• Revenue: $459.9 million, up 27% year-over-year.
• Gross Margin: 77.6%, above long-term target range of 75% to 77%.
• Operating Profit: $67.2 million, with an operating margin of 14.6%.
• Free Cash Flow: $47.8 million for the quarter, $166.9 million for the full year.
• Large Customers: 3,497 large customers, up 27% year-over-year.
• Dollar-Based Net Retention: 111%, up 1-percentage-point quarter-over-quarter.
• Net Income: $68.8 million, or $0.19 per diluted share.
• Cash and Equivalents: $1.86 billion at the end of the quarter.
• RPO (Remaining Performance Obligations): $1.687 billion, up 36% year-over-year.
• Guidance for Q1 2025 Revenue: $468 million to $469 million, up 24% year-over-year.
• Guidance for Full Year 2025 Revenue: $2.090 billion to $2.094 billion, up 25% year-over-year.

• Warning! GuruFocus has detected 4 Warning Sign with NET.

Release Date: February 06, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Cloudflare Inc (NYSE:NET) achieved a revenue of $459.9 million in Q4 2024, marking a 27% year-over-year increase.
• The company added a record number of new large customers, with those paying more than $100,000 per year increasing by 27% year-over-year.
• Gross margin remained strong at 77.6%, above the long-term target range of 75% to 77%.
• Operating profit reached $67.2 million, representing an operating margin of 14.6%.
• Cloudflare Inc (NYSE:NET) continues to generate strong free cash flow, achieving $47.8 million during the quarter and $166.9 million for the full year.

Negative Points

• Customers have been disciplined with their budgets, scrutinizing deals carefully, which could impact future growth.
• The percentage of paid versus free customer traffic increased, leading to a higher allocation of expenses to cost of goods sold.
• Network CapEx is expected to increase to 12% to 13% of revenue for full year 2025 due to investment in GPU rollout.
• Dollar-based net retention was 111%, showing only a 1-percentage-point increase sequentially, indicating potential challenges in customer retention.
• Free cash flow decreased to $47.8 million in the quarter from $50.7 million in the same period last year.

Q & A Highlights

Q: As AI models improve, do you see more inference workloads moving to the edge? A: Matthew Prince, CEO, explained that AI models will likely commodify and become more open, which benefits Cloudflare. He emphasized Cloudflare's strength in efficiency, noting that the company can offer competitive pricing for inference tasks due to its serverless platform, which maximizes resource utilization.

Q: What product innovations are you most excited about this year? A: Matthew Prince, CEO, highlighted the focus on go-to-market execution and customer-centric product development. He mentioned AI applications, particularly inference and agents, as key areas of innovation, with Cloudflare Workers being a significant platform for these developments.

Q: Can you quantify the impact of pool of funds deals in Q4 and their expected impact in 2025? A: Thomas Seifert, CFO, noted that pool of funds activity was similar to the previous quarter, around 9-percentage-points. He emphasized the importance of customer consumption for revenue recognition and expressed confidence in the outlook for these contracts in 2025.

Q: What does the FedRAMP High announcement mean for your network architecture and government business? A: Matthew Prince, CEO, stated that Cloudflare designed a compliance strategy that maintains network integrity without fragmenting it. The company aims to offer the entire platform under FedRAMP High, enhancing its federal business both in the US and internationally.

Q: How do you navigate AI adoption at the enterprise level, and how do you address concerns about the Workers platform's ecosystem depth? A: Matthew Prince, CEO, explained that Cloudflare's self-serve model facilitates easy adoption for small teams. The company is also targeting specific accounts to build case studies, demonstrating the platform's capabilities and addressing any ecosystem concerns.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.