greater commitments.

Ryan McWilliams (Wells Fargo Research): Is growth driven by AI-native customers? How are CDN customers dealing with proxy traffic?

Matthew Prince: Growth is broad-based — finance, government, manufacturing, healthcare, and e-commerce are all accelerating. The core reason is that AI has intensified the discovery and use of security breaches. CDN customers can choose to open or block proxy traffic; we never charge for CDN traffic itself.

Saket Kalia (Barclays Research): What do reports of a slowdown in data center construction mean for the company?

Matthew Prince: “We are an engineering company, not a financial engineering company.” We criticize those “dumb deals” (dumb deals); the isolated architecture also benefits in the density scenario, and rumors of slowing demand have nothing to do with us.

Thomas Seifert: There is room for improvement in NDR (net retention rate); security's role in customer expansion is increasing.

Sanjit Singh (Morgan Stanley Research): How can developers turn into revenue? What do you think of Rule of 40/50?

Thomas Seifert: Workers' gross margin is lower than traditional products, but the COST-TO-BOOK is lower, which actually improves operating profit margins; Rule of 40 → 50's goal “currently far exceeds expectations”; computing infrastructure efficiency continues to improve.

Samik Chatterjee (J.P. Morgan Chase Research): Why is Zero Trust's win rate increasing?

Matthew Prince: CSO (Chief Security Officer) is now attending developer platform meetings. First-generation Zero Trust vendors don't think about agency status issues; customers are tearing up ongoing RFPs; customers are buying an “overall platform”, and first-generation vendors are being reduced to functionality. Almost all pool-of-funds contracts include Workers.

Joseph Gallo (Jefferies Research): The current state of CISO customers?

Matthew Prince: One word — “panic (panic).” The free service is an entrance, and the big bank signs a big contract after the trial.

Fatima Bulani (Citi Research): What is the state of the organization after the layoffs for half a year?

Matthew Prince: AI is good at “measurement” jobs — for example, Heather from the IR team used an agent to complete financial reporting materials for the entire team in the past, and the token cost was less than a few hundred dollars. We are switching to multi-hire builders and sellers, and the total number of people by the end of the year will be greater than before the layoffs.

Concluding remarks

Matthew Prince: Thanks to the team and Mark Anderson for their contributions.” It was an incredible quarter. A monster quarter.” (It was an incredible quarter, a monstrous quarter.) Afterwards, we will attend the RBC Global Science Conference on November 18th and the Barclays Global Science Conference on December 9th.