Cloudflare (NET) Q2 2026 Earnings Report

The call conveyed strong business momentum: double‑digit top-line growth (+36% YoY), expanding large-customer base, 120% dollar-based net retention, outsized developer and paying-customer acquisition, record bookings/pipeline acceleration, meaningful free cash flow and substantial enterprise wins. Management also laid out a confident outlook with robust guidance. Key negatives include a meaningful year-over-year gross margin decline (320 bps), sizable restructuring and severance charges (Q2: $151M; FY up to $165M), increased network CapEx expectations and added forecasting variability from new consumption and pool-of-funds contract structures. Overall, the positives — product adoption, customer expansion, cash generation and positioning for agentic AI — materially outweigh the near-term margin and one-time cost challenges.

Cloudflare guided Q3 2026 revenue of $736–737 million (up ~31% YoY), operating income of $129–130 million, an effective tax rate of 20%, and diluted EPS of $0.34 (assuming ~374 million shares outstanding); for full‑year 2026 it expects revenue of $2.864–2.870 billion (up ~32% YoY), operating income of $443–445 million, a 20% tax rate, and diluted EPS of $1.25–1.26 (≈374M shares). Management also reiterated full‑year network CapEx of ~14–15% of revenue (Q2 was 7%), forecast severance and other restructuring charges up to $165 million (up to $130M cash), and said that excluding the higher restructuring impact its free cash flow expectations for 2026 remain unchanged.