Cloudflare Inc (NET) Q1 2026 Earnings Report

Cloudflare reported a robust start to 2026 with top-line momentum driven by AI-enabled demand and a growing large-customer cohort. Revenue came in at $639.8 million for the March quarter, up 34% year over year, reflecting continued strength in Act 1 (network and reliability) and the accelerating contribution from AI-enabled workloads via the Workers platform. Management highlighted healthy customer engagement metrics, including 4,416 customers paying more than $100,000 annually (up 25% YoY) and a 72% revenue contribution from the largest customers, underscoring the company's ability to monetize enterprise-scale deployments. The company also disclosed a strategic reallocation of its workforce to an agentic AI-first operating model, resulting in a roughly 20% headcount reduction (about 1,100 people) with anticipated 2026 severance and restructuring charges of $140–$150 million (roughly $40 million noncash). While this action temporarily increases near-term cash outflow, Cloudflare maintains its free cash flow guidance for 2026 at approximately 25%–30% of full-year cash generation in Q2–Q3, and reiterates full-year revenue guidance of $2.805–$2.813 billion and adjusted EPS of $1.19–$1.20. The quarter featured meaningful margin dynamics: gross margin was 72.8% (down sequentially and YoY) driven by a shift from free to paid traffic and higher network costs, amid ongoing investment in the Workers platform. Management framed AI as a secular tailwind, with a shift toward agentic AI across the internet and discussions around AI pay-per-crawl and data localization. Investors should monitor (i) the pace and profitability of Act 2/4 monetization, (ii) the evolving mix of AI-driven workloads and its impact on gross and operating margins, (iii) the trajectory of free cash flow as the company scales, and (iv) execution of the AI-first restructuring and its effect on go-to-market efficiency and headcount dynamics.