Cloudflare slumps on soft Q2 outlook; Announces shift to "agentic AI" model

Investing.com - Cloudflare Inc. (NYSE: NET) reported first quarter results that exceeded analyst expectations but shares tumbled 14% after the company issued disappointing revenue guidance for the current quarter.

The connectivity cloud company posted adjusted earnings per share of $0.25, beating the analyst consensus of $0.23 by $0.02. Revenue totaled $639.8 million, surpassing the estimate of $620.83 million and representing a 34% increase YoY. However, the company’s second quarter revenue guidance of $664.0 to $665.0 million fell short of the analyst consensus of $666.1 million, with the midpoint of $664.5 million below expectations. The company also announced plans to reduce its workforce by approximately 1,100 people as part of an evolution to an "agentic AI-first operating model."

Shares fell sharply following the announcement, reflecting investor concerns about the near-term revenue outlook despite the workforce reduction initiative. The company expects to incur charges of $140.0 to $150.0 million related to the restructuring, with the majority of costs hitting in the second quarter.

"We had a very strong start to 2026. AI is driving a fundamental re-platforming of the Internet and a paradigm shift in how software is created and consumed; it’s shaping up to be the biggest tailwind we’ve ever seen in Cloudflare’s history," said Matthew Prince, co-founder and CEO.

For the full fiscal year 2026, Cloudflare provided guidance of $2.805 to $2.813 billion in revenue, with a midpoint of $2.809 billion exceeding the consensus estimate of $2.79 billion. The company expects adjusted EPS of $1.19 to $1.20 for the full year, compared to the analyst consensus of $1.13, with the midpoint of $1.195 above expectations.

Adjusted operating income for the first quarter reached $73.1 million, or 11.4% of revenue, compared to $56.0 million in the prior year period. Free cash flow was $84.1 million, or 13% of revenue.

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