管理層發言
Ladies and gentlemen, thank you for standing by, and welcome to Cloudflare's Second Quarter 2026 Earnings Conference Call. I would now like to turn the conference over to Phil Winslow. Phil, please go ahead.
Thank you for joining us today to discuss Cloudflare's financial results for the second quarter of 2026. With me on the call, we have Matthew Prince, Co-Founder and CEO; Michelle Zatlyn, Co-Founder and President; and Thomas Seifert, CFO. By now, everyone should have access to our earnings announcement. This announcement as well as our supplemental financial information may be found on our Investor Relations website. As a reminder, we will be making forward-looking statements during today's discussion, including, but not limited to, our customers, vendors and partners, operations and future financial performance, our anticipated product launches and the timing and market potential of those products, our anticipated future financial and operating performance and our expectations regarding future macroeconomic conditions. These statements and other comments are not guarantees of future performance and are subject to risks and uncertainty, much of which is beyond our control. Our actual results may differ significantly from those projected or suggested in any of our forward-looking statements. These forward-looking statements apply as of today, and you should not rely on them as representing our views in the future. We undertake no obligation to update these statements after this call. For a more complete discussion of the risks and uncertainties that could impact our future operating results and financial condition, please see our filings with the SEC as well as in today's earnings press release. Unless otherwise noted, all financial numbers we talk about today, other than revenue, will be on an adjusted non-GAAP basis. You may find a reconciliation of GAAP to non-GAAP financial measures that are included in our earnings release on our Investor Relations website. For historical periods, a GAAP to non-GAAP reconciliation can be found in the supplemental financial information referenced a few moments ago. We would also like to inform you that we will be participating in Stifel's Tech Executive Summit on August 24 and Goldman Sachs' Communacopia and Technology Conference on September 9. Now with that, I'd like to turn the call over to Matthew.
Thank you, Phil. We had an extremely strong second quarter. We achieved revenue of $696.1 million, up 36% year-over-year. We now have 4,698 customers paying us more than $100,000 per year, a 27% increase year-over-year. We added a record number of these large customers, 986 net additions year-over-year, the most we have ever added over 12 months in our history. Our dollar-based net retention was 120%, up 2% quarter-over-quarter and up 6% year-over-year. Our gross margin was 73.1%, improving sequentially for the first time in 8 quarters. We delivered operating profit of $96.1 million, representing a non-GAAP operating margin of 13.8%. And we generated free cash flow of $56.4 million during the quarter, up 69% year-over-year. The strong momentum we've been seeing for some time in our business continued to build in the second quarter. Some highlights. Sales productivity increased year-over-year for the tenth consecutive quarter. New customer bookings increased at the fastest rate in more than 5 years. New pipeline generation continues to accelerate, again, growing sequentially at its fastest pace in 5 years. We added more than 80,000 paying customers this quarter, driving 74% year-over-year paying customer growth. For some context, we added as many paying customers this quarter as we had in total when we went public in Q3 of 2019. We added nearly 1,000 large customers year-over-year. We also set a record for year-over-year net additions across every large customer tier from $100,000 to over $5 million in annualized revenue. And we ended the quarter with more than 7.4 million developers on our platform. That's nearly 2 million developers in Q2 alone, surpassing the 1.5 million we added during all of 2025. It's clear that the agentic future needs a new kind of cloud. Developers are flocking to Cloudflare because our Workers developer platform gives them what they need to build that agentic future. We're the fastest, we're the most secure and the most cost-effective place to build, deploy and scale agents and the code they generate. At Cloudflare, what we continue to prove is that when you build a company the right way, you can grow and innovate while executing and profiting. We have the network, we have the platform, we have the culture of innovation. We have the business momentum, we have the disciplined execution. We're in the right moment in time, and we are keeping our foot firmly on the gas. This is the winning formula that we know works. It's the same one that has propelled Cloudflare into the pole position to lead the next phase of the Internet in the age of agentic AI. That's a good segue to discuss some of our wins in the quarter. A leading digital native media company expanded their relationship with Cloudflare, signing a 5-year, $31.8 million contract for Application Services and Zero Trust. To combat aggressive scraping and accelerate global performance, this customer chose Cloudflare for our best-in-breed edge capabilities and operational velocity. Despite competitive pressure to consolidate spend with their incumbent hyperscaler, this customer's long-term commitment is a proof point that when performance and security are nonnegotiable, enterprises choose Cloudflare's unified platform. A Global 2000 European technology company expanded their relationship with Cloudflare, signing a 3-year, $11 million contract for Application Services and Zero Trust with our developer platform seeded for future AI workloads. After years of acquisitions resulted in a fragmented IT footprint, this customer chose Cloudflare to eliminate a stack of 5 incumbent legacy point solutions with up to 7 targeted on their long-term road map in favor of our single unified platform as the foundation for their entire organization to build on. A large U.S. federal agency expanded their relationship with Cloudflare, signing a 5-year, $7.7 million contract for Magic Transit and Network Firewall. After a legacy provider's outage locked over 100,000 users out of a mission-critical system for days, the agency urgently sought greater