0001477333-25-000141
SEC filingRevenue grew 31% YoY driven by 33% paying customer growth and 119% net retention; gross margin compressed to 74% on higher network costs.
Revenue for Q3 2025 was $562.0M, up 31% YoY from $430.1M, driven by a 33% increase in paying customers to 295,552 and a 119% dollar-based net retention rate, reflecting strong customer acquisition and expansion. Gross profit rose 24% to $415.7M, but gross margin declined to 74% from 78%, as cost of revenue grew 52% due to $16.7M in third-party technology services, $16.0M in co-location and bandwidth costs, and $12.4M in depreciation from server deployments. Operating loss widened to $37.5M from $30.8M, with operating margin flat at -7%, as operating expenses grew 24% overall. Net loss narrowed to $1.3M from $15.3M, aided by a 89% jump in interest income to $42.5M from higher investment balances.
Geographic revenue segments all grew strongly: U.S. revenue of $282.6M (+31%) maintained 50% share. EMEA revenue of $153.3M (+26%) accounted for 27%. Asia Pacific revenue of $84.7M grew fastest at +43%, reaching 15% share, driven by increased adoption in the region. Other regions revenue of $41.5M (+21%) represented 8%. No segment operating income was disclosed.
Cloudflare expects to continue investing in product development, network infrastructure (including GPU servers for AI), and enterprise sales. Management highlighted potential headwinds from U.S. tariffs on equipment purchases and from geopolitical tensions (Middle East, Ukraine) that could lengthen sales cycles and slow customer spending. No explicit numerical guidance was provided, but the company believes existing cash, equivalents, and available-for-sale securities ($4.0B combined) plus a $400M revolving credit facility are sufficient for at least 12 months. The company reiterated its long-term focus on growing paying customers, expanding existing relationships, and driving non-GAAP operating margin improvement.
As of September 30, 2025, Cloudflare held $1.05 billion in cash and cash equivalents and $2.99 billion in available-for-sale securities, for a combined liquid position of $4.04 billion. Total restricted cash was $6.8 million. Total assets were $5.79 billion, up from $3.30 billion at December 31, 2024, driven primarily by the large convertible debt issuance in June 2025. Shareholders' equity rose to $1.35 billion from $1.05 billion. The balance sheet is heavily weighted toward short-term investments and marketable securities.
Cloudflare's remaining performance obligations (RPO) totaled $2.14 billion as of September 30, 2025. The company expects to recognize 64% of this amount as revenue over the next 12 months. Deferred revenue was $644.9 million ($599.0 million current, $45.9 million noncurrent). The company did not disclose material changes to non-cancelable purchase commitments (bandwidth and co-location) outside the ordinary course. Operating lease liabilities totaled $238.8 million, with undiscounted future payments of $266.8 million. Additionally, $75.0 million in future payments under operating leases not yet commenced were disclosed.
Cloudflare did not repurchase any shares or pay dividends during the period. Capital expenditures (property and equipment) totaled $230.4 million for the nine months ended September 30, 2025, representing 14.8% of revenue. The company issued $2.0 billion aggregate principal amount of 0% Convertible Senior Notes due 2030 in June 2025. The net proceeds were approximately $1.97 billion after discounts and costs. Concurrently, the company purchased capped calls for $283.4 million. The 2026 Notes ($1.29 billion principal) are classified as current as of September 30, 2025, due within one year. Total convertible debt net carrying value is $3.26 billion ($2.0B 2030 Notes + $1.29B 2026 Notes less unamortized costs). No borrowings were outstanding under the $400 million revolving credit facility as of period end.
Cloudflare operates as a single operating segment. Revenue by geography: United States 49% ($769 million), Europe/Middle East/Africa 28% ($431 million), Asia Pacific 15% ($233 million), and Other 8% ($120 million) for the nine months ended September 30, 2025. Channel partner revenue comprised 25% of total revenue ($393 million), with direct customers contributing 75% ($1.16 billion) for the same period.
For the nine months ended September 30, 2025, Cloudflare generated $412.7M in operating cash flow, a 63% increase from $253.1M in the same period of 2024. The improvement was driven by a $83.9M increase in stock-based compensation expense (to $327.8M), a $98.1M increase in deferred revenue (to $145.0M), and higher depreciation and amortization. Net loss widened to ($90.2M) from ($65.9M), but non-cash charges more than offset the loss, resulting in strong cash generation.
Capital expenditures (purchases of property and equipment plus capitalized internal-use software) totaled $251.6M, up 88% from $134.0M a year ago, reflecting significant investment in infrastructure. Free cash flow (operating cash flow minus capex) was $161.1M, compared to $119.1M in the prior period.
Investing activities also included $2.6B in purchases of available-for-sale securities, partially offset by $1.3B in maturities. Financing activities were dominated by the $2.0B issuance of 2030 convertible senior notes, net of $283.4M in capped call purchases and $29.0M in issuance costs. No share repurchases or dividends were reported.
Working capital changes were a net source of cash, with deferred revenue increasing $145.0M and accrued expenses rising $17.6M, partially offset by a $47.9M increase in accounts receivable and a $62.3M increase in prepaid expenses. Operating lease liabilities consumed $41.9M of cash. Overall, cash flow quality is solid, with operating cash flow comfortably covering capex and no reliance on one-time items.