Cloudflare's Q3 2025 Earnings Call: Contradictions in AI Strategy, Sales Productivity, and Government Engagement

Date of Call: October 30, 2025

Financials Results

• Revenue: $562.0M, up 31% year-over-year
• EPS: $0.27 diluted net income per share
• Gross Margin: 75.3%, down 100 basis points sequentially and down 350 basis points year-over-year (within target range of 75%–77%)
• Operating Margin: 15.3%, up 50 basis points year-over-year

Guidance:

• Q4 revenue expected $588.5M–$589.5M (~28% year-over-year).
• Q4 operating income expected $83M–$84M; effective tax rate ~20%.
• Q4 diluted net income per share ~$0.27 (assumes ~377M shares).
• Full-year 2025 revenue expected $2.142B–$2.143B (~28% year-over-year).
• Full-year operating income expected $297M–$298M; effective tax rate ~20%.
• Full-year diluted net income per share expected ~$0.91 (assumes ~370M shares).

Business Commentary:

* Revenue Growth and Strategic Transformation: - Cloudflare reported revenue of $562 million for Q3 2025, up 30.7% year-over-year. - The growth was attributed to a successful transformation from a product-led growth model to a true enterprise sales organization, leading to increased sales productivity and larger deal closures.

• Customer Expansion:
• The number of large customers paying more than $100,000 per year increased by 23% to 4,009, contributing 73% of revenue.

• This growth was driven by the company's ability to repackage its offerings effectively for enterprise sales and offered attestations to its products' effectiveness, especially in the AI landscape.

• Strong RPO Growth:

• Remaining performance obligations (RPO) increased by 43% year-over-year to $2.143 billion.

• The acceleration in RPO growth was primarily due to exceptional strength in large customer cohorts and increased consumption of pool of funds contracts, demonstrating Cloudflare's strategic importance in large enterprises.

• AI and Product Innovation:

• Cloudflare highlighted significant traction in its Workers platform for AI inference tasks and building AI agents, attracting leading AI companies and media firms.
• The embrace of AI reflects Cloudflare's strategic position in shaping the future of the Internet's business model by leveraging its network's unique capabilities in a rapidly evolving AI landscape.

Sentiment Analysis:

Overall Tone: Positive

• Management described an "extremely strong Q3," reporting $562M revenue and accelerated growth (~31% YoY), operating income of $85.9M, free cash flow of $75M, and raised pipeline/expectations into Q4 with formal guidance showing continued double‑digit revenue growth.

Q&A:

• Question from Matthew Hedberg (RBC Capital Markets): There were a lot of strong metrics this quarter, but 43% RPO growth accelerated — can you provide a deeper dive into what drove that acceleration this quarter? And specifically how is the pool of funds showing up in the results?
  Response: Management: RPO acceleration driven by transition to enterprise sales, outsized strength in large customer cohorts and platform expansion (notably Workers); pool-of-funds now represents low‑double‑digit ACV, is being consumed slightly ahead of plan and materially contributes to RPO.

• Question from Adam Borg (Stifel, Nicolaus & Company, Incorporated): On sales productivity gains — are they flattening or is there still room to improve? And on the Oracle OCI integration, what advantages does it provide to OCI customers?
  Response: Management: Sales productivity still has headroom and ramped rep capacity is improving; OCI integration makes Cloudflare natively available to OCI customers across hybrid/multi‑cloud, expanding reach and providing consistent security and network performance.

• Question from Gabriela Borges (Goldman Sachs Group, Inc.): Are you capacity constrained in Workers and could capacity decisions this year dictate Workers revenue outcomes next year? Also, how is competition evolving for enterprise inference workloads?
  Response: Management: Not capacity constrained — Cloudflare’s global scheduler and ability to shift workloads plus optimized multi‑tenant GPU/CPU utilization (targeting much higher GPU utilization) let them invest behind demand; primary competition remains hyperscalers, but Cloudflare competes on superior TCO, latency and stickiness.

• Question from Shaul Eyal (TD Cowen): On NET Dollar — how should we think about the regulatory framework and early reception? And what’s changed recently on the AI gatekeeper/frontier for publishers and AI companies?
  Response: Management: NET Dollar is being developed as a currency for agentic commerce but will be executed thoughtfully with partners (not built entirely alone) to address regulatory constraints; concurrently Cloudflare is building multiple payment/gateway partnerships and seeing strong early traction with media and AI firms on gatekeeping and monetization solutions.

• Question from Fatima Boolani (Citigroup Inc. Exchange Research): Can you quantify AI-native exposure today and any concentration risks? Is pool-of-funds drawing in AI-native customers for Workers/inference?
  Response: Management: AI inference revenue is small today with no concentration risk (no customer >2% of revenue); many AI natives initially adopt Cloudflare for security and then expand to inference, and pool-of-funds helps frictionless consumption of platform products.

