10-K: Cloudflare's 2025 Annual Report: Growth Amidst Macro Headwinds

Cloudflare reports strong 30% revenue growth to $2.17 billion in 2025, driven by new customer acquisition and expansion, despite continued net losses and macroeconomic uncertainties.

Summary

• Revenue increased by 30% to $2,167.9 million for the year ended December 31, 2025, up from $1,669.6 million in 2024 and $1,296.7 million in 2023.
• The company reported a net loss of $(102.3) million in 2025, compared to $(78.8) million in 2024 and $(183.9) million in 2023.
• Gross margin decreased to 75% in 2025 from 77% in 2024 and 76% in 2023, primarily due to increased third-party technology services, co-location, bandwidth, and depreciation costs.
• Paying customers grew by 40% to 332,466 as of December 31, 2025, from 237,714 in 2024 and 189,791 in 2023.
• Large customers (those with over $100,000 in Annualized Revenue) increased to 4,298 in 2025, from 3,497 in 2024 and 2,756 in 2023.
• The dollar-based net retention rate was 120% for the three months ended December 31, 2025, compared to 111% in 2024 and 115% in 2023.
• Operating expenses increased across all categories: Sales and Marketing to $920.8 million (43% of revenue), Research and Development to $512.5 million (24% of revenue), and General and Administrative to $389.3 million (18% of revenue) in 2025.
• Net cash provided by operating activities was $603.1 million in 2025, up from $380.4 million in 2024 and $254.4 million in 2023.
• Free cash flow increased to $260.6 million in 2025, from $166.9 million in 2024 and $119.5 million in 2023.
• International customers accounted for 51% of revenue in 2025, compared to 49% in 2024 and 48% in 2023.
• The company had 5,156 full-time employees as of December 31, 2025, with 2,452 located outside the United States.
• Cloudflare acquired Replicate, Inc., an AI platform company, for $57.4 million in December 2025.
• In June 2025, the company issued $2,000.0 million aggregate principal amount of 0% Convertible Senior Notes due 2030, receiving net proceeds of $1,971.0 million.
• The company received $309.6 million in cash from the settlement of the 2025 Capped Calls in May 2025.
• An accounting estimate change in January 2024 extended the useful life of servers-network infrastructure from four to five years, reducing 2024 depreciation expense by $21.1 million.

Sentiment

Score: 6

Explanation: StockSavvy.ai views this as a mixed report. While revenue growth and customer expansion are strong, the increasing net losses and declining gross margin, coupled with ongoing macroeconomic and cybersecurity risks, temper the overall positive sentiment.

Positives

• Strong revenue growth of 30% in 2025, reaching $2,167.9 million, demonstrating continued market demand.
• Significant increase in paying customers (40% year-over-year) and large customers (>$100k ARR), indicating successful customer acquisition and upmarket penetration.
• High dollar-based net retention rate of 120% in 2025, reflecting strong customer loyalty and expansion of product usage among existing customers.
• Consistent generation of positive net cash from operating activities ($603.1 million in 2025) and free cash flow ($260.6 million in 2025).
• Successful issuance of $2.0 billion in 0% Convertible Senior Notes due 2030, enhancing liquidity and capital resources.
• Strategic acquisition of Replicate, Inc. to bolster AI platform capabilities and expand developer solutions.
• Continued investment in research and development to enhance global network functionality and introduce new products, including support for AI workloads.
• Broad global network presence spanning over 330 cities in 125+ countries, providing a competitive advantage.
• Commitment to corporate responsibility through initiatives like Project Galileo, Athenian Project, and Project Cybersafe Schools, offering free services to at-risk organizations and schools.

Negatives

• Continued history of net losses, with a net loss of $(102.3) million in 2025, contributing to an accumulated deficit of $1,204.9 million.
• Gross margin decreased to 75% in 2025 from 77% in 2024, primarily due to increased operational costs.
• Operating expenses continue to increase in absolute dollars across sales and marketing, research and development, and general and administrative functions.
• Negative other income (expense), net, of $(7.95) million in 2025, driven by larger unrealized foreign currency losses.
• Periodic slowdowns in revenue growth rates and potential for future deceleration due to macroeconomic conditions.
• Occasional lengthening of average sales cycles for large customers and higher churn in the paying customer base have been observed.
• Reductions in average productivity among sales personnel since late 2022, attributed partly to new hires and macroeconomic conditions.
• Experienced network outages in November and December 2025 due to software updates, and power failures in core data centers in November 2023 and March 2024.
• Multiple security incidents, including a likely nation-state intrusion in November 2023 and a third-party chat agent breach in August 2025, highlight ongoing cybersecurity risks.

