Cloudflare(US:NET)2025-07-31 22:00Financial 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]