Cloudflare’s stock shot up roughly nine percent in after-hours trading—an instant market endorsement of a quarter that finally matches its CEO’s relentless optimism. Revenue rose 31% year-over-year to $562 million, marking a second consecutive quarter of accelerating growth, and non-GAAP EPS hit $0.27, comfortably above expectations. The company’s founder and CEO, Matthew Prince, sounded almost euphoric: “We’re shipping capabilities at an unmatched pace,” he said, arguing that Cloudflare is laying the “rails for the next decade of Internet growth.” And, to be fair, the numbers backed the tone. Non-GAAP operating margin improved to 15.3%, free cash flow surged to $75 million (13% of revenue), and operating cash flow hit a solid $167 million—around 30% of revenue. For a company that used to be all story and little substance, this quarter felt like execution catching up to ambition.
Behind the cheerleading, though, lies a quieter and more interesting story. Cloudflare’s gross margin dipped to 74.0% from 77.7% a year ago (75.3% on a non-GAAP basis), showing the cost of scaling its vast network and adding more data-heavy services like Zero Trust, developer tools, and AI inference. But the company’s discipline shows in other places: cash generation is improving, capital expenditures are deliberate, and free cash flow margins are climbing even as the business invests heavily in future growth. The balance sheet now carries about $4 billion in cash and securities, funded in part by a $2 billion 2030 convertible note offering—a move that dilutes later but gives Cloudflare enormous room to maneuver now. Stock-based compensation still stings (roughly $120 million for the quarter), and while non-GAAP metrics politely erase it, the dilution risk remains baked in. Still, that’s the price of building a category leader at hyperscale speed.
Looking ahead, the guidance suggests confidence, not overreach. Management expects Q4 revenue between $588.5 and $589.5 million, with full-year revenue of about $2.14 billion and non-GAAP EPS steady at $0.27. That’s not just a beat—it’s a raise, and the market clearly loved it. Analysts quickly noted how Cloudflare continues to win more large enterprise customers and expand product adoption. The recurring pattern—beat, accelerate, guide up—is rare in this tightening tech environment. Investors are watching the fine print: whether dollar-based net retention improves again, how enterprise deals renew, and if margins stabilize as the newer AI and developer workloads mature. But the direction of travel looks good.
One subplot that could complicate the narrative is leadership transition. CJ Desai, Cloudflare’s President of Product & Engineering, is leaving to become CEO of another public company. That’s a flattering exit but a meaningful test for a business defined by velocity. The company’s product cadence has been one of its biggest differentiators, and customers depend on that pace. For now, there’s no sign of a slowdown—Cloudflare continues to roll out new security, network, and developer tools almost weekly—but stability at the top of engineering will matter over the next few quarters.
Taken together, this quarter was Cloudflare at its most convincing yet: rapid growth, visible operating leverage, and cash flow that’s finally as impressive as the press releases. The stock’s nine-percent pop wasn’t just relief—it was recognition that Cloudflare’s long-promised model of “connectivity cloud” economics might actually be taking shape. The gross margin trade-off is real, but so is the flywheel: more traffic means more monetization opportunities, more cross-sells, and more embedded infrastructure that competitors struggle to replicate. If they can keep that balance—growth without chaos, innovation without dilution—then Prince’s line about building the rails for the next decade of the Internet may turn out not to be hyperbole after all.