Cloudflare Q1 2025
Main takes from conference call & earnings report with my comments & thoughts
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Key Financial Metrics
Regional Performance
➕ Positives
Revenue Growth at +27% and RPO Growth at +39%. Very solid and consistent.
Free Cash Flow growth machine, +50% YoY. Expecting 2/3 of FCF generation for H2 2025.
Large Customer and Paying customer, mid-twenties % growth. Also, solid and showing consistency.
➖ Negative
Margins flattish (Operating margin) or declining (gross margin). Will discuss this, later on, in the Risks section.
Net Dollar Retention flattening at 111%, good but not spectacular as it used to be. Something to monitor, as long as it stays at these levels.
Stock-Base Compensation (SBC) still at outrageous levels, 20+% of total revenues. Diluting shareholders and reducing GAAP margins.
CFO Thomas Seifert on guidance:
“We’re taking a prudent approach given macro uncertainty, but our strategy of reinvesting in sales and developer traction is working.”
Enterprise Momentum & Record Deals
Closed the largest deal in company history: $130M "pool of funds" contract powered by Workers AI.
Strong traction in Zero Trust and SASE solutions with government and global enterprises.
Multiple multi-year contracts signed, including 7-year commitments.
Sales productivity improved QoQ, with pipeline ahead of forecasts.
CEO Matthew Prince:
“We are winning not just on cost or speed but on platform capability. Our largest deals increasingly represent full-stack adoption of Cloudflare.”
AI & Developer Platform
AI-related traffic exploded 👀
+4000% YoY increase in Workers AI inference requests
+1200% increase in AI Gateway requests
🔗 Model Context Protocol—open standard that connects AI systems with external applications— deployments gaining traction: partnerships with Stripe, Atlassian, PayPal.
Cloudflare is positioning as a key AI infrastructure layer, combining security, inference, and low-latency edge compute.
CEO Matthew Prince:
“80% of major AI firms are already on Cloudflare. We're not just adjacent to AI, we’re becoming essential to it.”
Cybersecurity
Record sales in Zero Trust and SASE, with key competitive wins over legacy providers.
Government and enterprise adoption accelerating due to hardware-to-cloud shifts and regulatory mandates.
“Security is moving from boxes to the edge. Tariffs and volatility are just speeding that up.”
Network Infrastructure Spending & Tariffs
Cloudflare continues expanding global network capacity without CapEx overshoot. Network CapEx held steady at 17% of revenue but FY25 expected to decline at 12–13%.
Tariff and geopolitical risks are mitigated via multi-vendor, multi-region infrastructure strategy.
“Legacy hardware vendors can’t match our global flexibility and customers are noticing.”
Main Risks From CC
Management mentioned “slower revenue recognition from “pool of funds” deals may obscure short-term growth visibility”.
Slight compression in gross margin due to increased traffic from high-value customers.
Uncertainty around macro remains high across global markets, hence management prudent guide vs estimates.
Final Take
Another strong Q, with high-quality growth in the areas that matter the most (AI, SASE and Zero Trusts), showing operating leverage, and growing relevance in enterprise.
The company's developer platform and Workers AI are fast becoming differentiators, and its ability to close more and more multi-million-dollar, multi-year contracts reinforces its competitive edge.
Cloudflare’s infrastructure efficiency and full-stack architecture continue to make it a rare combo player in security, edge compute, and AI.
Bottom Line: Long-term tailwinds remain intact. Execution and product depth keeps justifying the premium valuation. Keep an eye on large deal velocity and AI monetization in 2H FY25.
No PT, hard to model long-term given their high-growth, high-multiple nature.
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