Following impressive quarterly results, Cloudflare increased its full-year revenue projection above Wall Street expectations, wagering that the quick development of AI agents will continue to drive traffic throughout its network, which caused its shares to climb 18% after the bell.
More companies depending on Cloudflare
Demand for Cloudflare's cloud and security products has increased as more companies depend on its network to reliably route traffic and execute those technologies due to the rush to develop and expand AI agents.
Machines driving traffic
For the first time, machines rather than people accounted for more than half of the traffic that passed throughout Cloudflare's (NYSE: NET) network last quarter.
Following Thursday's second-quarter results, the internet infrastructure company's shares surged to a record high on Friday morning, reaching over $325 before partially reversing the day's gains.
During the results call, CEO Matthew Prince stated, "In Q2, more than 50% of the traffic flowing across Cloudflare's network was not human for the first time in human history." Months before his own prediction, which had indicated the first part of 2027, the crossover occurred.
About the growth
In light of this, Cloudflare increased its full-year revenue forecast to a range of $2.864 billion to $2.870 billion, or roughly 32% growth, and revenue increased 36% year over year to $696.1 million. Free cash flow increased 69% year over year to $56.4 million, while adjusted earnings per share came in at $0.29. Management directed revenue to increase by roughly 31% to $736 million to $737 million for the third quarter.
Additionally, there was a significant increase in customers. At the end of June, Cloudflare had 4,698 major customers, those that spend more than $100,000 annually, a 27% increase over the previous year. Additionally, current customers are spending more; dollar-based net retention, which measures how much the same customers spend after churn compared to a year ago, reached 120%, up 6 percentage points from a year ago and 2 percentage points from the first quarter.
Who pays Cloudflare?
Cloudflare is not yet paid by the machine traffic itself. Businesses who use the company's network for speed and cybersecurity pay subscriptions.
Therefore, handling a rapidly increasing amount of artificial intelligence (AI) crawler traffic primarily increases costs without increasing revenue. By that metric, Cloudflare becomes busier rather than larger in a majority-machine network.
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