resilience and real-time control. Cloudflare slashed the customer's global rule change time from a 1-week SLA down to just 30 seconds. They've also cut hardware costs by blocking unwanted traffic at the edge and have already shut down an entire data center. As an existing application security customer already, this agency can now run their network and Application Security on one unified platform, cementing Cloudflare as the front door for all their Internet traffic. A rapidly growing generative AI company signed a 1-year, $7.5 million pool of funds contract for our developer platform. This customer's workloads pull an enormous volume of images and video. At that scale, a hyperscaler's egress tax would break the economics and create vendor lock-in, limiting their choice of inference tools and GPUs. Their engineering team evaluated multiple providers and chose Cloudflare as the only one that pairs a zero egress model with the reliability, scale and comprehensive capabilities of an enterprise-grade platform. By structuring this as a pool of funds deal, the customer can solve their immediate storage needs while retaining the flexibility to expand across our entire developer platform. A rapidly growing technology company in APAC expanded their relationship with Cloudflare, signing a 1-year, $4 million pool of funds contract for our Workers developer platform. This deal accelerates a powerful partnership, building on an $8.7 million Application Services contract signed just last quarter. In only 1 year, this customer has standardized on Cloudflare end-to-end from Application security and Zero Trust to now our developer platform, directing every request through a Cloudflare Worker and using KV and Durable Objects as the routing and tenant configuration layer for their entire platform. They chose Cloudflare over their incumbent hyperscaler to avoid added latency, proving the flywheel of our unified offering. Once performance and security run on Cloudflare, our developer platform becomes a natural foundation for the next layer of any company's stack. A Fortune 100 technology company expanded their relationship with Cloudflare, signing a 3-year, $5.2 million contract for our full SASE portfolio. This customer is replacing legacy VPNs and virtual desktops to move their entire global workforce onto a single Zero Trust platform. In a competitive evaluation, Cloudflare beat 2 first-generation Zero Trust vendors winning due to our faster network performance and our single pane of glass management that is so easy the customer expects to run our services with roughly 1/3 the staff. This is exactly the type of security consolidation we see accelerating. Enterprises retiring fragmented point solutions in favor of Cloudflare's blazing fast, easy-to-use and unified platform. A Fortune 1000 technology company expanded their relationship with Cloudflare, signing an 18-month, $15.9 million contract for Application Services and our Workers developer platform. This customer serves hundreds of thousands of businesses, which requires an architecture that can act as their global front door for security and performance without adding latency. By standardizing on Cloudflare over legacy alternatives, they eliminated multiproduct complexity and secured long-term operational predictability as they build an AI-first customer platform. A leading technology company expanded their relationship with Cloudflare, signing a 1-year, $6 million pool of funds contract for our Workers developer platform. As this customer scales their new AI agent capabilities, they needed an elastic secure container infrastructure that could scale with their rapid growth and ship new capabilities in weeks, not quarters. They chose to build on Cloudflare over legacy hyperscalers and point solution competitors because of our built-in threat intelligence that passively prevents compute abuse, rapid pace of innovation and the ability to deliver FedRAMP compliance. This win also shows how the most sophisticated AI builders are increasingly selecting Cloudflare as the agent cloud of the future. These customers and others like them are increasingly choosing Cloudflare because we don't just keep up with change, we drive it. We ship fast, we solve hard problems and we do it in a way that meaningfully raises the bar for the entire Internet. Nowhere is this relentless focus on innovation more exciting than the work we are doing in AI. For the first time in human history, in Q2, more than 50% of the traffic flowing across Cloudflare's network was not human. The number of requests on our network from AI agents continues to grow unabated. With the web shifting from human-driven browsing to AI-answer engines and agent-driven commerce, we are witnessing a fundamental rewrite of the Internet for machine-to-machine traffic. Cloudflare is positioned at the center of this paradigm shift, building the scalable infrastructure that controls the developer tools and the payment rails to power the agentic Internet. Just since the start of Q3, we've celebrated innovation in this area from Content Independence Day to Agent Week, which is happening right now. During these, we unveiled the key building blocks for a 2-sided agentic marketplace. Monetization Gateway allows our customers to sell any resource behind Cloudflare, whether it's a web page, an API, a data set or an MCP tool. This will empower new business models that will define the next generation of the Internet. In addition, we announced wallets, which will offer a way for buyers to pay autonomously through their agents and cloudflare.pay, which will provide merchants and buyers an agent-friendly means to identify themselves and establish trust. Not only are we building the foundational elements for agentic commerce to succeed, we also believe AI companies and content owners should thrive together. That's why we recently announced a first-of-its-kind research pilot with OpenAI that we believe may help pave the way to a sustainable ecosystem of content creators and AI companies. Over the coming months, we'll announce more ways that AI companies; content creators; and businesses, large and small, can thrive together. The business model of the Internet is changing, and there is no company better positioned to define its future than Cloudflare. It's an incredibly exciting time. That seems like a good spot to turn it over to Thomas to talk about the financials. Thomas, take it away.
