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    NET
    Earnings call· Jun 2026(Q2 FY26)

    Cloudflare Q2 FY26 earnings call NET

    Aug 6, 2026 Source

    Executive summary

    Cloudflare Q2 FY26 — Stellar Growth Driven by Agentic AI and Developer Platform

    Cloudflare delivered a stellar quarter, driven by strong momentum in its Workers developer platform and agentic AI workloads, leading to significant customer expansion and accelerated growth. The company is strategically positioned at the center of the Internet's paradigm shift towards machine-to-machine traffic, focusing on building foundational infrastructure for agentic commerce. Despite restructuring costs, Cloudflare is ahead of its GAAP profitability target and continues to prioritize disciplined execution and innovation.

    Highlights

    5

    • Revenue reached $696.1 million, marking a 36% year-over-year increase.

    • Dollar-based net retention accelerated to 120%, up 6% year-over-year.

    • Added a record 986 large customers ($100K+ ARR) year-over-year, a 27% increase.

    • Non-GAAP operating profit was $96.1 million, representing a 13.8% operating margin.

    • Free cash flow grew 69% year-over-year to $56.4 million.

    Concerns

    3

    • Severance and other restructuring charges amounted to $151 million in Q2, with $99 million paid.

    • Full-year 2026 severance and restructuring charges are now expected up to $165 million, with up to $130 million cash-related.

    • General and administrative expenses as a percentage of revenue increased to 11% from 10% year-over-year.

    Guidance & targets

    10
    CategoryTargetConfidence
    Revenue
    $736 million to $737 million
    high materiality
    High
    Operating Income
    $129 million to $130 million
    medium materiality
    High
    Effective Tax Rate
    20%
    low materiality
    High
    Diluted Net Income per Share
    $0.34
    high materiality
    High
    Revenue
    $2.864 billion to $2.870 billion
    high materiality
    High
    Operating Income
    $443 million to $445 million
    medium materiality
    High
    Effective Tax Rate
    20%
    low materiality
    High
    Diluted Net Income per Share
    $1.25 to $1.26
    high materiality
    High
    Network CapEx as % of Revenue
    14% to 15%
    medium materiality
    High
    Severance and other restructuring charges
    up to $165 million
    medium materiality
    High

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    United States
    The U.S. segment represented 51% of total revenue and showed strong year-over-year growth.
    Revenue contribution: 51%
    		$355.0 million41%——
    EMEA
    EMEA contributed 27% of total revenue with solid year-over-year growth.
    Revenue contribution: 27%
    		$188.0 million30%——
    APAC
    APAC represented 14% of total revenue and experienced 32% year-over-year growth.
    Revenue contribution: 14%
    		$97.4 million32%——

    Operational metrics

    24
    Non-GAAP Operating Profit
    $96.1 million33% YoY
    Q2 FY26

    Non-GAAP operating profit for the quarter.

    Non-GAAP Operating Margin
    13.8%up 240 bps sequentially, down 30 bps YoY
    Q2 FY26

    Non-GAAP operating margin for the quarter.

    Free Cash Flow Margin
    8%up from 6% YoY
    Q2 FY26

    Free cash flow as a percentage of revenue.

    Cash and investments balance
    $4.2 billion
    Q2 FY26

    Total cash, cash equivalents, and available-for-sale securities at quarter-end.

    Network CapEx as % of Revenue
    7%
    Q2 FY26

    Network capital expenditure as a percentage of revenue for the quarter.

    Total Headcount
    4,700
    Q2 FY26

    Total number of employees at the end of the quarter.

    Sales and Marketing Expenses
    $232.5 million
    Q2 FY26

    Sales and marketing expenses for the quarter.

    Sales and Marketing as % of Revenue
    33%down from 36% YoY
    Q2 FY26

    Sales and marketing expenses as a percentage of revenue.

    Research and Development Expenses
    $104.1 million
    Q2 FY26

    Research and development expenses for the quarter.

    Research and Development as % of Revenue
    15%down from 16% YoY
    Q2 FY26

    Research and development expenses as a percentage of revenue.

    General and Administrative Expenses
    $76.3 million
    Q2 FY26

    General and administrative expenses for the quarter.

    General and Administrative as % of Revenue
    11%up from 10% YoY
    Q2 FY26

    General and administrative expenses as a percentage of revenue.

    Non-GAAP Net Income
    $107.8 million
    Q2 FY26

    Non-GAAP net income for the quarter.

    Non-GAAP Diluted Net Income per Share
    $0.29
    Q2 FY26

    Non-GAAP diluted net income per share for the quarter.

    Diluted Share Count
    374 million
    Q3 FY26

    Assumed diluted shares outstanding for Q3 FY26 guidance.

