Financial Data and Key Metrics Changes - Cloudflare achieved an annual run rate revenue exceeding $2 billion, with quarterly revenue of $512.3 million, reflecting a 28% year-over-year growth, up from 26.5% in the first quarter [5][24] - The company reported a gross margin of 76.3%, consistent with its long-term target range of 75% to 77% [6][28] - Operating income was $72.3 million, representing a 27% increase year-over-year, with an operating margin of 14.1% [31] Business Line Data and Key Metrics Changes - The number of customers paying over $100,000 annually increased by 22% year-over-year, totaling 3,712 customers [6][26] - Revenue contribution from large customers grew to 71% of total revenue, up from 67% in the same quarter last year [6][26] - Dollar-based net retention rate improved to 114%, up 3% quarter-over-quarter [6][27] Market Data and Key Metrics Changes - The U.S. market accounted for 49% of total revenue, increasing by 22% year-over-year, while EMEA represented 28% of revenue with a 29% increase, and APAC represented 15% with a 44% increase [25][26] - The total number of paying customers reached approximately 266,000, marking a 27% year-over-year increase [26] Company Strategy and Development Direction - Cloudflare is focusing on reaccelerating growth through innovation and operational efficiency, with a strong emphasis on large enterprise customers and expanding its sales capacity [5][24] - The company is positioning itself to capitalize on the shift from traditional web models to AI-driven business models, particularly in the publishing sector [20][21] - Cloudflare is developing its product offerings into distinct acts, with Act Four focusing on enabling transactions in an AI-driven web [22] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to maintain growth momentum, driven by strong performance in large customer segments and ongoing innovation [24][34] - The management highlighted the strategic importance of partnerships with media and AI companies to adapt to changing market dynamics [20][21] Other Important Information - Cloudflare issued $2 billion in convertible senior notes due in 2030, enhancing its financial flexibility [32] - The company ended the quarter with $4 billion in cash and equivalents, indicating a strong liquidity position [32] Q&A Session Summary Question: Insights on the business model for the Agentic web - Management indicated that various business models will likely emerge, emphasizing the need for a level playing field in content access and monetization [37][40] Question: Discussion on Act One products and their performance - Management highlighted the architectural advantages of Cloudflare's network, which allows for efficient handling of DDoS attacks without increasing costs [46][50] Question: Update on large deal momentum and partner growth - Management noted that the go-to-market strategy has shifted to a partner-first approach, which is driving growth in larger deals [60][62] Question: Media sector's attractiveness and Cloudflare's strategy - Management discussed the strategic importance of media partnerships and the potential for free services to create long-term value [75][76] Question: Relationship with foundation model vendors - Management confirmed that a significant portion of major AI companies are Cloudflare customers, utilizing its security and inference capabilities [80][82]

Core Insights - Cloudflare (NET) has signed its longest secure access service edge (SASE) contract in Q1 2025, indicating strong momentum as enterprises modernize their network security and connectivity [1][10] - The company combines Zero Trust security products with network services to provide a comprehensive cloud-based SASE solution, facilitating larger deals [2] - Cloudflare's partnerships with industry leaders like TD SYNNEX and Microsoft enhance its geographical reach and support growth in managed security services [3][4] Customer Growth and Financial Performance - Cloudflare reported 250,819 paying customers at the end of Q1 2025, reflecting a 27% year-over-year increase [5] - The company added 30 new customers contributing over $100,000 in annual revenues, bringing the total to 3,527 [5][10] - The Zacks Consensus Estimate for NET's fiscal 2025 and 2026 earnings suggests year-over-year growth of 5.33% and 31.64%, respectively [12] Competitive Landscape - Cloudflare faces competition from Palo Alto Networks and Zscaler in the SASE and Zero Trust markets, with Palo Alto Networks reporting over 6,000 active customers and significant growth [6][8] - Zscaler leads in the Zero Trust space and is transitioning to a Zero Trust Everywhere model, which secures various access points [7] Market Trends - The SASE market is projected to grow at a CAGR of 23.6%, while the Zero Trust market is expected to grow at a CAGR of 16.7%, providing Cloudflare with ample growth opportunities [8] Valuation Metrics - Cloudflare's shares have increased by 68.6% year-to-date, outperforming the Zacks Internet - Software industry's growth of 13% [9] - The company trades at a forward price-to-sales ratio of 26.77X, significantly higher than the industry's average of 5.68X [11]

Summary of Zscaler (ZS) Update / Briefing June 03, 2025 Company Overview - **Company**: Zscaler (ZS) - **Focus**: Cybersecurity solutions with a strong emphasis on Zero Trust architecture and AI integration Key Industry Insights - **Zero Trust Architecture**: Zscaler has evolved its Zero Trust strategy from ZIA (Zscaler Internet Access) to ZPA (Zscaler Private Access) and ZDX (Zscaler Digital Experience), now promoting "Zero Trust Everywhere" as a comprehensive security approach [5][8][34] - **Data Security Growth**: Data security is identified as one of the fastest-growing areas for Zscaler, with significant investments in AI to enhance detection and prevention capabilities [5][6][13] - **AI Integration**: The company is embedding AI across its operations, particularly in security operations, to improve efficiency and effectiveness in threat detection and response [6][20][39] Core Strategic Initiatives - **Acquisitions**: The acquisition of Red Canary is aimed at enhancing Zscaler's security operations capabilities, leveraging their expertise in threat detection and incident response [17][39] - **Agentic Operations**: Zscaler is developing "agentic task agents" that utilize AI to automate security operations, improving the speed and accuracy of threat investigations [16][39][42] - **Zero Trust in Branch and Cloud**: Zscaler is expanding its Zero Trust framework to include branch locations and cloud environments, integrating SD-WAN capabilities to eliminate the need for traditional firewalls [46][48] Financial and Operational Highlights - **Customer Engagement**: Zscaler has seen strong validation from analysts and customers regarding its Zero Trust branch and cloud solutions, with significant deployments in various sectors, including finance and healthcare [47][49] - **Market Positioning**: The company positions itself against traditional firewall solutions, advocating for a firewall-free approach in cloud environments, which is gaining traction among enterprises [66][81] Important Metrics and Data - **Data Processing**: Zscaler processes over 500 billion signals daily, providing a unique vantage point for threat detection and response [97] - **Customer Base**: The company has a large and satisfied customer base, which is crucial for its growth and market penetration [98] Additional Insights - **Identity Security**: Zscaler emphasizes the importance of identity in its Zero Trust framework, integrating with identity vendors to enhance security posture [100][104] - **Proactive Security Measures**: The company is focusing on proactive security measures, including continuous threat exposure management and vulnerability assessments [31][34] - **Customer Testimonials**: Customers like FICO have reported successful implementations of Zscaler's solutions, highlighting the effectiveness of their Zero Trust approach [55][57] Conclusion Zscaler is strategically positioned to lead in the cybersecurity space with its innovative Zero Trust solutions and AI-driven security operations. The company's focus on integrating acquisitions and enhancing its product offerings will likely drive future growth and market share expansion.