• Question from Mark Murphy (JPMorgan Chase & Co): Describe the quantum‑safe work you're doing — is this a long-term science project or medium-term risk? Quick follow-up on the economics customers unlock from eliminating egress fees.
  Response: Management: Cloudflare has proactively rolled out post‑quantum cryptography network‑wide (in partnership with Google and standards bodies) as a practical forward‑leaning protection to prevent future data‑harvesting risks; separately, products like R2 and removing hyperscaler egress fees materially reduce customer TCO and avoid vendor lock‑in.

• Question from Jackson Ader (KeyBanc Capital Markets Inc.): Losing CJ is a loss — do you feel comfortable with the bench he leaves and replaceability? Also, as you shift to enterprise, how is pipeline building into a more enterprise‑heavy Q4?
  Response: Management: Confident in bench strength and CJ’s customer‑obsessed culture is embedded; pipeline coverage for Q4 is strong and the provided guidance reflects encouraging pipeline, sales productivity and ramped capacity.

• Question from Michael Cikos (Needham & Company, LLC): Can you provide an update on SASE market trends and traction, and how the competitive landscape is changing?
  Response: Management: SASE traction is strong in deal consideration; the sales motion is increasingly partner/channel driven, so Cloudflare is doubling down on partner‑first strategy to unlock high‑margin SASE opportunities.

Contradiction Point 1

AI Integration and Business Model

It involves differing perspectives on the role and revenue potential of AI integration within Cloudflare's business model, which is crucial for understanding the company's strategic focus and growth prospects.

What is Cloudflare's current AI-native exposure, and how does its architecture differ for AI inferencing? - Fatima Boolani(Citigroup)

2025Q3: AI is not yet a significant portion of revenue but is growing. Security products often attract AI companies initially, with utilization rates expected to improve. - Matthew Prince(CEO)

Can you provide details on the business models for the Agentic Web? How will Cloudflare monetize it? - Keith Weiss(Morgan Stanley)

2025Q2: The Agentic Web business models are still developing. It's too early to model revenue specifics. Cloudflare aims to define the rails for transactions and take a fee for facilitating them. The strategy is to be the universal translator for agent protocols. Cloudflare's broad Internet presence is a strategic advantage. - Matthew Prince(CEO)

Contradiction Point 2

Sales Productivity and Capacity

It involves changes in the company's ability to scale sales capacity and improve sales productivity, which are critical for growth and revenue projections.

Are there opportunities for sales productivity improvements, and what benefits has Oracle's OCI integration delivered? - Adam Borg(Stifel)

2025Q3: Sales productivity is expected to continue to rise due to a more caliber team selling larger deals. - Matthew Prince(CEO)

How are sales productivity and capacity trends, particularly in the enterprise segment, expected to progress in Q2 and the second half? - Joel Fishbein(Truist Securities)

2025Q1: We've seen improvements in sales productivity and are ramping up capacity. We are hiring top candidates, and our go-to-market organization is becoming world-class. Capacity will increase over time, with more candidates joining and ramping up. - Matthew Prince(CEO)

Contradiction Point 3

Government Engagement and Network Architecture

It involves statements about the company's engagement with the government sector and the implications for network architecture, which are crucial for market expansion and product positioning.

What is the regulatory framework for NET Dollar, and what is the current status of AI Gatekeeper? - Shaul Eyal(TD Cowen)

2025Q3: We have customers that are coming to us asking us to help them position their workloads for these AI capabilities because they think that Cloudflare is the right way to do it. - Matthew Prince(CEO)

How did Q4 security performance contribute to overall growth? - Jonathan Ho(William Blair)

2024Q4: We believe that our zero-trust products and our zero-trust approach is the right way for all organizations to think about security. And you'll see us approach this market in a very differentiated way. - Matthew Prince(CEO)

Contradiction Point 4

AI Adoption and Utilization

It highlights differing perspectives on the role and adoption of AI within the company's products and services, impacting the company's strategic focus and market positioning.

What is Cloudflare's current AI-native business exposure, and how does its architecture differentiate for AI inferencing? - Fatima Boolani(Citigroup)

2025Q3: AI is not yet a significant portion of revenue but is growing. - Matthew Prince(CEO)

Will more AI inference workloads shift to the edge due to DeepSeek's efficiency? - Hamza Fodderwala(Morgan Stanley)

2024Q4: We believe that the world is headed towards an AI instruction explosion, and we believe it will run on the edge. - Matthew Prince(CEO)

Contradiction Point 5

Sales Productivity and Go-to-Market Strategy

It highlights differing views on the drivers of sales productivity and the effectiveness of Cloudflare's go-to-market strategy, which are critical for understanding the company's growth trajectory and competitive positioning.

Are there remaining opportunities for sales productivity gains, and what are the benefits of the Oracle OCI integration? - Adam Borg(Stifel)

2025Q3: Sales productivity is expected to continue to rise due to a more caliber team selling larger deals. - Matthew Prince(CEO)

How are go-to-market improvements affecting your ability to secure larger deals? What is the current status of partner momentum? - Matthew George Hedberg(RBC Capital Markets)

2025Q2: Cloudflare is shifting from a product-led to a go-to-market approach. Go-to-market efforts are driving larger deals, with strategic relationships and products being highlighted. - Matthew Prince(CEO)