Cloudflare(US:NET)2026-02-13 06:45Cloudflare Q4 2025 Earnings Call Summary Company Overview - Company: Cloudflare - Quarter: Q4 2025 - Revenue: $614.5 million, up 34% year-over-year - Key Customers: 4,298 customers paying over $100,000 annually, up 23% year-over-year Core Financial Performance - Revenue Contribution: Revenue from large customers grew 42% year-over-year, contributing 73% of total revenue in Q4, up from 69% in Q4 2024 [35][37] - Net Retention Rate: Dollar-based net retention rate at 120%, up 1% quarter-over-quarter and 9% year-over-year [35][37] - Gross Margin: 74.9%, slightly below the long-term target range of 75%-77% [38] - Operating Profit: $89.6 million, representing an operating margin of 14.6% [38] - Free Cash Flow: $99.4 million, exceeding expectations [38] - New Annual Contract Value (ACV): Grew nearly 50% year-over-year, marking the fastest growth rate since 2021 [39] Sales and Customer Expansion - Sales Productivity: Global sales productivity increased for the eighth consecutive quarter, surpassing the all-time high set in Q4 2021 [40] - Sales Capacity: Year-over-year growth in net sales capacity increased at the fastest pace since 2022 [41] - Customer Acquisition: Record number of customers spending over $1 million annually added for the fifth consecutive quarter [42] - Largest Contracts: Signed the largest total contract value deal in Cloudflare's history worth $130 million over 5 years and the largest annual contract value deal of $42.5 million [42][43] Industry Dynamics and AI Opportunities - AI Impact: AI and agent technologies are reshaping the internet landscape, driving significant business growth [3] - Infrastructure Role: Cloudflare's architecture is designed to capture value at both ends of agent interactions, enhancing product usage rates [3] - Developer Engagement: By the end of 2025, over 4.5 million active human developers are expected on the platform, with many low-code platforms built on Cloudflare [3] Customer Case Studies - AI Partnerships: Secured significant contracts with leading AI companies, showcasing competitive strength against major cloud providers [2] - Diverse Applications: Examples include a pharmaceutical company using Cloudflare Workers for AI tools and a financial services company integrating AI agents with payment services [13][21] Financial Guidance for 2026 - Q1 2026 Revenue Guidance: Expected revenue between $620 million and $621 million, representing a year-over-year growth of 29%-30% [9] - Full Year 2026 Revenue Guidance: Expected revenue between $2.785 billion and $2.795 billion, representing a year-over-year growth of 28%-29% [9] Strategic Focus Areas - Channel Strategy: Channel business accounted for over 28.5% of total revenue, with plans to enhance partner collaboration and streamline processes [18][19] - Zero Trust and Developer Platforms: Focus on expanding Zero Trust and developer platform offerings through channel partnerships [19] Conclusion - Long-term Value Creation: Cloudflare remains committed to leveraging market opportunities and driving sustainable revenue growth while maintaining strong operational excellence [10]