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Cloudflare (NYSE:NET) reported first-quarter 2026 results on May 7, beating analyst expectations for both revenue and earnings, but shares fell sharply after the company issued softer near-term guidance and announced a significant restructuring tied to an AI-focused operating model shift.
Shares of Cloudflare were down more than 21% at about $202 on Friday morning.
The company guided for Q2 2026 revenue of $664 million to $665 million, broadly in line to slightly below the $665 million to $666 million analyst consensus range.
Cloudflare also outlined expected non-GAAP income from operations of $90 million to $91 million and non-GAAP earnings per share of $0.27.
For Q1, Cloudflare posted adjusted earnings per share of $0.25, above the $0.23 consensus estimate. Revenue came in at $639.8 million, also ahead of expectations of $620.9 million, marking 34% year-over-year growth. The company cited continued demand tied to artificial intelligence workloads and broader enterprise adoption of its security and connectivity platform.
On a GAAP basis, Cloudflare reported a net loss of $22.9 million, or $0.07 per share, compared with a $38.5 million loss a year earlier.
Non-GAAP net income rose to $94.0 million, or $0.25 per diluted share, up from $58.4 million, or $0.16 per share, in the same period last year.
Gross profit totaled $455.6 million under GAAP, with a 71.2% margin, while non-GAAP gross profit was $465.7 million, or 72.8%. Operating losses narrowed on a GAAP basis to $62.0 million, while non-GAAP operating income increased to $73.1 million.
Cash flow also improved year over year. Net cash provided by operating activities reached $158.3 million, and free cash flow was $84.1 million, representing 13% of revenue.
The company ended the quarter with $4.16 billion in cash, cash equivalents, and available-for-sale securities.
Cloudflare also announced what it described as an “Operating Model Evolution,” aimed at accelerating its transition toward an agentic AI-first operating model. A letter from the company’s founders was published alongside the announcement on Cloudflare’s blog.
As part of the plan, Cloudflare said it expects to reduce its workforce by approximately 1,100 employees. The company estimates total charges of $140 million to $150 million related to the restructuring.
This includes $105 million to $110 million in cash expenditures for notice periods, severance, employee benefits, and related costs, as well as $35 million to $40 million in non-cash expenses tied to the vesting of share-based awards.
Cloudflare expects most restructuring charges to be incurred in the second quarter of fiscal 2026, with the plan substantially completed by the end of the third quarter. The company noted that estimates are subject to assumptions and could change materially.
“We had a very strong start to 2026,” Cloudflare CEO Matthew Prince said. “With AI and agents now core parts of our workforce, the way we work at Cloudflare has fundamentally changed. As a result, we’re being intentional in how we architect our company to supercharge the value we deliver to our customers.”