Cloudflare Q2 Earnings Beat Estimates on Large Customer Growth

NET's Large Customer Momentum Accelerates

Cloudflare ended the quarter with 4,698 customers generating more than $100,000 in annualized revenues, up 27% year over year. The company added 282 large customers sequentially and a record 986 over the past 12 months.

Large customers accounted for 73% of quarterly revenues compared with 71% a year earlier. NET also recorded its highest-ever year-over-year net additions across every large-customer tier, ranging from more than $100,000 to more than $5 million in annualized revenues.

Cloudflare Sees Broad Geographic Growth

The United States generated 51% of total revenues and grew 41% year over year. EMEA contributed 27% of revenues, rising 30%, while APAC represented 14% and advanced 32%.

Customer acquisition also remained strong. Cloudflare added more than 80,000 paying customers during the quarter, driving 74% year-over-year growth in the paying-customer base. Management said new-customer bookings increased at the fastest pace in more than five years, while new pipeline generation continued to accelerate.

NET Improves Sequential Profitability

Non-GAAP gross profit totaled $508.9 million, with gross margin of 73.1%. The margin improved 30 basis points sequentially, marking the first sequential expansion in eight quarters, although it declined 320 basis points from the year-ago period.

Non-GAAP operating income increased 32.9% year over year to $96.1 million. The corresponding operating margin was 13.8%, up 240 basis points sequentially but down 30 basis points year over year. Operating expenses represented 59% of revenues, down 3 percentage points from a year earlier.

Cloudflare's AI Platform Gains Traction

Cloudflare ended the quarter with more than 7.4 million developers on its platform after adding nearly 2 million during the second quarter alone. Management highlighted rapid growth in Workers and agentic workloads as key contributors to business momentum.

The company also said more than half of the traffic flowing across its network during the quarter was nonhuman. Cloudflare is expanding its infrastructure for agent-driven activity through products such as Monetization Gateway, wallets and cloudflare.pay while positioning its developer platform for AI applications and machine-to-machine traffic.

NET Generates Strong Cash Flow

Free cash flow increased 69.4% year over year to $56.4 million and represented 8% of revenues compared with $33.3 million and 6% of revenues in the prior-year quarter. Network capital expenditures represented 7% of revenues.

Cloudflare finished June with $4.16 billion in cash, cash equivalents and available-for-sale securities. Remaining performance obligations reached $2.73 billion, up 38% year over year and 7% sequentially. Current remaining performance obligations represented 64% of the total and increased 35% year over year.

Cloudflare Provides Strong 2026 Outlook

For the third quarter of 2026, Cloudflare expects revenues between $736 million and $737 million, implying growth of about 31% year over year. Non-GAAP operating income is projected between $129 million and $130 million, while non-GAAP earnings are expected to be 34 cents per share.

For 2026, revenues are projected between $2.864 billion and $2.870 billion, representing roughly 32% year-over-year growth. Non-GAAP operating income is expected between $443 million and $445 million, while non-GAAP earnings are forecast in the range of $1.25-$1.26 per share.

NET’s Zacks Rank & Other Stocks to Consider

Cloudflare currently carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the broader Zacks Computer and Technology sector are Lumentum LITE, Applied Materials AMAT and Analog Devices ADI, each carrying a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shares of Lumentum have surged 127.4% year to date. The Zacks Consensus Estimate for LITE’s fiscal 2026 earnings is pegged at $8.19 per share, up by 5 cents over the past 30 days, indicating an increase of 297.6% year over year.

Shares of Applied Materials have jumped 105.2% year to date. The Zacks Consensus Estimate for AMAT’s fiscal 2026 earnings is pegged at $12.17 per share, up by 3 cents over the past seven days, suggesting a rise of 29.2% year over year.

Analog Devices shares have rallied 39.1% year to date. The Zacks Consensus Estimate for ADI’s fiscal 2026 earnings is pegged at $12.42 per share, up by 10 cents over the past 30 days, implying an increase of 59.4% year over year.

Zacks' Research Chief Names "Stock Most Likely to Double"

Our team of experts has just released the 5 stocks with the greatest probability of gaining +100% or more in the coming months. Of those 5, Director of Research Sheraz Mian highlights the one stock set to climb highest.

This top pick is a little-known satellite-based communications firm. Space is projected to become a trillion dollar industry, and this company's customer base is growing fast. Analysts have forecasted a major revenue breakout in 2025. Of course, all our elite picks aren't winners but this one could far surpass earlier Zacks' Stocks Set to Double like Hims & Hers Health, which shot up +209%.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research