Cloudflare tops Q2 estimates as AI demand lifts revenue 36%

Cloudflare reported Q2 revenue of $696.1 million, up 36% and beating consensus by $31.4 million, as AI-driven traffic accelerated.

"We don't just keep up with change, we drive it," Chief Executive Matthew Prince said.

Adjusted EPS came in at $0.29, above the $0.27 expected. Dollar-based net retention reached 120%, up 6 points from a year earlier, while customers spending more than $100,000 a year grew 27% to 4,698.

Shares jumped 17% after hours to $333.95, above the 52-week high of $305. The company raised full-year revenue guidance to $2.864 billion-$2.870 billion, up 32%.

Metric	Actual	Consensus	Beat/Miss
Revenue	$696.1M	$664.7M	+4.7%
EPS	$0.29	$0.27	+$0.02
Large customers	4,698	—	+27% YoY

Cloudflare added more than 80,000 paying customers in the quarter, lifting the total above 7.4 million, a 74% jump from a year earlier. The developer base grew by nearly 2 million to 7.4 million, with the Workers platform becoming a meaningful revenue contributor.

For the first time, more than half of traffic across Cloudflare's network was non-human, Prince said, as AI agents and automated systems reshape internet use. The company is building payment rails, including Monetization Gateway and cloudflare.pay, to monetize machine-to-machine commerce, and this week announced a research pilot with OpenAI on content licensing.

Gross margin came in at 73.1%, up 30 basis points sequentially but down 320 basis points from a year earlier on traffic mix. Free cash flow rose 69% to $56.4 million, or 8% of revenue. Remaining performance obligations reached $2.732 billion, up 38% year over year.

The company recorded $151 million in severance and restructuring charges in the quarter, tied to a May plan that cut about 20% of staff. It expects up to $165 million in such charges for the full year.

For the third quarter, Cloudflare guided revenue of $736 million-$737 million, about 31% growth, with operating income of $129 million-$130 million and EPS of $0.34. Full-year operating income is projected at $443 million-$445 million.

The response contrasts with Datadog, which also beat estimates Thursday but saw shares fall 19% as investors focused on slower growth ahead. The guidance raise shows management expects AI demand to keep accelerating. Investors will watch the Q3 earnings call for updates on Workers monetization and gross margin trends.

This article is for informational purposes only and does not constitute investment advice.