Cloudflare Inc. (NET) shares fell 13% in after-hours trading Thursday after the cybersecurity company announced it would cut 1,100 jobs, overshadowing a first-quarter earnings and revenue beat.
"Today's actions are not a cost-cutting exercise or an assessment of individuals' performance; they are about Cloudflare defining how a world-class, high-growth company operates and creates value in the agentic AI era," CEO Matthew Prince and President Michelle Zatlyn said in a letter to staff.
The company reported adjusted earnings of 25 cents a share on revenue of $639.8 million, exceeding analyst estimates.
The sharp decline came despite the stock's 30% gain this year, which had set a high bar for the results. The negative investor reaction to the layoffs contrasts with other recent tech job cuts that were rewarded by the market.
Cloudflare attributed the significant workforce reduction, representing about 20% of its staff, to a fundamental shift in operations driven by artificial intelligence. The co-founders noted that employees' use of AI tools grew by more than 600% in the first quarter, with thousands of AI agent sessions run daily across the company.
For the second quarter, Cloudflare expects revenue between $664 million and $665 million, with adjusted earnings of 27 cents per share. This guidance is slightly ahead of FactSet estimates for $663 million in revenue and 27 cents in earnings.
For the full fiscal year 2026, the company projected earnings between $1.19 and $1.20 per share on revenue of about $2.81 billion, also above analyst expectations.
The layoffs are part of a broader trend in the technology sector, which has seen 98,689 job cuts in 2026, according to Layoffs.fyi. Cloudflare said it would incur most of the $140 million to $150 million in restructuring costs in the second quarter.
The stock's negative reaction suggests investors are concerned the large-scale layoffs signal deeper issues, despite the strong financial performance and optimistic guidance. The company's next catalyst will be its second-quarter earnings report, where investors will look for proof that the AI-driven reorganization is boosting productivity and growth.
This article is for informational purposes only and does not constitute investment advice.
