Cloudflare(US:NET)2026-02-10 23:02Financial Data and Key Metrics Changes - The company achieved revenue of $614.5 million in Q4 2025, representing a 34% year-over-year increase [6][22] - The number of customers paying more than $100,000 per year increased by 23% year-over-year, totaling 4,298 [6][23] - The dollar-based net retention rate was 120%, up 1% quarter-over-quarter and 9% year-over-year [6][24] - Gross margin was 74.9%, slightly below the long-term target range of 75%-77% [6][24] - Operating profit was $89.6 million, with an operating margin of 14.6%, consistent year-over-year [7][26] - Free cash flow reached $99.4 million, or 16% of revenue, compared to 10% in the same period last year [27] Business Line Data and Key Metrics Changes - Revenue from large customers contributed 73% of total revenue in Q4, up from 69% in the same quarter last year [22][24] - New Annual Contract Value (ACV) grew nearly 50% year-over-year, marking a record quarter in absolute ACV dollars [8] - The company added a record number of customers spending over $1 million per year for the fifth consecutive quarter [8] Market Data and Key Metrics Changes - The U.S. represented 49% of revenue, increasing by 31% year-over-year, while EMEA and APAC represented 27% and 16% of revenue, increasing by 31% and 50% year-over-year, respectively [22] - The company ended the year with 269 customers spending over $1 million, a 55% increase year-over-year [24] Company Strategy and Development Direction - The company is transitioning from product-led growth to true enterprise sales, with a focus on enhancing its go-to-market strategy [8] - The management highlighted a shift towards AI-driven demand for Cloudflare services, positioning the company as a critical infrastructure provider for the emerging Agentic Internet [17][20] - The company aims to define the future business model of the internet, moving away from traditional advertising and subscription models [43][48] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate the evolving tech landscape, particularly with the rise of AI agents [34][35] - The company is focused on maintaining capital efficiency while investing in growth opportunities driven by increased demand for its services [37][38] - Management anticipates continued strong performance in 2026, with revenue guidance of $2.785 billion to $2.795 billion, representing a 28%-29% year-over-year increase [30] Other Important Information - The company reported a total of 332,000 paying customers, with a record addition of nearly 37,000 customers sequentially [23] - Remaining performance obligations (RPO) reached $2.496 billion, a 48% year-over-year increase [28] Q&A Session Summary Question: Impact of AI agents on Cloudflare - Management believes the company is well-positioned to benefit from the rise of AI agents, which are driving increased demand for Cloudflare's services [34][35] Question: Evolution of internet traffic and new acquisitions - Management discussed the integration of new acquisitions like Human Native and Astro, which are aimed at defining future business models and enhancing developer capabilities [42][43] Question: Large deal pipeline and engagement - Management noted a strong pipeline for large deals, emphasizing the importance of deep customer relationships and the ability to provide scalable, cost-effective solutions [58][59] Question: Pool of funds contracting and revenue variability - Management indicated that pool of funds contracts represent customer trust and are expected to grow, although they may introduce some revenue variability [63][66] Question: Increased demand for core application services - Management highlighted a significant uptick in demand for core application services, particularly from AI companies needing robust security and scalability [70][75]