Thank you, Matthew, and thank you to everyone for joining us. We delivered a stellar second quarter with strength across all major metrics we track, driven in particular by another quarter of rapid growth in our Workers developer platform and agentic workloads across our network, continued momentum with our largest customer cohorts and a robust go-to-market execution. Turning to revenue. Total revenue for the second quarter increased 36% year-over-year to $696.1 million. From a geographic perspective, the U.S. represented 51% of revenue and increased 41% year-over-year. EMEA represented 27% of revenue and increased 30% year-over-year. APAC represented 14% of revenue and increased 32% year-over-year. Turning to our customer metrics. We ended the quarter with 4,698 large customers, those spending more than $100,000 annually with us, representing an increase of 27% year-over-year and an acceleration from 25% growth last quarter. We added 282 large customers in the quarter and a record 986 large customers year-over-year, the most we have ever added year-over-year in our history. In fact, every one of our large customer cohorts from $100,000 to $500,000 to $1 million to $5 million in annualized revenue added a record number of net new customers year-over-year in the second quarter. Revenue contribution from large customers was 73% of revenue during the quarter, up from 71% in the second quarter last year. The significant expansion with our largest customers drove an acceleration in our dollar-based net retention rate to 120% in the second quarter, up 2% sequentially and up 6% year-over-year. Moving to gross margin. Second quarter gross margin was 73.1%, representing an increase of 30 basis points sequentially and a decrease of 320 basis points year-over-year. Paid versus free traffic on our network continued to grow year-over-year, again, driving additional allocation of network costs from sales and marketing into cost of revenue. However, as we discussed at Investor Day, this trend is showing signs of beginning to stabilize. Network CapEx represented 7% of revenue in the second quarter. As a reminder, there can be some variability in this metric quarter-to-quarter, and we expect network CapEx to be 14% to 15% of revenue for full year 2026. Turning to operating expenses. Second quarter operating expenses as a percentage of revenue decreased by 3% year-over-year to 59%. Our total head count ended the quarter at 4,700. Sales and marketing expenses were $232.5 million for the quarter. Sales and marketing as a percentage of revenue decreased to 33% from 36% in the same quarter last year. Research and development expenses were $104.1 million in the quarter. R&D as a percentage of revenue decreased to 15% from 16% in the same quarter last year. General and administrative expenses were $76.3 million for the quarter. G&A as a percentage of revenue increased to 11% from 10% in the same quarter last year. Operating income was $96.1 million, an increase of 33% year-over-year compared to $72.3 million in the same period last year. Second quarter operating margin was 13.8%, an increase of 240 basis points sequentially and a decrease of 30 basis points year-over-year. Turning to net income and the balance sheet. Our net income in the quarter was $107.8 million or diluted net income per share of $0.29. Excluded from these non-GAAP results were severance and other restructuring charges of $151 million for the second quarter, of which $99 million was paid in the second quarter. For full year 2026, we now expect severance and other restructuring charges of up to $165 million with up to $130 million expected to be cash related. While higher than initially anticipated, we prioritized speed of resolution, particularly internationally to ensure a continued focus on execution. Free cash flow was $56.4 million in the quarter or 8% of revenue compared to $33.3 million or 6% of revenue in the same period last year. Excluding the impact from the higher severance and other restructuring costs, our free cash flow expectations for 2026 remain unchanged. We ended the second quarter with $4.2 billion in cash, cash equivalents and available-for-sale securities. Remaining performance obligations, or RPO, came in at $2.732 billion, representing an increase of 7% sequentially and 38% year-over-year. Current RPO was 64% of total RPO and grew 35% year-over-year. Moving to guidance for the third quarter and full year 2026. For the third quarter, we expect revenue in the range of $736 million to $737 million, representing an increase of 31% year-over-year. We expect operating income in the range of $129 million to $130 million. We expect an effective tax rate of 20%. We expect diluted net income per share of $0.34, assuming approximately 374 million shares outstanding. For the full year 2026, we expect revenue in the range of $2.864 billion to $2.870 billion, representing an increase of 32% year-over-year. We expect operating income for the full year in the range of $443 million to $445 million. We expect an effective tax rate of 20%. We expect diluted net income per share over that period to be $1.25 to $1.26. We expect approximately 374 million shares outstanding. In closing, the second quarter reflected the strength of our underlying business. Our strategic position leading the paradigm shift of the agentic Internet has never been stronger and the opportunity ahead of us is larger and more defined than at any point in our history. We remain committed to capturing it with disciplined execution, durable growth and long-term focus. And with that, operator, please poll for questions.
