Cloudflare shares NET surged more than 20% in premarket trading on Friday after the internet infrastructure and cybersecurity company delivered stronger-than-expected third-quarter results and raised its full-year outlook, signalling that demand for protecting digital infrastructure against emerging artificial intelligence threats is accelerating.
The rally came after the stock fell 8.3% during Thursday’s regular session as cybersecurity shares came under pressure amid a broader technology market selloff.
The latest earnings report offered investors a reason to reassess the company’s growth prospects, with revenue accelerating at its fastest pace in nearly four years and management highlighting rising demand from enterprise customers.
Cloudflare earnings beat estimates as AI demand accelerates
Cloudflare’s third-quarter revenue increased 39% from a year earlier to $782.5 million, exceeding Wall Street’s consensus estimate of $737.2 million.
Adjusted earnings came in at 38 cents per share, compared with analysts’ expectations of 34 cents.
However, the company reported a net loss of $34.1 million, or 10 cents per share, compared with a loss of $1.3 million, equivalent to breakeven on a per-share basis, in the year-ago quarter.
Chief Executive Officer Matthew Prince said enterprise customer demand had accelerated during the quarter, helping the company cross $3 billion in annualised revenue.
“The third quarter was Cloudflare’s best quarter ever,” Cloudflare CEO Matthew Prince said.
“We crossed $3 billion in annualized revenue.”
The company also reported strong customer additions, bringing in 308 large customers during the quarter and nearly 1,000 over the past year.
Both figures represented company records.
Cloudflare raises full-year and fourth-quarter guidance
The stronger quarterly performance prompted Cloudflare to raise its financial forecasts for the remainder of the year.
The company now expects full-year revenue of approximately $2.96 billion, compared with its previous guidance range of $2.86 billion to $2.87 billion.
Its adjusted earnings forecast was also increased to $1.35 per share from an earlier range of $1.25 to $1.26.
Analysts polled by FactSet had expected full-year revenue of $2.87 billion and adjusted earnings of $1.26 per share.
For the fourth quarter, Cloudflare projected revenue between $845 million and $846 million and adjusted earnings of 43 cents per share.
Both forecasts were comfortably above Wall Street estimates of $796 million in revenue and 38 cents in adjusted earnings per share.
Rising agentic AI traffic creates new security opportunities
Cloudflare’s business involves inspecting internet traffic, helping websites load faster and protecting online infrastructure against cyber threats.
Its network also allows it to manage traffic generated by AI bots and applications.
Unlike companies that rely primarily on centralised data centres, Cloudflare operates a globally distributed network that allows it to inspect traffic and block threats closer to users.
The company argued during its earnings call that this model can be more cost-effective than the infrastructure operated by hyperscalers and neocloud providers.
The growing use of agentic AI applications is also creating additional opportunities for its security business.
The number of developers building agents on Cloudflare’s Workers platform increased to 10 million in the third quarter from 7 million in the preceding quarter.
Prince said the company had also expanded its network significantly, adding approximately 5% of the entire global web since the beginning of July.
That represented a larger footprint than the combined market presence of its direct web-routing competitors, he said.
“We’ve partnered with nearly every major frontier AI lab and security company searching for flaws in existing software.”
Cloudflare believes its security offerings are well positioned to address emerging threats as AI agents become more widely deployed.
Analysts remain divided on Cloudflare stock valuation
Analysts largely welcomed the quarterly performance, although their views on the stock’s valuation varied.
Goldman Sachs reiterated its Buy rating and $420 price target following the results.
Truist Securities also maintained a Buy rating and a $350 price target.
Guggenheim raised its price target to $190 from $160, retaining its Buy rating.
The brokerage noted that few publicly traded companies are accelerating their revenue growth at Cloudflare’s pace.
Jefferies, however, lowered its price target slightly to $315 from $320 while maintaining a Hold rating, citing valuation concerns despite the company beating revenue expectations by 6.2%.
Cloudflare also announced that Christian Smith would become its new president of revenue.
Smith previously worked at Cisco Systems, where he oversaw Splunk’s global commercial business.
He will replace Mark Anderson, who plans to retire at the end of the year.
“Christian has consistently proven he can lead global go-to-market organizations through periods of rapid expansion with discipline, operational rigor, and a steadfast focus on customers,” Prince said.
AI disclosure: AI tools assisted with research and drafting of this piece. An Invezz editor reviewed the facts, sources and wording before publication. Any opinions or analysis are Invezz’s, not those of an automated system.
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