Cloudflare posted its strongest quarterly revenue on record on May 7, but the stock slid 3.3% to open at $187.23 as investors digested a major workforce restructuring announced alongside the results.
Q1 2026 revenue came in at $639.8 million, up 33.5% year-over-year and well above the company’s own guidance range of $620–$621 million. Non-GAAP EPS of $0.25 beat analyst estimates of $0.23.
Despite the beat, CEO Matthew Prince announced that Cloudflare will lay off more than 1,100 employees — roughly 20% of its global workforce — as it shifts to an AI-first operating model.
The company expects $140–$150 million in restructuring charges to hit in FY2026, with management saying free cash flow guidance remains unchanged.
Customers spending more than $100,000 annually reached 4,416, up 25% year-over-year. Remaining performance obligations rose to $2.543 billion, pointing to strong forward demand.
GPU utilization on Cloudflare’s network is running at 70%–80%, compared to single-digit percentages at the major hyperscalers. Internal AI usage grew 600% in just three months, with 97% of engineers now using AI tools.
The company’s Workers platform — a serverless compute environment that runs at the network edge — is increasingly the layer on which AI agents and inference workloads are being built.
For full-year 2026, Cloudflare guided revenue of $2,805–$2,813 million and non-GAAP EPS of $1.19–$1.20. Q2 guidance of $664–$665 million implies year-over-year growth of roughly 30%, a deceleration from Q1 that left some investors wanting more.
GAAP operating loss in Q1 was $62 million. The non-GAAP profit of $73.1 million required a roughly $135 million adjustment, largely from stock-based compensation. Free cash flow was $84 million, about 13% of revenue.
GAAP gross margin came in at approximately 76.1%, with compression driven by a revenue mix shift toward lower-margin developer products.
The company trades at a forward P/E of around 80x, compared to an IT sector median of 26.5x. GAAP ROE stands at -28.4% and ROIC at -5.2%.
Insiders have sold 636,246 shares worth $125.3 million over the past 90 days, including CEO Matthew Prince selling 52,384 shares in March at an average price of $209.08.
Institutional ownership stands at 82.68%, with Trek Financial LLC opening a new position in Q4, buying 9,094 shares worth approximately $1.79 million.
Wall Street holds a Moderate Buy consensus — 18 Buys, five Holds, one Sell — with an average price target of $236.68, implying roughly 22% upside from current levels.
Susquehanna raised its price target to $200 from $190 following the earnings beat. Wells Fargo has an Overweight rating with a $270 target.
The stock’s 52-week range sits between $143.00 and $260.00, with a 50-day moving average of $206.07 and a 200-day moving average of $200.42.
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