Risks

• Inability to achieve or sustain profitability in the future due to ongoing net losses and increasing operating expenses.
• Rapid revenue growth may not be indicative of future performance, and growth rates could slow or decline.
• Adverse economic conditions, including inflation, rising interest rates, and tariffs, may reduce customer spending and demand for products.
• Geopolitical tensions and conflicts could materially affect customers, vendors, partners, and overall business operations.
• Failure to attract new paying and free customers, or to convert free customers to paying customers, could harm future results.
• Inability to retain and upgrade paying customers, expand product sales, or increase product usage could adversely affect operations.
• Challenges in effectively attracting, expanding, and retaining sales to large customers, including longer sales cycles and increased negotiation leverage.
• Activities of paying and free customers or their content could lead to adverse political, business, and reputational consequences.
• Intense and increasing competition from various vendors could weaken competitive position and affect financial results.
• Difficulty attracting, training, and retaining key technical, sales, and management personnel, including co-founders, could harm business growth.
• Problems with internal systems, networks, or data, including actual or perceived security breaches or failures, could damage reputation and financial results.
• Damage, interference, or failure of the global network or core co-location facilities could negatively impact service availability and performance.
• Detrimental changes or termination of co-location relationships, ISP partnerships, or other interconnection arrangements could increase costs.
• Actual or perceived failure of security products to block malware or prevent security incidents could harm reputation and financial condition.
• Customer activities violating applicable laws or terms of service could subject the company to lawsuits, regulatory enforcement, and liability.
• Failure to comply with evolving privacy, data protection, information security, and AI laws and regulations could harm the business.
• Network presence in China is dependent on the commercial relationship with JD Cloud, with risks of detrimental changes or termination.
• The trading price of Class A common stock may be volatile, leading to potential investment losses.
• The dual-class common stock structure concentrates voting control, potentially depressing the trading price of Class A common stock.
• Substantial future sales of Class A common stock could depress its market price.
• Need for additional capital, with no certainty that financing will be available on favorable terms or at all.
• Credit agreement and future debt agreements may restrict operations and limit ability to take certain actions.
• Inability to raise funds necessary for cash settlement upon conversion of convertible notes or repurchase upon a fundamental change.
• The conditional conversion feature of the Notes, when triggered, may adversely affect financial condition and operating results.
• Transactions relating to the Notes may affect the value of Class A common stock, including potential dilution.
• Exposure to counterparty risk with respect to capped call transactions.
• Failure to maintain an effective system of disclosure controls and internal control over financial reporting could impair financial statement accuracy.
• Business is subject to risks of catastrophic events, including natural disasters, cyber attacks, and climate change.
• Requirements of being a public company may strain resources and divert management attention.
• Exposure to greater than anticipated income tax liabilities in the United States and foreign jurisdictions.
• Potential requirement to collect sales and use, value-added, or similar taxes in jurisdictions where not historically done.
• Limitations on the ability to use net operating loss carryforwards and certain other tax attributes.
• Risk of being deemed an investment company under the Investment Company Act of 1940.
• International operations expose the company to significant geopolitical, economic, and social risks, and currency fluctuations.
• Foreign governments, Internet service providers, or others may block transmission from Cloudflare IP addresses or domains.

Future Outlook

Operating expenses are expected to increase over the next several years due to continued hiring, expansion of operations and infrastructure, and product development. Macroeconomic uncertainty, including tariffs and geopolitical tensions, is anticipated to persist through 2026, potentially leading to reduced customer spending, longer sales cycles, higher churn, and increased costs. The company's strategy focuses on long-term growth by reinvesting cash flow into its global network, new products, and workforce, which may negatively impact short-term profitability. The company expects to incur significant costs to comply with new and evolving global regulations related to privacy, data protection, information security, and AI.

Management Comments

• Our mission is to help build a better Internet.
• We believe that the size, sophistication, and distributed nature of our global network provide us with a significant competitive advantage.
• We intend to continue to make substantial investments in our global network infrastructure to support the growth of our business, including the addition of servers with storage capabilities to support our storage and database products and servers with graphics processing units (GPUs) to support our AI-related developer platform products.
• We believe macroeconomic uncertainty could persist through 2026.
• We believe our long-term value as a company will be greater if we focus on growth, which may negatively impact our profitability.
• We believe that being rigorously and promptly transparent is an essential part of maintaining trust with our customers.

