Financial Trends -- 7/10

Cloudflare is executing a rare revenue reacceleration at $2B+ scale, reaching 33.6% YoY growth in Q4 2025, driven by enterprise go-to-market transformation and AI tailwinds. Non-GAAP profitability is solid (14-15% op margins) and FCF is positive and expanding (12% margin in FY2025). However, ~21% SBC-to-revenue creates a massive GAAP/non-GAAP disconnect, gross margins are trending below the long-term target, and GAAP losses widened in FY2025 despite faster revenue growth. Weight: 25%
FY2025 Revenue
$2,168M
+29.9% YoY | Exiting at +33.6% in Q4
FY2025 FCF
$261M
12.0% margin | Q4 record $99M (16%)
Non-GAAP Op Margin
14.6%
Q4 2025 | Up from 6.7% in Q1 2023
Dollar-Based NRR
120%
Q4 2025 | Recovered from 110% trough
Revenue Trajectory (USD M, Quarterly)
Revenue re-accelerating at scale. Growth bottomed at 26.5% in Q1 2025 and re-accelerated sharply for three consecutive quarters to 33.6% in Q4 2025. Full-year 2025 revenue was ~$2.17B (+29.9% YoY). Management guided FY2026 to $2.79B (+28-29%), implying durable ~30% growth. Annualized Q4 run-rate is ~$2.46B, tracking toward the $5B ARR target by Q4 2028.
MetricQ1 2023Q2 2023Q3 2023Q4 2023Q1 2024Q2 2024Q3 2024Q4 2024Q1 2025Q2 2025Q3 2025Q4 2025
Revenue ($M)$290.2M$308.5M$335.6M$362.5M$378.6M$401.0M$430.1M$459.9M$479.1M$512.3M$562.0M$614.5M
YoY Growth————30.5%30.0%28.2%26.9%26.5%27.8%30.7%33.6%
FY2023: $1,297M | FY2024: $1,670M (+28.7%) | FY2025: $2,168M (+29.9%). Data sourced from Daloopa.
Operating Margin Expansion
Non-GAAP margins expanded from ~7% to ~15%. Non-GAAP operating income grew from $122M (FY2023) to $230M (FY2024) to $304M (FY2025), a 32% CAGR. Margins show a seasonal pattern (Q1 dip, Q3/Q4 peak). GAAP operating loss remains deeply negative (~$207M in FY2025) due to >$450M in SBC. The gap between GAAP and non-GAAP is massive and widening -- the key concern for this stock.
MetricQ1 2023Q2 2023Q3 2023Q4 2023Q1 2024Q2 2024Q3 2024Q4 2024Q1 2025Q2 2025Q3 2025Q4 2025
Non-GAAP Op Margin6.7%6.6%12.7%11.0%11.2%14.2%14.8%14.6%11.7%14.1%15.3%14.6%
GAAP Op Margin-16.3%-18.2%-11.7%-11.8%-14.4%-8.7%-7.2%-7.5%-11.1%-13.1%-6.7%-8.0%
Non-GAAP Op Inc ($M)$19.4M$20.3M$42.5M$39.8M$42.4M$57.0M$63.5M$67.2M$56.0M$72.3M$85.9M$89.6M
GAAP Op Inc ($M)$-47.3M$-56.2M$-39.2M$-42.8M$-54.6M$-34.7M$-30.8M$-34.7M$-53.2M$-67.3M$-37.5M$-49.2M
FY2023 Non-GAAP OI: $122M | FY2024: $230M | FY2025: $304M. Data sourced from Daloopa.
Gross Margin Trends -- Declining Below Target
Gross margins declining ~450bps from peak. Non-GAAP gross margin peaked at 79.5% in Q1 2024 and declined to 74.9% in Q4 2025, now sitting just below management long-term target of 75-77%. Driven by (1) paid vs. free traffic mix shift, (2) Workers/AI inference revenue carrying lower initial margins, and (3) higher network CapEx (13% of revenue in Q4 2025). CFO emphasized unit economics remain consistent.
MetricQ1 2023Q2 2023Q3 2023Q4 2023Q1 2024Q2 2024Q3 2024Q4 2024Q1 2025Q2 2025Q3 2025Q4 2025
Non-GAAP Gross Margin77.8%77.7%78.7%78.9%79.5%79.0%78.8%77.6%77.1%76.3%75.3%74.9%
GAAP Gross Margin75.7%75.6%76.7%77.0%77.5%77.8%77.7%76.4%75.9%74.9%74.0%73.6%
Management long-term target: 75-77% non-GAAP gross margin. Network CapEx guided 12-15% of revenue for FY2026. Data sourced from Daloopa.
