Cloudflare shares tumble on weak guidance, AI-driven restructuring

Cloudflare (NYSE:NET) reported first-quarter 2026 results connected May 7, beating expert expectations for some gross and earnings, but shares fell sharply aft the institution issued softer near-term guidance and announced a important restructuring tied to an AI-focused operating exemplary shift.

Shares of Cloudflare were down much than 21% astatine astir $202 connected Friday morning.

The institution guided for Q2 2026 gross of $664 cardinal to $665 million, broadly successful enactment to somewhat beneath the $665 cardinal to $666 cardinal expert statement range.

Cloudflare besides outlined expected non-GAAP income from operations of $90 cardinal to $91 cardinal and non-GAAP net per stock of $0.27.

For Q1, Cloudflare posted adjusted net per stock of $0.25, supra the $0.23 statement estimate. Revenue came successful astatine $639.8 million, besides up of expectations of $620.9 million, marking 34% year-over-year growth. The institution cited continued request tied to artificial quality workloads and broader endeavor adoption of its information and connectivity platform.

On a GAAP basis, Cloudflare reported a nett nonaccomplishment of $22.9 million, oregon $0.07 per share, compared with a $38.5 cardinal nonaccomplishment a twelvemonth earlier.

Non-GAAP nett income roseate to $94.0 million, oregon $0.25 per diluted share, up from $58.4 million, oregon $0.16 per share, successful the aforesaid play past year.

Gross nett totaled $455.6 cardinal nether GAAP, with a 71.2% margin, portion non-GAAP gross nett was $465.7 million, oregon 72.8%. Operating losses narrowed connected a GAAP ground to $62.0 million, portion non-GAAP operating income accrued to $73.1 million.

Cash travel besides improved twelvemonth implicit year. Net currency provided by operating activities reached $158.3 million, and escaped currency travel was $84.1 million, representing 13% of revenue.

The institution ended the 4th with $4.16 cardinal successful cash, currency equivalents, and available-for-sale securities.

Cloudflare besides announced what it described arsenic an “Operating Model Evolution,” aimed astatine accelerating its modulation toward an agentic AI-first operating model. A missive from the company’s founders was published alongside the announcement connected Cloudflare’s blog.

As portion of the plan, Cloudflare said it expects to trim its workforce by astir 1,100 employees. The institution estimates full charges of $140 cardinal to $150 cardinal related to the restructuring. This includes $105 cardinal to $110 cardinal successful currency expenditures for announcement periods, severance, worker benefits, and related costs, arsenic good arsenic $35 cardinal to $40 cardinal successful non-cash expenses tied to the vesting of share-based awards.

Cloudflare expects astir restructuring charges to beryllium incurred successful the 2nd 4th of fiscal 2026, with the program substantially completed by the extremity of the 3rd quarter. The institution noted that estimates are taxable to assumptions and could alteration materially.

“We had a precise beardown commencement to 2026,” Cloudflare CEO Matthew Prince said. “With AI and agents present halfway parts of our workforce, the mode we enactment astatine Cloudflare has fundamentally changed. As a result, we’re being intentional successful however we designer our institution to supercharge the worth we present to our customers.”