分析師問答
Your first question comes from the line of Saket Kalia with Barclays.
Great to see the acceleration in the business. Matthew, maybe for you. I'd love to dig into the changing profile of traffic and how that's monetized. You've talked about how the majority of traffic now is nonhuman, and we all see the inflection in traffic. Maybe the question is, do you see that driving more new logos or are existing customers buying more? And then from a different related lens, is it driving more business with large customers or smaller ones?
Yes, Saket. I think it's a pretty wild time. I was asked in the end of 2025, in November of 2025, when I thought that nonhuman traffic would pass human traffic. We pulled all the data, we ran all the numbers and we were pretty confident that it was going to be the second half of 2027. I was asked the same question again in March of 2026, and we did the same exercise. We were surprised to see that it had moved up to be that it would cross in the first half of 2027. So I was quite surprised when in May of this year, our team came to me and said, you won't believe it, but nonhuman traffic has now passed human traffic online. And to give you a sense of how this trend is playing out and with the big caveat that I have called it wrong at every point along the way, if the current trends continue, we think in 5 years, nonhuman traffic will be as much as 1,000x as much as human traffic. In other words, humans will be a rounding error on the Internet, not because human traffic goes down, but that's just how fast we're seeing nonhuman traffic grow. And so that's resulting in a number of things. The first is that for some of that nonhuman traffic, it's malicious. And that could be malicious like it's hackers or bad actors. It could also be malicious from the perspective of a particular customer's business model where it's traffic that is maybe an AI company trying to take the content from a media company that relies on advertising. In those cases, we block that traffic, and we don't charge the customers anything more for blocking up that traffic because we think that that's the right thing for us to be doing and delivering and that's part of being a security company. At the same time, though, there are some people who want that traffic. And so we're doing everything we can not only to serve that, but to make it as efficient as possible to serve it because if we're going to have 1,000x as much traffic online, we've got to get a lot more efficient and companies like Cloudflare are critical to be able to support that for customers, whether they're large or small. The thing that I think is most interesting, though, is that increasingly, as we talk to the AI companies and over 80% of the major AI companies are Cloudflare customers and rely on us. We have a great relationship with them. As we talk to others, it's clear that as agents are accessing all of these sites and the volume that they're accessing them on, the sort of give-to-get that you have with human traffic is different. So if you look at some of the things that we've announced this week, during Agent Week, things like cloudflare.pay, that's us setting the foundation to be able to say how do we charge agents some—again, what will be a very, very small fee, fractions of a penny for every request that goes through, but for the requests that pass through that traffic because somebody has to pay for the bandwidth, somebody has to pay for the server, somebody has to pay for the people doing the work to create the content. I think that the business model of the Internet for the last 27 years has been largely defined by advertising and really defined by Google. I think the business model of the next 27 years of the Internet is going to be very different, and there's no company in a better position to define what it looks like than Cloudflare.
Totally agree. Thomas, maybe for my follow-up for you. It was great to see the stabilization in gross margins this quarter. And we talked a bunch about that at Analyst Day. But maybe you could just talk to us a little bit about some of the puts and takes there. And particularly, how you see gross margins sort of ebbing and flowing through the second half?
Well, as we said at Investor Day, the important metric for us to focus on is total unit economics because the behavior of gross margin across the various products is just very different. You can see with all the metrics that we published today that we are tracking ahead of everything we track. So we're quite confident that the total unit economics for across all products is going to increase over the course of this year. Gross margin, I think, will stabilize around the level we have. But as I said, more importantly, it is to focus on the unit economics. And here, we will continue to see expansion over the course of the second half of the year.
