Cloudflare, Inc. (NYSE: NET), a leader in cybersecurity and web infrastructure, has published its Q1 2026 financial report, revealing significant growth in revenue despite ongoing challenges. The company continues to enhance the Internet's infrastructure, making strides in both customer acquisition and technological development, even as it transitions to an AI-first operating model.

1. Financial Highlights

For the three months ending March 31, 2026, Cloudflare reported a 34% increase in revenue, totaling $639.7 million, compared to $479.0 million in Q1 2025. This growth is attributed to the addition of new paying customers and the expansion of existing accounts. However, the cost of revenue saw a sharp rise of 59%, leading to a decrease in gross margins from 76% to 71%.

Income Statement Overview

The income statement reveals a net loss of $22.92 million for Q1 2026, a notable improvement from a loss of $38.45 million in the same period the previous year. The increase in operating expenses, primarily due to higher research and development costs and sales and marketing investments, played a significant role in this loss.

Income Statement of Cloudflare, Inc.

	May 2025	May 2026
Net Income	-81.71M	-86.74M
Profit	-81.68M	-86.70M
Net Income Continuing	-81.68M	-86.70M
Income Tax Expense	7.32M	9.36M
Pretax Income	-74.35M	-77.34M
Non-operating Income	79.10M	138.6M
Operating Income	-153.4M	-215.9M
Revenue	1.77B	2.32B
Costs and Expenses	1.92B	2.54B
Cost of Revenue	409.2M	621.1M
Operating Expenses	1.51B	1.92B
Research & Development	448.7M	548.3M
Selling, General & Administrative	1.06B	1.37B

Key Metrics

Revenue: $639.7 million (up 34% year-over-year)

Net Income: -$22.92 million (improved from -$38.45 million)

Gross Margin: 71% (down from 76%)

Cost of Revenue: $184.1 million (up 59%)

Operating Expenses: $517.5 million (up 24%)

2. Balance Sheet Strength

As of March 31, 2026, Cloudflare's total assets reached $6.16 billion, a substantial increase from $3.72 billion in Q1 2025. The company's cash reserves, including cash equivalents and short-term investments, totaled $4.16 billion, providing a solid financial cushion.

Liabilities and Equity

The total liabilities stood at $4.63 billion, with total equity and non-controlling interests at $1.52 billion. The company's equity base has also seen growth, with additional paid-in capital increasing to $2.75 billion.

Balance Sheet of Cloudflare, Inc.

	May 2025	May 2026
Total Assets	3.72B	6.16B
Total Current Assets	2.62B	4.71B
Cash and Equivalents	204.4M	932.2M
Short-term Investments	1.71B	3.23B
Accounts Receivable	286.3M	379.5M
Restricted Cash and Investments	4.37M	10.95M
Prepaid Expenses	402.7M	137.0M
Other Current Assets	15.98M	24.16M
Total Non-current Assets	1.09B	1.44B
Intangible Assets	204.9M	271.8M
Net PP&E	513.8M	631.0M
Lease Assets	178.0M	244.1M
Other Non-current Assets	200.0M	301.2M
Total Liabilities and Equity	3.72B	6.16B
Total Liabilities	2.29B	4.63B
Total Current Liabilities	821.0M	2.41B
Accounts Payable and Accrued Liabilities	259.8M	288.7M
Current Debt	53.06M	1.36B
Current Deferred Revenue	508.0M	755.0M
Total Non-current Liabilities	1.47B	2.22B
Long-term Debt	1.28B	1.97B
Non-current Deferred Revenue	27.55M	39.87M
Other Non-current Liabilities	158.5M	211.1M
Total Equity and Non-controlling Interests	1.42B	1.52B
Total Equity	1.42B	1.52B

3. Cash Flow Insights

Despite posting a net loss, Cloudflare generated $158.3 million from operating activities, showcasing the resilience of its operational model. However, cash used in investing activities rose significantly to $-158.8 million, mainly due to capital expenditures and investments in new technologies.

Cash Flow Statement of Cloudflare, Inc.

	May 2025	May 2026
Net Change in Cash	-50.69M	733.3M
Net Cash from Operating Activities	452.6M	615.6M
Operating Profit	-81.71M	-86.74M
Adjustment to Operating Profit	534.3M	702.4M
Net Cash from Investing Activities	-519.6M	-1.87B
Business & Interest in Affiliates	42.84M	55.16M
Investments	208.5M	1.49B
Productive Assets	268.4M	323.8M
Other Investing Activities	262K	2.10M
Net Cash from Financing Activities	16.28M	1.99B
Debt	0	2B
Equity Issuance/Repurchase	39.50M	53.03M
Other Financing Activities	-23.22M	-62.29M

4. Strategic Developments and Challenges

Cloudflare's commitment to innovation is evidenced by several strategic acquisitions in early 2026, including the purchase of Human Native and Astro to bolster its content offerings and web development capabilities. The company also announced a partnership with Mastercard to enhance cyber defense strategies for critical infrastructure.

However, the transition to an AI-first operating model, which involves a workforce reduction of about 20%, poses both opportunities and challenges. The restructuring will incur costs between $140 million and $150 million, primarily related to severance.

5. Market Outlook

The company faces macroeconomic uncertainties, including regulatory changes and geopolitical tensions, which could impact customer purchasing decisions. Notably, Cloudflare has observed a lengthening of sales cycles and increased churn among its paying customers. Nevertheless, the substantial growth in the number of customers generating over $100,000 in annualized revenue signals strong demand for its services.

6. Conclusion

Cloudflare, Inc. is navigating a complex landscape of growth opportunities and significant challenges. With a focus on product development, customer acquisition, and operational efficiency, the company is well-positioned to continue building a better Internet. As Cloudflare embarks on its AI-first operating model, investors and analysts will be keenly watching its execution and the resulting impact on financial performance in the upcoming quarters.

Original filing: sec.gov