    Severance and other restructuring charges
    $151 million
    Q2 FY26

    Total severance and other restructuring charges incurred in Q2, with a portion paid in cash.

    Partner Revenue Contribution
    31%continuing to track up to the right
    Q2 FY26

    Percentage of revenue generated through partners.

    Developer Count
    7.4 millionnearly 2 million added in Q2 alone
    Q2 FY26

    Total developers on the Cloudflare platform, with significant additions in the quarter.

    Non-human traffic
    >50%
    Q2 FY26

    Percentage of traffic flowing across Cloudflare's network that is non-human, surpassing human traffic for the first time.

    Sales productivity
    increased year-over-year for the tenth consecutive quarter
    Q2 FY26

    Sales productivity has shown consistent improvement.

    New customer bookings
    increased at the fastest rate in more than 5 years
    Q2 FY26

    New customer bookings are growing at an accelerated pace.

    New pipeline generation
    continues to accelerate, again, growing sequentially at its fastest pace in 5 years
    Q2 FY26

    Pipeline generation is accelerating sequentially.

    Paying customer growth
    74%YoY
    Q2 FY26

    Year-over-year growth in paying customers.

    Total Paying Customers
    >80,000
    Q2 FY26

    Total number of paying customers added this quarter.

    Industry KPIs

    12
    MetricValueDetails
    Headcount dso4,700employees
    Infra economics—
    Rpo current rpo$2.732 billionUSD
    Customer logo metrics4,698customers
    Large customer cohorts73%%
    Software recurring arr—
    Bookings tcv book to bill—
    Genai ai book of business—
    Consumption revenue growth—
    Sales capacity productivity—
    Net revenue dollar retention120%%
    Ai agentic channel product adoption>50%%

    Orderbook & backlog

    2
    Remaining Performance Obligations (RPO)$2.732 billionQ2 FY26

    7% sequentially and 38% year-over-year

    Current RPO64% of total RPOQ2 FY26

    35% year-over-year

    Product announcements

    4
    ProductTypeDetails
    Monetization Gatewaylaunch
    Walletslaunch
    cloudflare.paylaunch
    Cloudflare OSlaunch

    Deals & partnerships

    9
    Leading digital native media companyExpanded relationship for Application Services and Zero Trust to combat scraping and accelerate global performance.$31.8 million5-year

    Customer chose Cloudflare for best-in-breed edge capabilities and operational velocity despite competitive pressure from incumbent hyperscaler.

    Global 2000 European technology companyExpanded relationship for Application Services and Zero Trust, with developer platform seeded for future AI workloads.$11 million3-year

    Customer chose Cloudflare to eliminate 5 incumbent legacy point solutions and consolidate their IT footprint onto a single unified platform.

    Large U.S. federal agencyExpanded relationship for Magic Transit and Network Firewall to enhance resilience and control after a major outage.$7.7 million5-year

    Cloudflare reduced rule change time from 1 week to 30 seconds, cut hardware costs, and enabled the agency to run network and application security on one platform.

    Rapidly growing generative AI companySigned a pool of funds contract for the developer platform to handle enormous volumes of images and video.$7.5 million1-year

    Customer chose Cloudflare to avoid hyperscaler egress taxes and vendor lock-in, leveraging its zero egress model, reliability, and scale.

    Rapidly growing technology company in APACExpanded relationship with a pool of funds contract for the Workers developer platform.$4 million1-year

    This deal builds on an $8.7 million Application Services contract from last quarter. Customer standardized on Cloudflare end-to-end, directing every request through a Cloudflare Worker.

    Fortune 100 technology companyExpanded relationship for the full SASE portfolio, replacing legacy VPNs and virtual desktops.$5.2 million3-year

    Cloudflare won due to faster network performance and single pane of glass management, expecting to run services with 1/3 the staff.

    Fortune 1000 technology companyExpanded relationship for Application Services and Workers developer platform.$15.9 million18-month

    Customer standardized on Cloudflare to eliminate multiproduct complexity and secure long-term operational predictability for an AI-first customer platform.

    Leading technology companySigned a pool of funds contract for the Workers developer platform to scale new AI agent capabilities.$6 million1-year

    Customer chose Cloudflare over legacy hyperscalers for elastic, secure container infrastructure, built-in threat intelligence, rapid innovation, and FedRAMP compliance.

    OpenAIFirst-of-its-kind research pilot to pave the way for a sustainable ecosystem of content creators and AI companies.

    Aims to foster collaboration and fair compensation between AI companies and content creators.

    Risks & headwinds

    3
    Severance and restructuring chargesQ2 FY26 and Full Year FY26

    $151 million in Q2 FY26, with $99 million paid; full year expected up to $165 million (up to $130 million cash-related)

    Mitigation: Prioritized speed of resolution, particularly internationally, to ensure a continued focus on execution.