Your next question comes from the line of Matt Hedberg with RBC Capital Markets.
Congrats on the quarter. Just stellar results here. I wanted to start, you guys had—I think, Matthew, you said 2 million developers added this quarter. That was obviously impressive. I guess with so many options for developers and questions about open weight and open source models these days, what are the most important elements about Workers that gives developers the confidence to platform on it, really, as you know, the Internet is fundamentally changing to support machine-to-machine traffic? And then maybe as kind of a follow-up to that, there's obviously been a lot of buzz about Cloudflare OS, and we saw the open source this week, that's great. When we think beyond the developer, talk about how Cloudflare OS opens up the opportunity to really every employee in an organization?
Yes. I made the team triple check the developer numbers because we added more developers in a quarter than we did in all of last year. We thought last year was pretty good. I think it's being driven by a handful of different things. The first is that Cloudflare Workers is turning out to just be the perfect platform for building agents and agentic workloads. It's extremely lightweight, you only get charged for when it's actually doing work. You can spin things up and spin them down very, very quickly. And so it has become the go-to place for sophisticated developers to be able to launch code. We're pretty conservative how we count these. There are big companies that have one developer account, even though there's lots of people that are working behind it. But across the board, and you can see this in part by the paying customer count, there's just lots of small developers that are driving more and more use of the platform. That's great because those small developers, some of them will turn into nothing, but some of them will turn into major things as well. That's really always been the key story of Cloudflare. I think the other thing is it dovetails into your second question, which is we're seeing that the number of developers generally is going up massively, where people who never thought of themselves as being able to write code or create things are doing exactly that. My EA is using some of the low-code platforms to build tools to run things around her house and she's writing code and deploying it to Cloudflare. That's remarkable. So companies like Lovable and Replit and Base44 at Wix and others often deploy that code to Cloudflare, and that's driving more developers. Cloudflare OS is—we talked last quarter and I think there was some head scratching in some corners—we said that we were seeing so much more efficiency across our team, not just our developers, but our finance team, our legal team, our procurement, across management. How are we getting that? The answer in large part was we've really built a set of tools with Cloudflare OS that allowed everybody on our team to be able to take advantage of some of the tools that in most organizations are somewhat limited to the developer platform. We got enough questions about that, and we were proud enough about the work that we, just the other day, open sourced that project. Already, the reaction has been amazing to see how many large companies are saying, "Wow, this is exactly what we need." There's a lot of companies doing this, including many start-ups with promising potential. But what's unique about us is that because we started out as a security company, and describing Cloudflare as just a security company today would be misunderstanding us, we still have that DNA. It allowed us to hook into things like our systems of record in a way that was very secure and auditable. We could sample against it and put controls around it, which gave us the ability to allow people across the organization to have access to very powerful tools but do it in a way where we felt it was still safe and responsible. That's where most organizations hit roadblocks internally in terms of turning more AI tools loose across the organization. One of the reasons we've been able to move faster than others and one of the reasons we're so excited about open sourcing Cloudflare OS is because at our foundation we're a security company. We understand how to do these things securely, and that's allowing us to move fast without breaking things.
Your next question comes from the line of Sanjit Singh with Morgan Stanley.
I want to pick up on Matt's question. I think probably one of the other reasons why you're seeing such impressive developer traction is that you have one of the most thorough agent stacks across infrastructure, runtime, model serving, the data layer—Durable Objects are pretty impressive in the market. At what point, Matt, do you think that there's going to be a security opportunity around not just running and orchestrating these agents, but securing those agents? And what does the security portfolio for agent orchestration and agents themselves look like?
Yes, Sanjit. First of all, kudos to all the team that's been working on the developer platform, especially the agents part. They've been in absolute animal mode, releasing more and more features and really building, first and foremost, the tools that we need ourselves, but the tools that we need ourselves are turning out the rest of the world's need as well. I think the opportunity is already there. The number one thing that's causing our phone to ring from big companies is them saying, "Listen, we know we have to do AI, but we need to do it more securely." It's been especially interesting in the SASE Zero Trust space. If you listen to a lot of the Zero Trust vendors out there, they're talking about human seats and things like that. We've short-circuited a lot of those conversations by saying, "Do whatever you want with the humans in your org, but you're going to have even more agents and you've got to have a proper security model for those agents." I was just in London a few weeks ago meeting with a large government agency there that was well down the track with one of the first-generation Zero Trust companies to implement that across a big chunk of the government. We started talking about agents and how they were thinking about it. Very quickly, it became clear that the vendor they were considering really hadn't thought about this, whereas it's been core for us because of the developer platform. They literally canceled the RFP and are now reevaluating with an agents-first approach. You'll see that more and more across organizations. Because we come at this from a developer platform place, I think that's really allowed our SASE and Zero Trust platforms to gain share pretty significantly in the last 6 months.