Free Cash Flow -- Positive and Improving
FCF consistently positive and expanding. Annual FCF: $119M (FY2023, 9.2% margin), $167M (FY2024, 10.0%), $261M (FY2025, 12.0%). Q4 2025 FCF of $99.4M (16.2% margin) was the highest ever. Notable H2 weighting due to working capital timing. CFO affirmed consensus FCF estimates for FY2026.
MetricQ1 2023Q2 2023Q3 2023Q4 2023Q1 2024Q2 2024Q3 2024Q4 2024Q1 2025Q2 2025Q3 2025Q4 2025
FCF ($M)$13.9M$20.0M$34.9M$50.7M$35.6M$38.3M$45.3M$47.8M$52.9M$33.3M$75.0M$99.4M
FCF Margin4.8%6.5%10.4%14.0%9.4%9.5%10.5%10.4%11.0%6.5%13.3%16.2%
FY2023 FCF: $119M (9.2%) | FY2024: $167M (10.0%) | FY2025: $261M (12.0%). Data sourced from Daloopa.
Non-GAAP EPS Trajectory
FY2023 Non-GAAP EPS: $0.49 | FY2024: $0.75 (+53%) | FY2025: $0.92 (+23%). H2 2025 acceleration (+35%/+47% YoY) mirrors revenue reacceleration. GAAP EPS negative every quarter. Management guided FY2026 non-GAAP EPS to $1.11-$1.12 (~21% growth). Forward P/E of 189x on non-GAAP remains extremely elevated.
MetricQ1 2023Q2 2023Q3 2023Q4 2023Q1 2024Q2 2024Q3 2024Q4 2024Q1 2025Q2 2025Q3 2025Q4 2025
Non-GAAP EPS$0.1$0.1$0.2$0.1$0.2$0.2$0.2$0.2$0.2$0.2$0.3$0.3
GAAP EPS$-0.1$-0.3$-0.1$-0.1$-0.1$-0.0$-0.0$-0.0$-0.1$-0.1$0.0$-0.0
Non-GAAP EPS YoY————100%100%25%27%0%5%35%47%
Data sourced from Daloopa.
Customer Metrics and Net Retention
NRR recovered sharply from 110% to 120%. Dollar-based net retention bottomed at 110% in Q3 2024 and recovered to 120% by Q4 2025, driven by pool-of-funds consumption, large customer expansion, and stabilizing churn. $1M+ customers grew 55% YoY to 269 at year-end 2025. Large customers ($100K+) now represent 73% of revenue (up from 64% in 2022), reflecting the successful enterprise go-to-market transformation.
MetricQ1 2023Q2 2023Q3 2023Q4 2023Q1 2024Q2 2024Q3 2024Q4 2024Q1 2025Q2 2025Q3 2025Q4 2025
$100K+ Customers2,1562,3522,5582,7562,8783,0463,2653,4973,5273,7124,0094,298
$100K+ YoY Growth————33%30%28%27%23%22%23%23%
Paying Customers (K)168174182190197210222238251266296332
Dollar-Based NRR117%115%116%115%115%112%110%111%111%114%119%120%
$1M+ customers: 173 (YE 2024) to 269 (YE 2025), +55% YoY. RPO grew 48% YoY to $2.5B in Q4 2025. Data sourced from Daloopa.
Concerns: SBC and Share Dilution
SBC stubbornly high at ~21% of revenue. SBC grew 34% YoY in FY2025 (from $338M to $451M), faster than revenue growth -- a negative signal. This is one of the highest SBC-to-revenue ratios among scaled SaaS companies. The GAAP-to-non-GAAP gap in operating income was ~$510M in FY2025. Share dilution is manageable at ~2% annually (332M to 352M over 3 years). The $2B convertible note (June 2025) has a capped call at $469.73, well above the current $211.69 price.
Acceleration / Deceleration Analysis
Signal Detail Direction
Revenue Growth 26.5% trough (Q1 2025) re-accelerated to 33.6% (Q4 2025); 3 consecutive quarters of acceleration Accelerating
Net Retention NRR bottomed at 110% (Q3 2024) and recovered to 120% (Q4 2025); enterprise expansion driving recovery Recovering
Non-GAAP Op Margins Expanded from ~7% (early 2023) to consistent 11-15% range; seasonal Q1 dip pattern Expanding
FCF Generation $119M (FY23) to $261M (FY25); margin 9.2% to 12.0%; Q4 2025 hit record 16.2% Improving
Enterprise Traction $1M+ customers +55% YoY to 269; $100K+ now 73% of revenue; new ACV +50% YoY in Q4 Accelerating
Gross Margins Non-GAAP down ~450bps from 79.5% peak to 74.9%; below management 75-77% target range Compressing
SBC Burden $451M (21% of rev in FY25); grew 34% YoY, faster than revenue; GAAP losses widened Elevated
GAAP Profitability GAAP op loss -$207M in FY2025; no clear path to GAAP profitability given SBC trajectory Negative