Here's our initial take on Cloudflare's (NET -3.46%) financial report.
Key Metrics
| Metric | Q2 2024 | Q2 2025 | Change | vs. Expectations |
|---|---|---|---|---|
| Revenue | $401.0 million | $512.3 million | +28% | Beat |
| Earnings per share (adjusted) | $0.20 | $0.21 | +5% | Beat |
| Large customers | 3,046 | 3,712 | +22% | n/a |
| Dollar-based net retention rate | 112% | 114% | +2 pp | n/a |
Growing Customer Relationships
Cloudflare (NET -3.46%) grew revenue by 28% in the second quarter, easily beating analyst expectations. The cloud computing company ended the quarter with 3,712 large customers spending at least $100,000 annually, up 22% year over year. Those larger customers accounted for 71% of total revenue.
One driver of Cloudflare's revenue growth was a bump in the dollar-based net retention rate, which measures how quickly existing customers are expanding spending. This rate rose to 114% in the second quarter, up from 112% during the same period last year. While that's a small increase, it's a sign that customers are increasing their investments in Cloudflare's growing portfolio of products and services. "Demand remains strong, as our largest customers grow their investments with Cloudflare at the highest levels we've seen since 2022," said CEO Matthew Prince in the earnings release.
Cloudflare beat analyst expectations for adjusted earnings per share as well, although that metric only grew by 5% year over year. The company's GAAP net loss more than tripled to $50.4 million as operating costs soared. Free cash flow dipped to $33.3 million, down 13% year over year, as the company ramped up its capital expenditures.
For the third quarter, Cloudflare expects revenue to grow by 26% to 27% and adjusted EPS to come in at $0.23. The company expects to spend between 12% and 13% of revenue on capital assets related to its edge computing network for the full year.
Immediate Market Reaction
Shares of Cloudflare surged 6% in after-hours trading after the company handily beat analyst estimates across the board. Guidance calling for similar levels of revenue growth in the third quarter and for the full year likely helped the cause, as did a rising net retention rate. Cloudflare stock was up 93% year to date going into the second-quarter report.
What to Watch
One initiative that could prove significant for Cloudflare in the long run is the company's effort to enable customers to charge AI crawlers for access to their content. "Some of our most strategic wins have been centered around our work to help invent the new business model for content creators on the AI-driven internet," said Prince.
Beyond helping customers get a handle on AI crawler traffic, Cloudflare is pushing its platform as the ideal choice for building AI agents. Having an enormous presence already, with more than 20% of websites sitting behind the company's platform, Cloudflare may have an edge over the competition. While Cloudflare didn't say what was driving customer expansion in the second quarter, AI was likely part of the equation.