    Network cost allocation impact on gross marginQ2 FY26

    320 basis points decrease YoY in gross margin

    Mitigation: Trend of paid versus free traffic growth driving network costs into COGS is showing signs of beginning to stabilize; focus on total unit economics expansion.

    Increased G&A as percentage of revenueQ2 FY26

    Increased to 11% from 10% YoY

    Mitigation: Not explicitly stated, but overall operating leverage is improving, and the company is ahead of its GAAP profitability targets.

    What to watch in Q3 FY26

    5

    Non-human traffic growth

    Next quarter and beyond
    Current>50% of network traffic
    TargetContinued acceleration towards 1000x human traffic in 5 years

    Why it matters

    This fundamental shift in internet usage is driving new monetization opportunities and redefining the company's strategic focus.

    if the current trends continue, we think in 5 years, nonhuman traffic will be as much as 1,000x as much as human traffic.

    Q&A highlights

    5

    How will the increasing non-human traffic be monetized, and will it drive new logos or expansion with existing large/small customers?

    Matthew Prince highlighted that non-human traffic now exceeds human traffic and is projected to be 1,000x human traffic in 5 years. Cloudflare is building new monetization models like cloudflare.pay for microtransactions to charge agents, aiming to define the next 27 years of the Internet's business model. This will benefit both large and small customers.

    “I think the business model of the Internet for the last 27 years has been largely defined by advertising and really defined by Google. I think the business model of the next 27 years of the Internet is going to be very different, and there's no company in a better position to define what it looks like than Cloudflare.”

    asked by Saket Kalia · answered by Matthew Prince

    2 min read6 chapters

    Detailed Narrative

    01

    Agentic AI and Internet Transformation

    Cloudflare is at the forefront of a fundamental shift in Internet traffic, with over 50% of its network traffic now originating from non-human sources, a milestone reached earlier than anticipated. This trend is projected to accelerate dramatically, potentially leading to non-human traffic being 1,000 times greater than human traffic within five years. The company is strategically positioning itself to power this 'agentic Internet' by building scalable infrastructure, developer tools, and new payment rails for machine-to-machine interactions.

    02

    Developer Platform Momentum and Cloudflare OS

    The Workers developer platform is experiencing unprecedented🌐 growth, attracting nearly 2 million new developers in Q2 alone, surpassing the total additions for all of 2025. This surge is attributed to Workers' suitability for agentic workloads, offering a lightweight, cost-effective, and secure environment. Cloudflare further bolstered its developer ecosystem by open-sourcing Cloudflare OS, an internal tool that has significantly enhanced team efficiency, aiming to enable other organizations to securely integrate AI tools leveraging Cloudflare's inherent security capabilities.

    03

    New Business Models for Agentic Commerce

    In response to the evolving Internet landscape, Cloudflare unveiled key components for a two-sided agentic marketplace, including Monetization Gateway, Wallets, and cloudflare.pay. These innovations are designed to facilitate microtransactions for machine-to-machine traffic, enabling new business models for content creators and AI companies. The company aims to support an immense volume of transactions, far exceeding current payment network capacities, to ensure a sustainable economic model for the future Internet.

    04

    Enterprise and Partner Ecosystem Expansion

    Cloudflare continues to demonstrate strong momentum in its enterprise segment, evidenced by record additions of large customers and increasing contract values, including several multi-million dollar deals. The company's partner ecosystem is also expanding, particularly in the SASE and Zero Trust domains, with partner-driven revenue expected to continue growing. Cloudflare is investing in making its sales team more technical and enabling partners to leverage its developer platform and Cloudflare OS for broader implementations.

    05

    Gross Margin Stabilization and Unit Economics Focus

    Gross margin stabilized at 73.1% in Q2, marking the first sequential improvement in eight quarters. While the growth of paid versus free traffic continues to reallocate network costs into the cost of revenue, management emphasizes focusing on total unit economics across all products. The company expects these unit economics to continue expanding through the second half of the year, reflecting overall business efficiency and profitability improvements.

    06

    Disciplined AI Infrastructure Strategy

    Cloudflare maintains a disciplined approach to AI infrastructure, opting not to participate in the 'AI CapEx arms race' of selling commodity compute. Instead, the company focuses on maximizing utilization of its existing CapEx dollars and leveraging its proprietary sandboxing technology ('isolates') to provide highly efficient, scalable, and cost-effective solutions for agentic workloads. This strategy differentiates Cloudflare from hyperscalers by focusing on delivering 'work getting done' rather than merely renting servers.

    AI-generated summary of the company’s earnings call. Not investment advice.