$Cloudflare, Inc.(NET)$ is scheduled to report its Q1 2025 financial results on Thursday, 08 May 2025, after the U.S. market closes. They will also host an investor conference call that day at 2:00 p.m. Pacific Time / 5:00 p.m. Eastern Time.
Revenue: Expected to be between $468.0 million and $469.4 million. This represents approximately 24% year-over-year growth.
Non-GAAP EPS: Expected to be around $0.16 per share. This would be flat compared to the $0.16 reported in Q1 2024.
GAAP EPS: Consensus estimates are around $-0.05 per share, compared to $-0.03 in Q1 2024.
Non-GAAP Income from Operations: Cloudflare's guidance was for $54.0 million to $55.0 million.
Cloudflare (NET) Last Positive Earnings Call Saw Share Price Decline By 13.36%
NET had a positive earnings call on 06 Feb 2025 which saw its share price declined by 13.36% since.
The earnings call reflected a strong performance with significant revenue growth, record customer additions, and improved operating margins. However, there were some concerns regarding increased churn and gross margin decreases, as well as anticipated higher network CapEx. Overall, the positive aspects, particularly in revenue growth, customer expansion, and sales productivity, were more pronounced than the challenges.
Cloudflare (NET) Guidance
During the Cloudflare Q4 2024 earnings call, the company reported strong financial performance with revenue reaching $459.9 million, a 27% increase year-over-year. The company added 3,497 large customers, also marking a 27% annual increase, with these customers contributing 69% of the total revenue. Cloudflare's dollar-based net retention rate ticked up to 111%, while the gross margin was 77.6%. Operating profit stood at $67.2 million, reflecting an operating margin of 14.6%. The company also generated $47.8 million in free cash flow for the quarter.
Looking forward, Cloudflare anticipates Q1 2025 revenue between $468 million and $469 million and full-year 2025 revenue in the range of $2.09 billion to $2.094 billion, representing a 25% increase year-over-year. The management highlighted continued investments in AI and go-to-market strategies as key drivers for future growth.
Key Factors Likely To Influence NET Q1 2025 Performance
1. Revenue Growth & Customer Adoption
Cloudflare, Inc. achieved revenue of $459.9 million for Q4 2024, representing a 27% year-over-year increase.
Core Drivers
Enterprise Expansion: Cloudflare’s ability to upsell existing customers (e.g., moving from CDN to Zero Trust, DDoS protection, or Workers platform) and attract large enterprise clients will be critical. Enterprise deals typically drive higher average revenue per user (ARPU).
The company added a record number of new large customers, increasing to 3,497, which is up 27% year over year.
Product Innovation: Adoption of newer offerings like AI/ML inference tools (e.g., Workers AI), R2 storage, and Zero Trust Network Access (ZTNA) could accelerate growth if these products gain traction.
Market Trends: Demand for edge computing, cybersecurity, and API security solutions is expected to grow as businesses prioritize resilience against cyber threats and latency reduction.
2. Profitability & Margins
Operating Leverage: Cloudflare has historically prioritized growth over profitability, but by 2025, investors may demand clearer paths to sustained profitability. Margins could improve if the company scales efficiently and reduces reliance on heavy R&D or sales/marketing spend.
The sales team achieved a fifth consecutive quarter of double-digit year-over-year increases in sales productivity.
Gross Margins: Cloudflare’s high gross margins (~75–78%) are a strength, but maintaining them depends on minimizing infrastructure costs (e.g., data center partnerships).
Operating profit was $67.2 million, a 69% increase year over year, with an operating margin of 14.6%.
Gross margin decreased 120 basis points sequentially and 130 basis points year over year to 77.6%.
3. Competitive Landscape
Rivals: Competing with giants like AWS, Akamai, Fastly, and Microsoft Azure. Cloudflare’s differentiation lies in its integrated platform (security, performance, developer tools) and edge network.
The company highlighted an effective go-to-market execution, with a focus on enterprise account executives, leading to strong sales performance.
Pricing Pressure: Aggressive pricing by competitors or commoditization of CDN services could threaten growth.
There was mention of continued near-term headwinds from increased churn, impacting revenue recognition.
4. Macroeconomic Environment
IT Spending: Cloudflare’s growth is tied to corporate IT budgets. A recessionary environment in 2025 could lead to delayed purchases or downsizing, particularly among SMBs. Conversely, strong enterprise spending on cybersecurity/cloud infrastructure would be a tailwind.
Network CapEx is expected to increase to 12% to 13% of revenue for full year 2025, up from 10% in 2024, due to investments in AI inference capacity.
Currency Risks: International revenue (≈45% of total) exposes NET to FX fluctuations.
5. AI and Emerging Opportunities
The company reported significant progress in AI and security, citing large contracts with major companies and strategic partnerships.
AI Integration: Cloudflare’s focus on AI inference at the edge (e.g., Workers AI) could unlock new use cases if demand for distributed AI workloads grows. Partnerships with AI-first companies might drive adoption.
Zero Trust Adoption: Regulatory pushes for cybersecurity (e.g., CISA guidelines, EU cyber laws) could accelerate Zero Trust adoption, benefiting Cloudflare’s suite.
6. Valuation & Investor Sentiment
Expectations: Cloudflare trades at a premium valuation (e.g., price-to-sales ratio), so investors will scrutinize whether revenue growth justifies multiples. Any guidance cuts or deceleration could trigger volatility.
Cash Flow: Positive free cash flow generation by 2025 would signal operational maturity and reduce reliance on external funding.
Cloudflare (NET) Price Target
Based on 28 analysts from Tiger Brokers offering 12 month price targets for Cloudflare in the last 3 months. The average price target is $42.47 with a high forecast of $200.00 and a low forecast of $68.00. The average price target represents a 16.20% change from the last price of $122.61.
Technical Analysis - Exponential Moving Average (EMA)
If we looked at how NET have been able to stay above the 50-day period with RSI momentum improving, we are seeing that the bulls is trying to build a longer daily uptrend.
If the revenue growth accelerates to 30%+ YoY, driven by enterprise adoption of Zero Trust and AI edge tools, with margins expand as operating leverage kicks in, with GAAP profitability achieved. This could help the bulls to push the share price higher into a longer daily uptrend, this could be further enhanced by strong guidance reaffirms long-term targets (e.g., $5B+ revenue by 2027).
But we need to be aware of the tariffs turmoil which could create a bearish case as macro headwinds lead to slower IT spending, with growth dropping below 20% YoY. This could lead to rising competition pressures pricing, compressing gross margins.
Furthermore, there would be high stock-based compensation dilutes shareholders, worsening sentiment, this could bring the bears back into control.
Short interest for NET is not a concern currently, as there is no sign of investors planning to take profits or sell off, but it would very much depend on whether NET can show that its newer products could produce the monetization that investors are looking at.
Summary
Cloudflare’s Q1 2025 earnings will hinge on its ability to monetize newer products (AI, Zero Trust), retain enterprise customers, and navigate macroeconomic and competitive pressures.
I think as investors we could watch out for these key metrics.
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Large customer growth (customers spending >$100k/year).
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Operating margins and free cash flow trends.
As a high-growth, high-valuation stock, NET remains sensitive to execution risks and market sentiment. Investors should weigh its long-term potential in edge computing and cybersecurity against near-term volatility. Diversification and monitoring quarterly execution are advisable.
Appreciate if you could share your thoughts in the comment section whether you think NET could give investors much positive guidance with monetization success in its newer products.
@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.
Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.
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