Here's our initial take on Cloudflare's (NET 0.17%) fourth-quarter financial report.
Key Metrics
| Metric | Q4 2023 | Q4 2024 | Change | vs. Expectations |
|---|---|---|---|---|
| Total revenue | $362.5 million | $459.9 million | +27% | Beat |
| Adjusted earnings per share | $0.15 | $0.19 | +27% | Beat |
| Free cash flow | $50.7 million | $47.8 million | -6% | n/a |
| Adjusted gross margin | 78.9% | 77.6% | -1.3 pp | n/a |
Cloudflare Gains Momentum
Cloudflare's fourth-quarter financial report confirmed the cloud company's upward trajectory for its business. Gains in revenue, adjusted net income, and operating cash flow were impressive during the quarter, largely sustaining the growth that Cloudflare has enjoyed throughout 2024. Gross margin did sag a bit, but that didn't stop adjusted net income from rising 29% during the quarter, outpacing revenue growth and showing discipline on the cost side.
Co-founder/CEO Matthew Prince was particularly pleased about the contribution that Cloudflare's largest customers made toward the company's broader success. The company added 55 new $1 million clients during 2024, and more than half of those newcomers came in just the last quarter of the year. Prince credited his employees' willingness to embrace innovation, both in artificial intelligence and elsewhere, as helping to provide greater returns on the money that clients spend on Cloudflare's software platform and related products.
Immediate Market Reaction
Investors were pleased with the news from Cloudflare, as shares rose 6% in the first hour of the post-market trading session Thursday afternoon. That was a natural consequence of sales and earnings figures that exceeded consensus expectations, but it also took into account the guidance that Cloudflare gave about its prospects for the coming year in 2025.
What to Watch
Cloudflare is calling for 2025 revenue of between $2.09 billion and $2.094 billion, which would represent a growth rate of about 25% in the coming year. Adjusted earnings of $0.79 to $0.80 per share would be somewhat more disappointing, translating into only modest gains of between 5% and 7%.
What's evident is that Cloudflare anticipates having to make significant expenditures in its efforts to stay on the cutting edge of technological innovation. That's something that the decline in free cash flow during the fourth quarter of 2024 signaled, and it's a theme that many tech companies are likely to experience as the evolution of AI continues during 2025 and beyond.