It would be cool to see how that plays out. As a follow-up, Tom, at Investor Day you had some great slides going through the different revenue models. Particularly with respect to pool of funds, I think you had a chart there about some of the larger customers early renewing on a pool of funds basis and some of the revenue timing and revenue headwinds associated with that. As we got into Q2 and as we look into the back half, do you think those customers have leaned into usage and we're past those initial revenue headwinds when it comes to those early pool of fund renewals?
Yes. The trajectory of the business is clearly up and to the right for both revenue as well as operating income. But as we said at Investor Day, the business model is also going to evolve. It's moving away from a purely ratable SaaS model towards a much more diversified mix of pool of funds, consumption-based structures and also what we call T-shirt sizes. As the business accelerates, that also leads to more and more customers burning through their T-shirt sizes faster, pool of funds are getting consumed faster and getting renewed. So we are really stacking these things on top of each other. That leads to a higher standard deviation across the individual customers. The momentum over multiple quarters is clearly pointing up and to the right. You see this in revenue, you also see this in RPO and CRPO. But moving from quarter-to-quarter becomes a little bit more difficult to forecast. That's why we continue to be prudent in terms of how we set the guidance. But the trajectory is clearly up and to the right.
Your next question comes from the line of Gabriela Borges with Goldman Sachs.
Thomas, your comment just now on the momentum in the business is very clear. And certainly, we can see it in the acceleration over the last several quarters. My question for you, higher level, is, you all have been in this very consistent growth rate for the past 3 years now in the high 20s, low 30s. If I think about the trends that are happening in your business, is there a scenario where the structural growth rate of Cloudflare actually ends up being higher over the next 3 years as all of these businesses try to come together?
I'll take a stab at it and then Matthew can jump in. A lot of factors play into that. One is the innovation flywheel and that we address and disrupt a TAM that becomes bigger and bigger—from $30 billion at our IPO to north of $300 billion at this point in time. The flywheels that come with Act 3 and now especially with Act 4 are accelerating. Every time we move to a new Act, the maximum deal size goes up by factors—maximum $1 million contracts at Act 1, double-digit million dollars at Act 2, triple digits in Act 3. So it's a combination of a lot of factors. We clearly said this today: the larger the customer cohort, the faster the growth rate. So I think there are a lot of independent growth vectors pointing in the right direction that generate the momentum you see in the numbers.
Gabriela, the only thing I would add is that there's probably some downsides to having a CEO who is the co-founder of the company. One of the upsides is I remember when our growth rates were a lot higher and I miss those days. We won't be upset if we get back to even higher growth rates.
Well said. My follow-up is on the triple play around Monetization Gateway, Wallets and ID that you announced intra-quarter. Talk a little bit about why this is hard to do and how you think about the moat here. Who do you think the competition will be? And with Act 4, you commented that you need critical mass—that you need enough of the industry to accept this as a standard. How do you think about the adoption curve for the Monetization Gateway, Wallets, ID triple play?
Sure. I love the question because we don't at Cloudflare think about how we create moats; we think about our mission as being how do we help build a better Internet. That has turned out to be a way of creating a really durable business. But why is this hard? When we started to think about this and said the business model of the Internet is going to change dramatically, what does it change to? Micropayments were going to be a part of it. Then the question is, how do you pull that off? To give rough numbers directionally: we handle about 0.5 billion requests per second through Cloudflare's network. We roughly estimate that somewhere between 1% and 10% of those you could monetize through some sort of microtransaction. Again, these will be tiny fractions of pennies. But that means that day one on launching something like this, you need to be able to support, call it, 10 million financial transactions per second and be able to scale up to 100 million financial transactions per second. To give you some sense, Visa, which is the largest payment network in the world, at peak during the holidays, handles about 20,000 transactions per second. So you have to build something that's three orders of magnitude bigger than Visa to pull this off. We didn't actually set out to build that ourselves; we thought maybe we could partner with someone. But many of the groups building next-generation payment networks think they're competing with Visa, instead of figuring out how to help build a better Internet and ensure a healthy business model for the Internet going forward. If we're able to do this, the scale that we're able to operate at and how efficiently we do it is incredibly important. Today, north of 20% of the Internet already sits behind us. If we can make it one-click simple for them to turn this on—and one way to think of this is a lot of that is our free customers—what if being part of Cloudflare we actually sent you money for being part of us because we were generating that through a series of microtransactions largely serving agents? That would accelerate the flywheel across all of our business. I've never been more excited for the future of Cloudflare or the Internet. The Internet business model is going to change, and there's no company better positioned to lead that change than we are.
