Cloudflare(US:NET)2026-02-10 23:02Financial Data and Key Metrics Changes - The company achieved $614.5 million in revenue for Q4 2025, representing a 34% year-over-year increase [6][22] - The number of customers paying more than $100,000 per year increased to 4,298, up 23% year-over-year [6][23] - The dollar-based net retention rate improved to 120%, up 1% quarter-over-quarter and 9% year-over-year [6][24] - Gross margin was reported at 74.9%, slightly below the long-term target range of 75%-77% [7][25] - Operating profit reached $89.6 million, with an operating margin of 14.6%, consistent year-over-year [26] - Free cash flow for the quarter was $99.4 million, representing 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][23] - 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. market represented 49% of total revenue, increasing 31% year-over-year, while EMEA and APAC represented 27% and 16% of revenue, respectively, with APAC growing 50% year-over-year [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 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 anticipates continued strong demand for its services as AI applications proliferate, driving increased usage across its platform [19][20] - The management expects revenue for Q1 2026 to be in the range of $620 million-$621 million, representing a 29%-30% year-over-year increase [29][30] Other Important Information - The company plans to participate in upcoming technology conferences, indicating ongoing engagement with the investment community [5] - 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 increased volume of interactions driven by AI agents, which enhances the demand for Cloudflare's services [34][35] Question: Evolution of internet traffic and new capabilities - Management discussed the integration of recent acquisitions like Human Native and Astro, which are expected to help define future internet business models and enhance 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 represents customer trust and is expected to grow, although it may introduce some revenue variability [62][66] Question: Demand for core Application Services - Management observed increased demand for core Application Services, particularly from AI companies needing security and scalability [70][75]