$Cloudflare, Inc.(NET)$ reported after-hours earnings on May 9, 2025Q1 results were solid, with revenue and adjusted EPS largely in line with expectations, with enterprise customer growth being the biggest highlight.Meanwhile, the company raised its full-year revenue guidance to $2.09B, an increase of about +20% from last year, which also surprised the market.
Despite short-term challenges in the macro-economy and the industry's purchasing pace, the company is optimistic about its full-year revenue target, and the market is reacting positively to its long-term growth potential.
Going forward, it is still important to focus on these factors such as the company's competitive strategy in the security sector, its ability to control costs, and the progress of its global expansion.
Performance and market feedback
Overall revenue 2025Q1 realized revenue of ~$511M, up ~+23% yoy from the same period last year, slightly lower than market expectation (~$515M), gross margin maintained at a high level, Non-GAAP gross margin of 77.1%, and operational efficiency improved; Adjusted EPS (Adjusted EPS) of $0.16 was in line with market expectation.
In terms of operational metrics, the number of paying customers continued to grow, especially the contribution of corporate customers, whose revenues increased by more than 30% year-on-year.
Investor sentiment was generally positive, with shares reacting to the earnings release with an 8% after-hours gain, as investors recognized the company's long-term growth potential, despite slightly muted short-term results.Primarily benefited from the company's optimistic outlook on full year revenue target for FY2025.Cloudflare raised its full year revenue target to ~$2.09B, up ~+20% from last year, with enterprise customer growth cited as a key driver.
Investment highlights
Enterprise Customer Growth Drives Revenue Growth
Cloudflare emphasized the rapid expansion of its enterprise customer base as a core driver of growth in the quarter and going forward.Enterprise customer revenue grew more than 30% year-over-year, demonstrating the company's increased penetration in the high-value customer market.Management noted on the conference call that enterprise customer demand for security and performance optimization drove Cloudflare's increased product adoption.
Revenue Growth Slightly Below Expectations, Reflecting Challenging Macro Environment, but Stronger Guidance
While revenue growth was strong year-on-year, it was slightly below market expectations, reflecting the impact of macroeconomic uncertainty and a slower pace of customer purchases.Management expressed concern over the short-term purchasing caution of some industry customers, but emphasized that the long-term strategic value of the company's products remains unchanged.
Adjusted EPS in line with expectations, showing effective cost control
Adjusted EPS of $0.16 was in line with market expectations, demonstrating Cloudflare's balanced investment in R&D and selling expenses and improved operational efficiency.The company continues to invest in product innovation and global infrastructure expansion while maintaining tight management of costs.
FY2025 revenue guidance optimistic, targets $2.09B
Cloudflare raised its full year revenue guidance to $2.09B, up ~+20% from last year.This guidance is based on continued expansion of the enterprise customer business and market acceptance of new product lines.Management emphasizes that demand for security and performance services will continue to grow as digital transformation accelerates.
Analyst Concerns and Management Response
Increased competition in security products: analysts are concerned about Cloudflare's competitiveness in the security space.Management responded that the company is enhancing customer stickiness and differentiation through continuous innovation and integration of multi-functional platforms.
Macroeconomic impact: Some analysts are concerned about the impact of the economic slowdown on customer spending.Management acknowledges short-term challenges but emphasizes that long-term digitalization trends present structural growth opportunities for the company.
Gross margin trends: Analysts are concerned about the sustainability of gross margins.Management stated that gross margins are expected to remain robust with scale effects and operational optimization.
Future Outlook and Strategic Focus
Cloudflare will continue to focus on enterprise customers, strengthen its security and performance portfolio, expand its global network infrastructure, and increase its investment in AI and machine learning technologies to enhance product intelligence and automation.In addition, the company plans to expand its market reach through its partner ecosystem
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