Your next question comes from the line of Fatima Boolani with Citi.
Matthew or Thomas, I was hoping you could put a little bit of a quantitative framing on how big the book of business, so to speak, has become for you on Workers and Workers AI combined, just so we can have a sense and feel for the magnitude of impact this is having on your top line in terms of proportion. And to the extent there are any particular capabilities or SKUs inside these portfolios that are driving the outsized monetization momentum for you. And then as a related matter, there has been a multiyear focus on beefing up the enterprise go-to-market motion and having those seats at the table on a more consistent and more strategic basis. But I'm wondering with the center of gravity sort of shifting back into the hands of developers and everything that you're doing from an innovation standpoint to cater to developers, do we see a little bit of a reversion back to sort of more product-led growth? I'd love to get some of your perspectives on that.
Sure. I will start out not fully answering your question and then Thomas can continue to not fully answer your question. We haven't broken out by product area what our revenue or revenue growth rate is. But I can say that the Workers platform continues to drive an enormous amount of both new customer adoption and real revenue growth. For a while, we were saying we were playing for adoption, not revenue. That has tipped and we are now very much—again, not trying to maximize every dollar by any means—but Workers has become a meaningful contributor to revenue. It shows up in the anecdotes I gave about customer wins. More and more of them are signing pool of funds deals because Workers is part of it and their developer teams are saying, "Yes, sign with Cloudflare, use their Zero Trust, use their reverse proxy services, but also make sure that we've got something available where we can use their Workers platform." That tends to drive consumption. So PLG is doing great, but you're also seeing the dollar amounts of contract wins tick up. Those larger deals require enterprise sales and human negotiation; people want trust and a relationship if you're going to sign $10 million-plus contracts. Our enterprise sales team is getting more technical. I've challenged our team: who's going to be the first salesperson who, in a meeting, delivers a feature that before they even leave the meeting gets shipped to production? We're building the system to do that. Our sales team has leaned in: it's important to build relationships, but also to be technical and understand the technical leaders on the customer teams. At the end of the day, the best product is what's going to win.
Your next question comes from the line of Jonathan Ho with William Blair.
Congratulations on the really strong results. At Investor Day, you set a goal of GAAP profitability by 2028 at the latest. Just based on the guidance that you gave for the second half, how are we tracking against that goal? And what are some of the dials that you have in terms of relative or incremental opportunities?
The keyword was latest by end of 2028. We are pacing ahead of that very clearly. Without the impact of the restructuring charges, the GAAP net loss would have been around $18 million. That is almost striking distance. The levers we have and are pulling include the acceleration of top line, building operating leverage, and all the automation we discussed. Cloudflare OS is helping pricing, performance and discount analysis. We're pulling a lot of levers, and we are clearly ahead of our targets at this point.
Perfect. And then is there a way you could maybe rank order for us the relative strength in pipeline growth that you're seeing just based on the act or product families? Any color would be appreciated.
What we gave at Investor Day continues to hold true. The Worker products are still the fastest-growing acts we have across the complete product stack and feature stack of Act 3, followed by the SASE products in Act 2. Nothing has changed from Investor Day to this earnings call regarding the dynamics behind the business and how the pipeline builds.
Your next question comes from the line of Adam Borg with Stifel.
Maybe for Matthew, just on the channel opportunity. Partners reached 31% of revenue this quarter, continuing to track up to the right. And as I think about the growing mix of Act 2, which should drive more channel usage or necessity relative to Act 3 and Act 4, which may not require as many partner touch points, how do we think about partner involvement going forward? Have we tapped out this mix, or is there still room for the partner contribution to go higher in coming quarters?
Yes, Adam, I think there's definitely room for the partner mix to continue to go higher. There's been real improvement in how we've interacted with partners: training them, giving clear rate cards, and making sure they can be successful. Partners appreciate how we've helped them succeed alongside us. The partner ecosystem is changing; winners yesterday may not be winners tomorrow because AI and other tooling will change how people deliver services. We've focused partners on Act 2 products—SASE and Zero Trust—and seen great success, while also attaching other products. SASE and Zero Trust is a place where we see partners winning. We're also seeing partners take the developer platform and run with it. For Cloudflare OS, many large systems integrators want to take the open-source project, run it, and implement it for customers who don't want to deal with the open-source version. That's a great partner opportunity because it's not just installing software—it's integrating systems of record, ensuring sources of truth get incorporated, and putting everything in place. That can drive significant business and in many cases will drive more developer platform adoption. I think our partner share of revenue will continue to tick up over time. I don't think it'll reach 90% like some first-generation Zero Trust companies, but I wouldn't be surprised if it gets north of 50% or even over 60% in time.