Industry Context

StockSavvy.ai notes that Cloudflare is a leader in the 'Connectivity Cloud' category, offering a unified platform for security, performance, and reliability across diverse infrastructure environments. The company is strategically expanding into AI workloads and developer solutions, leveraging its serverless network architecture and GPU deployment, positioning itself against traditional public cloud vendors and point solution providers by emphasizing independence, cost-effectiveness, and avoiding vendor lock-in. The increasing regulatory scrutiny on digital services and AI, as seen with the EU's Digital Services Act and AI Act, presents both compliance challenges and opportunities for Cloudflare to differentiate its secure and compliant offerings.

Comparison to Industry Standards

• Cloudflare's network spans over 330 cities in 125+ countries, interconnecting with over 13,000 networks globally, which represents a significant and broad global footprint compared to many regional competitors.
• The company's serverless architecture and strategy of leveraging idle capacity for a free tier provides a differentiated growth and innovation model compared to traditional hardware vendors and some public cloud providers.
• Cloudflare's 100% uptime guarantee for Business and Enterprise plans sets a high standard for network reliability, comparable to leading infrastructure providers in the industry.
• The company's competitive pricing for Cloudflare Workers, enabled by its efficient distributed network, aims to undercut public cloud vendors for compute and storage workloads, offering a distinct value proposition.
• The dollar-based net retention rate of 120% in 2025 is a strong indicator of customer satisfaction and expansion, often exceeding the average for many SaaS companies in the technology sector.

Management Changes

Corporate Governance

Legal Proceedings

• The company is a defendant in lawsuits, both in the United States and abroad, alleging intellectual property infringement (patent and copyright) and seeking injunctive relief and/or damages based on content on customer websites.
• In October 2025, a court in Japan held the company liable for damages in a copyright infringement case, which is currently under appeal.
• The company is subject to regulatory enforcement actions and/or liability arising from customer conduct that may violate applicable laws or terms of service.
• A voluntary self-disclosure to OFAC regarding potential violations of U.S. economic sanctions laws remains under review.
• In December 2025, an Italian regulator issued an administrative fine of approximately €14.2 million against the company for alleged non-compliance with its regulatory scheme, which the company is challenging.

Stakeholder Impact

• Shareholders face potential dilution from convertible notes and stock-based compensation, as well as volatility in the stock price. The company's focus on long-term growth may delay short-term profitability.
• Customers benefit from enhanced security, performance, and reliability through new products and network expansion, but face risks of service disruptions, security breaches, and challenges in complying with evolving regulations.
• Employees benefit from increased headcount, competitive compensation, development opportunities, and a focus on diversity, equity, and inclusion. However, there are risks related to difficulty attracting and retaining talent and the impact of stock price volatility on equity awards.
• Suppliers and partners are critical for network infrastructure and operations, but face risks of disruptions, price increases, or changes in contractual relationships.
• Creditors have obligations related to the convertible senior notes and revolving credit facility, with the company's ability to service this debt dependent on future performance and cash flow.

Next Steps

• Continue to acquire new customers across contracted, pay-as-you-go, and free offerings.
• Expand relationships with existing customers by encouraging upgrades to premium plans, increased usage, and adoption of additional products.
• Invest in new product development and solutions, particularly in developer solutions and AI-related offerings.
• Further expand the global network infrastructure, including adding servers with storage capabilities and GPUs to support AI workloads.
• Address and mitigate macroeconomic impacts on customer purchasing decisions and operating costs, including managing sales cycle lengths and churn.
• Ensure compliance with complex and evolving global privacy, data protection, information security, and AI regulations.
• Manage and potentially renegotiate the commercial relationship with JD Cloud for network presence in China, which is set to expire in March 2026.
• Continue to monitor and upgrade internal controls over financial reporting to ensure effectiveness.

Key Dates

Recommendation

Cloudflare demonstrates strong revenue growth, customer acquisition, and retention, indicating robust market demand for its services. The company's strategic investments in AI and network expansion position it for future growth. However, persistent net losses, a recent decline in gross margin, and ongoing macroeconomic and geopolitical uncertainties, coupled with significant cybersecurity and regulatory risks, suggest a 'hold' recommendation. Investors should monitor the path to profitability, the effectiveness of cost management, and the impact of external challenges on financial performance before considering a stronger position.

Keywords

Cloudflare, cybersecurity, network security, cloud services, SASE, Zero Trust, AI, edge computing, content delivery network, DNS, WAF, DDoS mitigation, serverless, financial results, revenue growth, net loss, convertible notes, SEC filing, 10-K, corporate governance, risk management, data protection, privacy