Can Large-Customer Gains Remain a Key Driver of NET's Revenue Growth?

Cloudflare NET is seeing strong momentum among its largest customers, which is driving strong revenue growth and customer retention. In the second quarter of 2026, the company ended with 4,698 customers generating more than $100,000 in annual revenues, up 27% year over year. Cloudflare added 282 large customers during the second quarter and a record 986 net additions in large customers, year over year. Each large-customer group, from $100,000 to more than $5 million in annual revenues, posted record year-over-year net additions in the second quarter of 2026.

Large customers are also becoming a bigger part of Cloudflare’s business. They accounted for 73% of total revenues in the second quarter, up from 71% a year ago. Strong expansion among these customers helped push dollar-based net retention to 120%, up from 118% in the previous quarter and 114% a year ago. This shows that existing customers are increasing their spending on Cloudflare’s products, while the company continues to add new large accounts.

The strong performance of large customers is supporting Cloudflare’s overall financial growth. Second-quarter revenues increased 36% year over year to $696.1 million. Management said new customer bookings grew at their fastest rate in more than five years, while pipeline generation increased at its fastest sequential pace in five years. Cloudflare added more than 80,000 paying customers during the second quarter, resulting in 74% year-over-year growth in its paying customer base.

The company is also seeing customers adopt multiple products, including its developer platform, Zero Trust and application security offerings. Some customers also replaced several legacy tools with Cloudflare's broader platform, giving the company more opportunities to increase spending within existing accounts. Overall, continued growth in large customers, higher spending from existing accounts and stronger adoption across Cloudflare's product portfolio could help support the company’s revenue growth in the near term.

The Zacks Consensus Estimate for Cloudflare’s 2026 and 2027 revenues indicates year-over-year growth of 31.1% and 28.2%, respectively.

Cloudflare Faces Tough Competition

Cloudflare is seeing strong growth in large customers, but competitors Zscaler ZS and Palo Alto Networks PANW are also expanding their enterprise businesses.

Zscaler ended fiscal 2026 with 4,182 customers generating more than $100,000 in annual recurring revenue (ARR), up 20% year over year. The company also had 785 customers with more than $1 million in ARR, up 18%. Its Z-Flex offering is helping customers expand their spending, with Z-Flex generating more than $770 million in total contract value in the fourth quarter, up more than 60% sequentially.

Palo Alto Networks is benefiting from stronger enterprise platform adoption. The company added about 220 net new platformizations in the fourth quarter of fiscal 2026, while platformized customers had net revenue retention above 120%. PANW also closed several large enterprise deals, including a $126 million agreement with a global telecom company, a $72 million deal with an IT service provider and a $53 million transaction with a global payments platform.

NET’s Price Performance, Valuation & Estimates

Shares of Cloudflare have jumped 59.2% in the year-to-date period against the Zacks Internet – Software industry’s decline of 1.6%.

NET YTD Price Return Performance

Image Source: Zacks Investment Research

From a valuation standpoint, NET trades at a forward price-to-sales ratio of 29.28, significantly higher than the industry’s average of 3.99. The Zacks Value Score of F suggests that NET stock is overvalued.

NET Forward 12-Month P/S Ratio

Image Source: Zacks Investment Research

The Zacks Consensus Estimate for NET’s 2026 earnings is pegged at $1.26 per share, revised up by a penny over the past 30 days, indicating a 35.5% increase from the previous year.

Image Source: Zacks Investment Research

Cloudflare currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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