Your next question comes from the line of Ryan MacWilliams with William Blair.
Formerly was with William Blair many years ago. But as agents become more complex and require more calls to LLMs over the course of what an agent is doing, does that make edge inferencing more important for AI agent use cases? And are you seeing more companies build with high AI performance, low latency requirements in mind?
Yes, Ryan, inference is one piece of a more complicated puzzle. Agents need ephemeral, low-cost places to create code, do inference, access the network, coalesce information, store some things and pack all of these pieces together. It's not simply the inference that matters; the key is how you orchestrate all those pieces. In the ideal case, your agent doesn't run in one place—it runs in many places, potentially around the world where it has to access different information. The network becomes the computer. We have interaction with the largest AI providers and they are customers. Agents need the network to be the computer and they need storage, compute, inference and orchestration across the global network. I've shied away from the term "edge" because it's often meaningless—are we edge, core, or everything? We are wherever you need storage, compute, inference, or network and we orchestrate across our global network. Agents also need a new generation of cloud: containers are too heavy. If every knowledge worker ran an agent in a container, we don't have enough CPU to power that. We need to increase accessible CPU many orders of magnitude. We've built lighter-weight sandboxing technology called isolates, which gives the scale to deploy and run code to keep up with agent demands. So yes, it's about the network plus the underlying platform that allows us to scale for what's coming, which will be an incredible increase in Internet usage.
I thought your Agent Development Lifecycle release this week was pretty cool, like giving agents everything to build other agents.
That's amazing.
What I would say is that the performance was really driven across the board. There's not really one thing to point out. This was an impressive quarter in many ways. What stood out most for me was that the strength came across all products, across all customer cohorts, across all types of contract interactions we have with our customers. So there's not really one single item—this was strength across the full spectrum and breadth of what we are doing.
We have time for one more question, and that question comes from the line of Patrick Colville with Scotiabank.
As I've got the last question, I might ask a two-parter. Matthew, it's clear the Cloudflare engine is humming with multiple cylinders firing. One of the decisions you've made is not to participate in the AI CapEx arms race. We're seeing hyperscalers and neoclouds sign massive GPU AI infrastructure contracts, including tonight, one of your competitors disclosing an aggregate nearly $3 billion AI infrastructure contract value. Matthew, what was your thinking in not joining this AI infrastructure arms race? And Thomas, can I ask you, is the rising cyber risk hitting the Cloudflare financial model in Q2? Or is this more of a back half 2026 thing?
Sure, Patrick. Not all revenue is created equal. If you're selling commodity compute—letting an AI company use your balance sheet and credit rating to buy servers that are the same as everybody else's servers—that's not an attractive business for us. We're disciplined. It's not that we don't get asked, but that's not particularly interesting. We have many interactions with the largest AI providers and they're customers of ours, so you can imagine ways where we could be a bigger player in providing services to serious AI players in meaningful ways. But ultimately we're not going to sell commodity hardware because that's a commodity business and not attractive long-term. We've always focused on squeezing as much out of every CapEx dollar as possible—getting more utilization out of each box, more inference, more CPU, more memory and storage efficiency. Our team figures out how to maximize utilization. At the hyperscalers, typical inference loads have very low GPU utilization—not the hyperscalers' fault, but customers often don't have the diversity of traffic or scheduling to maximize utilization. If we can get significantly higher utilization out of every CapEx dollar, we can grow revenue without just throwing money at the problem. We're in a different business than the hyperscalers: they're in the business of buying servers and reselling capacity; we're in the business of selling work getting done and doing the optimization and scheduling to get the most out of the underlying equipment. That's a fundamental difference and why we don't want to be in the business of renting servers as a commodity.
Thank you. Matthew Prince, I would like to turn the conference back over to you.
I appreciate everyone at Cloudflare for delivering what has been an exceptional quarter. We're helping define the future of agents. We're helping define the future of the Internet. We're helping make sure that the Internet has a successful and sustainable business model. Some of the proudest work I've done in my career, and I'm really proud of everyone and everything they've done to make that happen. Thank you so much for being part of the earnings call today, and we'll see you back here again next quarter.
Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.